-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BjcH0ewvy49iYScdkPUK7OEqfVfK9uRlpnkJjo8eUoktlcpkYnm2tCCvlq34XNVY PYKuqV+vh/RaxNak0290aQ== 0000950117-97-001975.txt : 19971124 0000950117-97-001975.hdr.sgml : 19971124 ACCESSION NUMBER: 0000950117-97-001975 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19971121 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CD RADIO INC CENTRAL INDEX KEY: 0000908937 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 521700207 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-34769 FILM NUMBER: 97725574 BUSINESS ADDRESS: STREET 1: 1001 22ND ST NW 6TH FLR CITY: WASHINGTON STATE: DC ZIP: 20037 BUSINESS PHONE: 2022966192 MAIL ADDRESS: STREET 1: 1001 22ND STREET NW 6TH FLOOR CITY: WAHINGTON STATE: DC ZIP: 20037 S-3/A 1 CD RADIO INC. S-3/A #3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1997 REGISTRATION NO. 333-34769 ________________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 3 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ CD RADIO INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 52-1700207 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION)
SIXTH FLOOR, 1001 22ND STREET, N.W. WASHINGTON, D.C. 20037 202-296-6192 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ DAVID MARGOLESE CHAIRMAN AND CHIEF EXECUTIVE OFFICER CD RADIO INC. SIXTH FLOOR, 1001 22ND STREET, N.W. WASHINGTON, D.C. 20037 202-296-6192 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: LEONARD V. QUIGLEY DAVID J. BEVERIDGE MITCHELL S. FISHMAN SHEARMAN & STERLING PAUL, WEISS, RIFKIND, WHARTON & GARRISON 599 LEXINGTON AVENUE 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10019-6064 212-848-4000 212-373-3000
------------------------ APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] 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, other than securities offered only in connection with dividend or interest reinvestment plans, please 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 the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED TITLE OF EACH CLASS OF MAXIMUM MAXIMUM SECURITIES OFFERING PRICE AGGREGATE AMOUNT OF TO BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE Units consisting of Senior Discount Notes and Warrants.................... N/A $ 150,000,000 $ 45,455(2) Senior Discount Notes......... N/A N/A (3) Warrants to purchase Senior Discount Notes.............. N/A N/A (3) Senior Discount Notes(4)...... N/A N/A (3)
(1) Estimated solely for purpose of calculating the registration fee pursuant to Rule 475(o) under the Securities Act of 1993. (2) This amount was paid in connection with the initial filing of the Registration Statement on September 2, 1997. (3) As such securities are to be provided without additional cost to the purchasers, no registration fee is required with respect thereto. (4) Senior Discount Notes to be issued upon exercise of the Warrants. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ________________________________________________________________________________ PROSPECTUS $258,200,000 [LOGO] 12,910 UNITS CONSISTING OF 15% SENIOR SECURED DISCOUNT NOTES DUE 2007 AND WARRANTS TO ACQUIRE 15% SENIOR SECURED DISCOUNT NOTES DUE 2007 ------------------------ CD Radio Inc. (the 'Company') is offering (the 'Units Offering') 12,910 units (collectively, the 'Units'), each consisting of $20,000 principal amount at maturity of 15% Senior Secured Discount Notes due 2007 (the 'Notes') of the Company and one warrant (each, a 'Warrant'), each Warrant entitling the holder thereof to acquire $3,000 principal amount at maturity of Notes. The Notes and the Warrants will not be separately transferable until the earliest of: (i) the occurrence of an Exercise Event (as defined herein), (ii) the occurrence of an Event of Default (as defined herein), (iii) such earlier date as determined by Merrill Lynch, Pierce, Fenner & Smith Incorporated ('Merrill Lynch') in its sole discretion. The Notes are being issued with original issue discount. (Cover continued on next page) SEE 'RISK FACTORS' BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE UNITS OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRINCIPAL AMOUNT OF NOTES AT PRICE TO UNDERWRITING PROCEEDS TO MATURITY PUBLIC(1) DISCOUNT(2) COMPANY(1)(3) Per Unit........................................... 100% 48.422% 1.695% 46.727% Total(3)........................................... $258,200,000 $125,025,604 $4,375,896 $120,649,708
(1) Plus accrued original issue discount, if any, on the Notes from the date of issuance. (2) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See 'Underwriting.' (3) Before deducting expenses payable by the Company estimated to be $350,000. ------------------------ The Units are being offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Units will be made in New York, New York on or about November 26, 1997. ------------------------ MERRILL LYNCH & CO. LEHMAN BROTHERS LIBRA INVESTMENTS, INC. ------------------------ The date of this Prospectus is November 21, 1997. Inside front cover Photograph of freeway traffic and CD Radio logo Caption: CD Radio 50 Channels of Programming National Satellite Coverage Commercial-Free Music CD Quality Sound Photographs of two satellites, the miniature satellite dish antenna and the radio card. Caption: National satellite coverage Local contracted to build Arianespace launch service provider Silver-dollar sized satellite dish Adhesive rear window mount Wireless transmission to radio card Plug and play radio card Inserts into existing cassette slot Activation 888-CD-RADIO Programming Formats Symphonic Classic Rock Soft Rock Chamber Music 50's Oldies Singers & Songs Opera 60's Oldies Beautiful Instrumentals Today's Country Folk Rock Album Rock Traditional Country Latin Ballads Alternative Rock Contemporary Jazz Latin Rhythms New Age Classic Jazz Reggae Broadway's Best Blues Rap Gospel Big Band/Swing Dance Children's Entertainment Top of the Charts Urban Contemporary World Beat (Cover continued from previous page) The initial issue amount of each Note will be $484.22 per $1,000 principal amount at maturity, representing a yield to maturity of 15% (computed on a semi-annual bond equivalent basis) calculated from November 26, 1997. Based on the issue price of the Units and assuming the Warrants are exercised, the yield to maturity on the Notes, determined by semiannual compounding of interest, is 16.74%. See 'Description of the Units' and 'Certain Federal Income Tax Considerations'. Cash interest will not accrue on the Notes prior to December 1, 2002, from which time cash interest will accrue on the Notes at a rate of 15% per annum. Interest on the Notes is payable semi-annually on each June 1 and December 1, commencing June 1, 2003. The Notes will mature on December 1, 2007. The Notes will be redeemable, at the option of the Company, in whole or in part, at any time on or after December 1, 2002 at the redemption prices set forth herein, together with accrued interest, if any, to the date of redemption. Upon the occurrence of a Change of Control (as defined herein), each holder of Notes may require the Company to purchase all or a portion of such holder's Notes at a purchase price in cash equal to 101% of the Accreted Value thereof, together with accrued interest, if any, to the date of purchase. The Notes will be senior secured obligations of the Company, secured by a pledge of the stock of Satellite CD Radio Inc., a wholly-owned subsidiary of the Company (the 'Pledged Stock'), and will rank pari passu in right of payment with all existing and future unsubordinated obligations of the Company, and senior in right of payment to all existing and future obligations of the Company expressly subordinated in right of payment to the Notes. Satellite CD Radio, Inc. conducts no business activities and its only asset is an FCC License (as defined herein). As of September 30, 1997, on a pro forma basis after giving effect to the Units Offering and the application of the net proceeds therefrom, indebtedness of the Company would have been approximately $125 million (plus approximately $19 million of indebtedness to be issued on exercise of the Warrants), all of which would have been secured indebtedness. In the future the Company and its subsidiaries may incur additional indebtedness, including indebtedness secured on a pari passu basis with the holders of Notes with respect to the Pledged Stock. The Units Offering is one component of a financing transaction which includes an offer to exchange (the 'Exchange Offer') shares of the Company's 10 1/2% Series C Convertible Preferred Stock (the 'Series C Preferred Stock') for shares of the Company's outstanding 5% Delayed Convertible Preferred Stock (the '5% Preferred Stock') and underwritten public offerings of the Company's Common Stock (the 'Stock Offerings' and together with the Units Offering, the 'Offerings'). Separate registration statements have been filed for each of the Exchange Offer and the Stock Offerings, and such offers have been made by separate prospectuses. On November 20, 1997, the Exchange Offer was consummated and shares of Series C Preferred Stock were exchanged for all of the outstanding 5% Preferred Stock. The consummation of the Units Offering is not conditioned upon the consummation of the Stock Offerings but is conditioned upon the consummation of the Exchange Offer. CERTAIN PERSONS PARTICIPATING IN THE UNITS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE UNITS. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE UNITS OFFERING, MAY BID FOR AND PURCHASE UNITS IN THE OPEN MARKET AND MAY IMPOSE PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES SEE 'UNDERWRITING.' ii ILLUSTRATIVE CHANNEL LISTINGS The following channel list (which employs terminology common to the music industry) has been prepared by the Company to illustrate the manner in which the Company's music programming might be marketed. The Company intends to vary channel formats from time to time to reflect the results of its market research and subscriber tastes. 1. Symphonic Presenting the full range of the classical repertoire, with complete works from great composers -- Beethoven, Mozart, Handel, Copland -- performed by world-class artists and orchestras, including the New York Philharmonic Orchestra, Itzhak Perlman, Wynton Marsalis and Yo-Yo Ma. 2. Chamber Music The lighter side of classical music, featuring chamber music from small ensembles, as well as solo performances. Composers like Vivaldi, Telemann and Liszt performed by Ruth Laredo, the Juilliard String Quartet, Julian Bream and Jean-Pierre Rampal. 3. Opera Full-length operatic masterpieces from Verdi, Wagner and Puccini, along with arias and songs, showcasing the world's great vocal artists, including Luciano Pavarotti, Dawn Upshaw, the Hilliard Ensemble, Placido Domingo and Cecilia Bartoli. 4. Today's Country The honest 90's sound of today's stars, including Tim McGraw, Leann Rimes, Vince Gill, Alan Jackson, Garth Brooks, Pam Tillis and Bryan White. 5. Traditional Country Classic country hits from legends like Merle Haggard, Conway Twitty, Waylon Jennings, Loretta Lynn and George Jones. 6. Contemporary Jazz The smooth instrumental sounds of David Sanborn, Kenny G, Larry Carlton, Dave Koz and Bob James, mixed with the vocal stylings of Manhattan Transfer, Al Jarreau and Michael Franks. 7. Classic Jazz Mainstream jazz at its finest. Features the artistry of legends like Miles Davis, Oscar Peterson, Thelonious Monk, Sarah Vaughan and Dave Brubeck and performers following in the tradition like Dianne Schuur and Branford Marsalis. 8. Blues The Blues from A to Z -- from legends like Muddy Waters and Howlin' Wolf to John Lee Hooker, Etta James, B.B. King, Robert Cray, Buddy Guy and exciting new artists like Keb' Mo', Duke Robillard and Jonny Lang. 9. Big Band/Swing From the great bands of the 30s and 40s to bands today. Featuring the sounds of Artie Shaw, Tommy Dorsey, Glenn Miller, Benny Goodman, Harry James, Duke Ellington and Count Basie. 10. Top of the Charts Today's hottest US hits. No Doubt, Mariah Carey, Spice Girls. 11. Classic Rock Classic tracks and deep album cuts from the legends of rock, including the Who, the Beatles, the Rolling Stones, Led Zeppelin, The Doors, Eric Clapton, Neil Young, Jimi Hendrix and Jethro Tull. 12. 50's Oldies Sock hops and going steady. Tune in and experience it all over again with Chuck Berry, Little Richard and Elvis Presley. 13. 60's Oldies Put the top down and cruise to the sounds of the sixties. The solid gold sounds of Motown, the British Invasion and Surfer Rock. 14. Folk Rock Singer-songwriters and bands with thoughtful lyrics and melodies, including Joni Mitchell, Lyle Lovett, James Taylor, Shawn Colvin, Chris Isaak, Tori Amos and Indigo Girls. 15. Latin Ballads Emotive romantic sounds from Julio Iglesias, Rocio Durcal, Roberto Carlos, Ana Gabriel, Gloria Estefan and Jon Secada.
16. Latin Rhythms Move to the music of Ruben Blades, Albita, Juan Luis Guerra and the legendary Tito Puente. 17. Reggae Reggae from legends like Bob Marley & the Wailers, Peter Tosh and Third World to new sounds from Steel Pulse, UB40, Shaggy, Ziggy Marley, Maxi Priest, Aswad and Lady Saw. 18. Rap Pure rap from the masters of the genre, including Puff Daddy, Fugees, DJ Kool, Freak Nasty, Warren G and M.C. Lyte. 19. Dance Techno, club and pop remixes from around the world make this one of the hottest spots on the dial. 20. Urban Contemporary The soulful sounds of Toni Braxton, Luther Vandross, Keith Sweat and Mary J. Blige. 21. Soft Rock Mainstream pop hits from artists like Celine Dion, Phil Collins, Gloria Estefan and George Michael. 22. Singers & Songs The greats sing the standards, with legends like Frank Sinatra, Nat King Cole, Tony Bennett and Barbra Streisand. 23. Beautiful Instrumentals Melodic relaxing orchestrations from Richard Clayderman, Paul Mauriat, Zamfir, James Last, Roger Williams and James Galway. 24. Album Rock Mainstream rock from veteran bands and new artists, including Aerosmith, Collective Soul, Dave Matthews Band and John Mellencamp. 25. Alternative Rock Modern rock from such diverse bands as Beck, Live, Stone Temple Pilots and Smashing Pumpkins. 26. New Age Sounds that soothe and transport. Relax with Jim Brickman, Kitaro and Yanni. 27. Broadway's Best The Great White Way shines with all your favorites from the past and today's hot new shows. Rodgers and Hammerstein, Marvin Hamlisch and Andrew Lloyd Webber. 28. Gospel Soulful gospel sounds of joy. Mahalia Jackson, Al Green and the Winans. 29. Children's Entertainment Entertaining songs and storytelling for younger listeners. Fred Penner, Raffi and Tom Chapin. 30. World Beat Spanning continents, select sounds from all over the world: Gipsy Kings, Cheb Khaled, The Chieftains, Zap Mama, Ladysmith Black Mambazo and Youssou N'Dour.
The artists named herein do not endorse the Company or the securities being offered hereby. 2 The CD Radio Delivery System [Photographs] 3 [THIS PAGE INTENTIONALLY LEFT BLANK] 4 ADDITIONAL INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the 'Commission'). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511 and 13th Floor, 7 World Trade Center, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and other information concerning the Company also can be inspected and copied at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006, which supervises the Nasdaq National Market on which the Company's Common Stock is traded. The Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the Commission's web site is http://www.sec.gov. The Company has filed with the Commission a Registration Statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the 'Registration Statement') under the Securities Act of 1933, as amended (the 'Securities Act'), with respect of the securities covered by this Prospectus. This Prospectus, which forms part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and such securities, reference is hereby made to such Registration Statement, including the exhibits filed therewith. The Registration Statement and the exhibits thereto can be obtained by mail from or inspected and copied at the public reference facilities maintained by the Commission as provided in the prior paragraph. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by the Company with the Commission, are incorporated herein by reference: 1. The Company's Annual Report on Form 10-K, as amended by the Annual Report on Form 10-K/A, for the year ended December 31, 1996. 2. The Company's Quarterly Report on Form 10-Q, as amended by the Quarterly Report on Form 10-Q/A, for the period ended March 31, 1997. 3. The Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997. 4. The Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997. 5. The Company's Current Report on Form 8-K dated April 10, 1997. 6. The Company's Current Report on Form 8-K dated May 2, 1997. 7. The Company's Current Report on Form 8-K dated June 17, 1997. 8. The Company's Current Report on Form 8-K dated July 8, 1997. 9. The Company's Current Report on Form 8-K dated August 19, 1997. 10. The Company's Current Report on Form 8-K dated October 7, 1997. 11. The Company's Current Report on Form 8-K dated October 27, 1997. 12. The Company's Current Report on Form 8-K dated November 19, 1997. 13. The description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A, as amended, filed pursuant to Section 12(b) of the Exchange Act. 14. Issuer Tender Offer Statement on Form 13E-4. 15. Consent Solicitation Statement on Schedule 14A, dated October 23, 1997. 5 All documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering of the Securities offered hereby shall be deemed to be incorporated by reference in and to be a part of this Prospectus from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in the Registration Statement containing this Prospectus or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, upon the request of such person, a copy of any or all of the documents incorporated herein by reference (other than exhibits, unless such exhibits are specifically incorporated by reference in such documents). Requests for such copies should be directed to: Secretary, CD Radio Inc., Sixth Floor, 1001 22nd Street, N.W., Washington D.C. 20037. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the 'Reform Act'), the Company is hereby providing cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made in this Prospectus. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as 'will likely result,' 'are expected to,' 'will continue,' 'is anticipated,' 'estimated,' 'intends,' 'plans,' 'projection' and 'outlook') are not historical facts and may be forward-looking and, accordingly, such statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed in the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the factors discussed throughout this Prospectus, and particularly in the risk factors set forth herein under 'Risk Factors.' Among the key factors that have a direct bearing on the Company's results of operations are the potential risk of delay in implementing the Company's business plan; increased costs of construction and launch of necessary satellites; dependence on satellite construction and launch contractors; risk of launch failure; unproven market and unproven applications of existing technology; and the Company's need for additional substantial financing. These and other factors are discussed herein under 'Risk Factors,' 'Management's Discussion and Analysis of Financial Condition and Results of Operations,' 'Business' and elsewhere in this Prospectus. The risk factors described herein could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements of the Company made by or on behalf of the Company and investors, therefore, should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors. Further, management cannot assess the impact of each such factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial data appearing elsewhere in this Prospectus. Prospective investors should carefully consider the factors set forth herein under the caption 'Risk Factors' and are urged to read this Prospectus in its entirety. Unless otherwise indicated, the information in this Prospectus does not give effect to the exercise of the Underwriters' over-allotment option described in the prospectus relating to the Stock Offerings; and references herein to the 'Company' refer to CD Radio Inc. and, where appropriate, its subsidiary, Satellite CD Radio, Inc. THE COMPANY CD Radio Inc. was founded in 1990 to pioneer and commercialize a compact disc quality, multi-channel radio service broadcast directly from satellites to vehicles ('satellite radio'). In October 1997, the Company was granted one of two licenses ('FCC Licenses') from the Federal Communication Commission (the 'FCC') to build, launch and operate a national satellite radio broadcast system. The Company has begun construction of two satellites that it plans to launch into geosynchronous orbit to broadcast its radio service throughout the United States. The Company's service, which will be marketed under the brand name 'CD Radio,' is expected to consist of 30 channels of commercial-free, compact disc quality music programming and 20 channels of news, sports and talk programming. CD Radio will be broadcast over a frequency band (the 'S-band') that will augment traditional AM and FM radio bands. Under its FCC license, the Company has the exclusive use of a 12.5 megahertz portion of the S-band for this purpose. The Company currently expects to commence CD Radio broadcasts in late 1999 at a subscription price of $10 per month. The Company is positioning itself as an entertainment company and accordingly plans to design and originate programming on each of its 30 music channels. Each channel will be operated as a separate radio station with a distinct format. Certain music channels will offer continuous music while others will have program hosts, depending on the type of music programming. CD Radio will offer a wide range of music categories, such as: Symphonic Chamber Music Opera Today's Country Traditional Country Contemporary Jazz Classic Jazz Blues Big Band/Swing Top of the Charts Classic Rock 50's Oldies 60's Oldies Folk Rock Latin Ballads Latin Rhythms Reggae Rap Dance Urban Contemporary Soft Rock Singers & Songs Beautiful Instrumentals Album Rock Alternative Rock New Age Broadway's Best Gospel Children's Entertainment World Beat THE CD RADIO OPPORTUNITY The Company believes that there is a significant market for music and other radio programming delivered through advanced radio technology. While television technology has advanced steadily -- from black and white to color, from broadcast to cable, and from ordinary to high-definition television -- the last major advance in radio technology was the introduction of FM broadcasts. CD Radio will provide a new generation of radio service, offering a wide variety of music formats available on demand, nearly seamless signal coverage throughout the United States and commercial-free, compact disc quality music programming. The Company's planned multiplicity of formats currently is not available to motorists in any market within the United States. CD Radio is primarily a service for motorists. The Yankee Group, a market research organization, estimates that there will be approximately 198 million registered private motor vehicles in the United States by the end of 1999, when the Company expects to commence broadcasting. At present, 7 approximately 89% of all private vehicles have a radio that could easily be utilized to receive CD Radio's broadcasts, with this number estimated to be approximately 182 million vehicles in 1999, and approximately 199 million in 2004. CD Radio initially will target a number of demographic groups among the drivers of these vehicles, including 110 million commuters, 34 million of whom spend between one and two hours commuting daily, three million truck drivers and three million owners of recreational vehicles. According to a 1996 market study, although almost all vehicles contain either a cassette or compact disc player, 87% of automobile commuters listened to the radio an average of 50 minutes a day while commuting. The Company believes that the ability to offer a wide variety of musical formats simultaneously throughout the United States will enable it to tap significant unmet consumer demand for specialized music programming. The economics of the existing advertiser supported local radio industry dictate that radio stations generally program for the greatest potential audience. Even in the largest metropolitan areas, station formats are limited. Nearly half of all commercial radio stations in the United States offer one of only three formats: country, adult contemporary and news/talk, and the next three most prevalent formats account for another 30% of all stations. Although niche music categories such as classical, jazz, rap, gospel, oldies, soundtracks, new age, children's and others accounted for approximately 27% of sales of recorded music in 1996, such formats generally are unavailable on existing radio stations in many markets. Even in New York City, the nation's largest radio market, there are no radio stations devoted solely to such programming as opera, blues, chamber music, soundtracks, reggae, children's programming and many others. CD Radio's wide choice of formats is expected to appeal to a large number of currently underserved listeners. In addition, due to the limited coverage area of conventional radio broadcasting, listeners often travel beyond the range of any single station. Unlike conventional FM stations, which have an average range of only approximately 30 miles before reception fades, CD Radio's signal is designed to cover the entire continental United States, enabling listeners almost always to remain within its broadcast range. The Company's satellite delivery system is designed to permit CD Radio to be received by motorists in all outdoor locations where a vehicle has an unobstructed line-of-sight with one of the Company's satellites or is within range of one of the Company's terrestrial repeating transmitters. The ability to broadcast nationwide will also allow the Company to serve currently underserved radio markets. In the United States, there are more than 45 million people aged 12 and over living in areas with such limited radio station coverage that the areas are not monitored by The Arbitron Company, a broadcast industry ratings organization ('Arbitron'). Of these, the Company believes that approximately 22 million people receive five or fewer FM stations, 1.6 million receive only one FM station and at least one million people receive no FM stations. This segment of the population also has a limited choice of radio music formats and is one of CD Radio's primary target markets. The Company also believes that CD Radio will have a competitive advantage over conventional radio stations because its music channels will be commercial-free. In contrast, conventional radio stations interrupt their broadcasts with up to 18 minutes of commercials in every hour of music programming, and most stations also frequently interrupt programming with news, promotional announcements, public service announcements and miscellaneous information. The Company believes that consumers dislike frequent radio commercial interruptions and that 'station surfing' to avoid them is common. THE CD RADIO SERVICE CD Radio will offer motorists: (i) a wide range of finely focused music formats; (ii) nearly seamless signal coverage throughout the continental United States; (iii) commercial-free music programming; and (iv) plug and play convenience. Wide Choice of Programming. Each of CD Radio's 30 music channels will have a distinctive format, such as opera, reggae, classic jazz and children's entertainment, intended to cater to specific subscriber tastes. In most markets, radio broadcasters target their programming to broad audience segments. Even 8 in the largest metropolitan markets the variety of station formats generally is limited, and many of the Company's planned formats are unavailable. 'Seamless' Signal Coverage. CD Radio will be available throughout the continental United States, enabling listeners almost always to be within its broadcast range. The Company expects its nearly seamless signal will appeal to motorists who frequently travel long distances, including truck drivers and recreational vehicle owners, as well as commuters and others who outdrive the range of their FM signals. In addition, the Company expects its broadcasts will appeal to the 45 million consumers who live in areas that currently receive only a small number of FM stations. Commercial-Free Music Programming. The Company will provide commercial-free music programming. The Company's market research indicates that a principal complaint of radio listeners concerning conventional broadcast radio is the frequency of commercials. Because CD Radio, unlike most commercial AM and FM stations, will be a subscription and not an advertiser supported service, its music channels will not contain commercials. Plug and Play Convenience. Consumers will be able to receive CD Radio broadcasts by acquiring an adapter (a 'radio card') and an easily attachable, silver dollar-sized satellite dish antenna. Listeners will not be required to replace their existing car radios and will be able to use the radio card by plugging it into their radio's cassette or compact disc slot. CD Radio listeners using a radio card will be able to push a button to switch between AM, FM and CD Radio. Radio cards will have a visual display that will indicate the channel and format selected, as well as the title, recording artist and album title of the song being played. Radio cards will also be portable and will be able to be moved from car to car. Radio card activation will be accomplished directly via satellite by calling the Company's customer service center at 888-CD-RADIO. THE CD RADIO DELIVERY SYSTEM The CD Radio delivery system will consist of three principal components: (i) the satellites; (ii) the receivers; and (iii) the national broadcast studio. The Satellites. The Company has designed the CD Radio delivery system to transmit an identical signal from two satellites placed in geosynchronous orbit at 80(X) W and 110(X) W longitude. The Company believes that these two satellites will provide nearly continuous, 'seamless' signal coverage throughout the continental United States. When the line-of-sight to one satellite is obstructed, the line-of-sight to the other generally will be available. In certain urban areas with significant line-of-sight obstructions, the Company intends to install terrestrial repeating transmitters that will rebroadcast its signals and improve the quality of reception. There currently are no commercial satellites in orbit capable of transmitting radio signals on S-band frequencies to the United States. In order to provide CD Radio the Company must build and launch its own satellites. The Company has entered into a contract with Space Systems/Loral, Inc. ('Loral'), a subsidiary of Loral Space & Communications Ltd. ('Loral Space'), to build three satellites, one of which the Company intends to hold as a spare, and which grants an option to the Company to purchase an additional satellite (the 'Loral Satellite Contract'). The Company also has contracted for two launch slots (the 'Arianespace Launch Contract') with Arianespace S.A. ('Arianespace'), a leading supplier of satellite launch services. The Receivers. Subscribers to CD Radio will not need to replace their existing AM/FM car radios. Instead they will be able to receive CD Radio in their vehicles using a radio card similar in size to a cassette tape or compact disc that has been designed to plug easily into the cassette or compact disc slot of existing car radios. The radio card uses proprietary technology developed by the Company. In addition to radio cards, the Company expects that consumers will be able to receive CD Radio using a new generation of radios capable of receiving S-band as well as AM and FM signals ('S-band radios'). In addition to a radio card or S-band radio, a vehicle must be equipped with an antenna in order to receive CD Radio. The Company has designed a battery powered, miniature silver dollar-sized satellite dish antenna, the base of which has an adhesive backing so that consumers will be able to easily attach 9 the satellite dish antenna to a car's rear window. The base houses a wireless transmitter that will relay the CD Radio signal to the vehicle's radio card or S-band radio. The satellite dish antenna also uses proprietary technology developed by the Company. The Company expects that radio cards, S-band radios and miniature satellite dish antennas will be manufactured by one or more consumer electronics manufacturers and sold at retail outlets that sell consumer electronics, and that the miniature satellite dish antennas will be sold together with the radio cards or S-band radios. The Company believes that, when manufactured in quantity, S-band radios will be incrementally more expensive than today's car radios. The Company currently expects that the radio card together with the miniature satellite dish antenna will be sold at a retail price of approximately $200. Because subscribers will be able to use the radio card in almost all existing vehicles, the Company believes that the availability of plug and play radio cards will be of prime importance to its market penetration for a number of years. The Company does not intend to manufacture or distribute radio cards, S-band radios or miniature satellite dish antennas. The Company has entered into non-binding memoranda of understanding with two major consumer electronics manufacturers, and has commenced discussions with several other such manufacturers, regarding the manufacture of radio cards, S-band radios and miniature satellite dish antennas for retail sale in the United States. The National Broadcast Studio. The Company plans to originate its 50 channels of programming from a national broadcast studio (the 'National Broadcast Studio') to be located in the New York metropolitan region. The National Broadcast Studio will house the Company's music library, facilities for programming origination, programming personnel and program hosts, as well as facilities to uplink programming to the satellites, to activate or deactivate service to subscribers and to perform the tracking, telemetry and control of the orbiting satellites. PROGRESS TO DATE The Company was formed in May 1990 and at that time proposed that the FCC create a satellite radio broadcast service and also filed an application with the FCC for a license to provide such a service. Since that time, the Company has: 1993 Contracted with Loral for construction of its satellites Contracted with Arianespace for launch of two of its satellites 1994 Completed an initial public offering of its Common Stock 1995 Completed development of its proprietary miniature satellite dish antenna 1996 Designed the radio card receiver 1997 Received one of two FCC national satellite radio broadcast licenses Completed a $135 million private placement of 5% Preferred Stock Commenced construction of two satellites Completed receipt of satellite broadcast patents Arranged $105 million of vendor financing with Arianespace Finance S.A. Recruited its key programming, marketing and financial management team Completed a strategic sale of $25 million of Common Stock to Loral Space
See 'Business -- Progress to Date and Significant Development Milestones.' CONCURRENT OFFERINGS The Units Offering is part of a financing transaction, which includes the Stock Offerings and the Exchange Offer, that is intended to raise capital (i) to partially finance the construction and launch of the Company's satellites and (ii) for general corporate purposes. Pursuant to the terms of the Exchange Offer, the Company has offered to exchange shares of its Series C Preferred Stock for up to all of the outstanding shares of its 5% Preferred Stock. On November 20, 1997, the Exchange Offer was 10 consummated and shares of Series C Preferred Stock were exchanged for all of the outstanding shares of 5% Preferred Stock. The Offerings will result in net proceeds to the Company of approximately $164.5 million: $118.9 million from the Units Offering and $45.6 million from the Stock Offerings. The Company received no proceeds from the Exchange Offer. See 'Use of Proceeds.' The consummation of the Units Offering is not conditioned upon the consummation of the Stock Offerings but is conditioned upon the consummation of the Exchange Offer, and there can be no assurance that the Stock Offerings will be completed. RISK FACTORS The Company's ability to meet its objectives will depend on several factors, including the timely receipt of necessary governmental approvals, obtaining additional financing, constructing and launching two satellites into orbit, developing and manufacturing radio bands, S-band radios and miniature satellite dish antennas by consumer electronics manufacturers, the rapid creation of an organization and the management of growth. The Company estimates that it will require approximately $645.9 million to develop and commence commercial operation of CD Radio by the end of 1999. Of this amount, the Company has raised approximately $266.6 million to date. After giving effect to the Offerings, the Company will have raised approximately $442.0 million of funds, leaving anticipated additional cash needs of approximately $203.9 million to fund its operations through 1999. The Company anticipates additional cash requirements of approximately $100.0 million to fund its operations through the year 2000. The Company expects to finance the remainder of its funding requirements through the issuance of debt or equity securities or a combination thereof. See 'Risk Factors' for a discussion of important factors that should be considered by prospective purchasers in the Units Offering. The Company was incorporated in the State of Delaware as Satellite CD Radio, Inc. on May 17, 1990. On December 7, 1992, the Company's name was changed to CD Radio Inc., and the Company formed a wholly-owned subsidiary, Satellite CD Radio, Inc., that is the holder of record of the Company's FCC License. The Company's executive offices are located at Sixth Floor, 1001 22nd Street, N.W., Washington, D.C. 20037, its telephone number is 202-296-6192 and its Internet address is www.cdradio.com. 11 THE OFFERING Securities Offered........................... 12,910 Units consisting of $258,200,000 aggregate principal amount at maturity of 15% Senior Secured Discount Notes due 2007 of the Company and 12,910 warrants to acquire an aggregate of 38,730,000 principal amount at maturity of Senior Secured Discount Notes due 2007. Each Unit consists of $20,000 principal amount at maturity of Notes and one Warrant entitling the holder thereof to acquire $3,000 principal amount at maturity of Notes. The Notes will be issued with original issue discount. See 'Certain United States Tax Considerations.' Separability................................. The Notes and the Warrants will not be separately transferable until the earliest of (i) the occurrence of an Exercise Event (as defined herein), (ii) the occurrence of an Event of Default (as defined in Description of the Notes -- Events of Default') or (iii) such earlier date as determined by Merrill Lynch in its sole discretion (the date of the occurrence of an event specified in clauses (i) - (iii) being the 'Separability Date'). Use of Proceeds.............................. To partially finance the construction and launch of the Company's satellites, and for general corporate purposes. NOTES: Notes Offered................................ $258,200,000 principal amount at maturity of Senior Secured Discount Notes due 2007. Maturity Date................................ December 1, 2007. Yield and Interest........................... 15% per annum (computed on a semi-annual bond equivalent basis) calculated from November 26, 1997. Based on the issue price of the Units and assuming the Warrants are exercised, the yield to maturity on the Notes, determined by semiannual compounding of interest, is 16.74%. See 'Description of the Units' and 'Certain Federal Income Tax Considerations.' Cash interest will not accrue on the Notes prior to December 1, 2002, from which time cash interest will accrue on the Notes at a rate of 15% per annum. Interest on the Notes is payable semi-annually on each June 1 and December 1, commencing June 1, 2003. Optional Redemption.......................... The Notes will be redeemable, at the option of the Company, in whole or in part, at any time on or after December 1, 2002 at the redemption prices set forth herein, together with accrued interest, if any, to the date of redemption. Change of Control............................ Upon the occurrence of a Change of Control (as defined herein), each holder of Notes may require the Company to purchase all or a portion of such holder's Notes at a purchase price in cash equal to 101% of the Accreted Value thereof, together with accrued interest, if any, to the date of purchase. See 'Description of the Notes -- Certain Covenants -- Purchase of Notes upon a Change of Control.'
12 Ranking...................................... The Notes will be senior secured obligations of the Company ranking pari passu in right of payment with all existing and future unsubordinated obligations of the Company, and senior in rights of payment to all existing and future obligations of the Company expressly subordinated in right of payment to the Notes. The Indenture permits the Company and its subsidiaries to incur additional unsecured and secured indebtedness, including vendor financing from Arianespace Finance S.A. and Loral Space. See 'Description of Notes -- Certain Covenants' and 'Description of Certain Indebtedness.' As of September 30, 1997, on a pro forma basis after giving effect to the Units Offering and the application of the net proceeds therefrom, indebtedness of the Company would have been approximately $25 million (plus approximately $125 million of indebtedness to be issued upon exercise of the Warrants), all of which would have been secured indebtedness. Security..................................... The Notes will be secured by a first priority perfected security interest in all of the issued and outstanding common stock of Satellite CD Radio, Inc. (the 'Pledged Stock'). Satellite CD Radio, Inc. conducts no business activities and its only asset is an FCC License. The Notes are not secured by any lien on, or other security interest in, any other properties or assets of the Company or Satellite CD Radio, Inc. The Indenture will permit the Company to incur additional secured financing including (i) up to $145 million under the AEF Agreements (as defined herein) and the Loral Satellite Contract (as defined herein) and (ii) certain other financing. Any secured financing incurred by the Company under either (i) or (ii) above may be secured on a pari passu basis with the holders of Notes with respect to the Pledged Stock. Original Issue Discount...................... Each Note is being offered at an original issue discount for United States federal income tax purposes. Thus, although cash interest will not begin to accrue on the Notes until December 1, 2002, and there will be no periodic payments of interest on the Notes prior to June 1, 2003, original issue discount (i.e., the difference between the stated redemption price at maturity of the Notes and the issue price of the Notes) will accrue from the issue date and will be includible as interest income periodically in a holder's gross income for federal income tax purposes in advance of receipt of the cash payments to which the income is attributable. See 'Certain United States Tax Considerations.' Restrictive Covenants........................ The Indenture governing the Notes (the 'Indenture') will include covenants with respect to the following matters: (i) limitation on indebtedness; (ii) limitation on restricted payments; (iii) limitation on issuances and sale of capital stock of restricted subsidiaries; (iv) limitation on transactions with affiliates; (v) limitation on liens; (vi) limitation on sale-leaseback transactions, (vii) limitation
13 on sale of assets; (viii) limitation on dividend and other payment restrictions affecting restricted subsidiaries; (ix) insurance and (x) reports. See 'Description of the Notes -- Certain Covenants.' Use of Proceeds.............................. To partially finance the construction and launch of the Company's satellites, and for general corporate purposes. See 'Use of Proceeds.' WARRANTS: Warrants..................................... The Warrants will entitle the holders thereof to acquire an aggregate of $38,730,000 principal amount at maturity of Notes. Expiration Date.............................. The Warrants will expire on December 4, 1997 (the 'Expiration Date.') Exercise..................................... Each Warrant will entitle the holder to acquire on and after its date of issuance and prior to the Expiration Date, $3,000 principal amount at maturity of Notes. The Notes issuable or deliverable upon exercise of the Warrants are collectively referred to as 'Warrant Securities.' Rights as Noteholders........................ Holders of Warrants will not, by virtue of being such holders, have any rights of holders of Notes.
14 SUMMARY CONSOLIDATED FINANCIAL DATA The summary consolidated financial data for the Company set forth below with respect to the statements of operations for the years ended December 31, 1994, 1995 and 1996 and with respect to the balance sheets at December 31, 1995 and 1996 are derived from the consolidated financial statements of the Company, audited by Coopers & Lybrand L.L.P., independent accountants, incorporated herein by reference. The summary consolidated financial data for the Company, with respect to the balance sheets at December 31, 1992, 1993 and 1994 and with respect to the statement of operations data for the years ended December 31, 1992 and 1993, are derived from the Company's audited consolidated financial statements, which are not incorporated herein by reference. The financial information as of and for the nine months ended September 30, 1996 and 1997 is derived from unaudited consolidated financial statements incorporated herein by reference. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, that are necessary for a fair presentation of the financial position and results of operations for these periods. The selected consolidated financial data should be read in conjunction with the consolidated financial statements and related notes thereto incorporated herein by reference.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------- ------------------------------ 1992 1993 1994 1995 1996 1996 1997 ------- ------- -------- -------- -------- -------------- -------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Operating revenues...................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- Net loss................................ (1,551) (6,568) (4,065) (2,107) (2,831) (1,871) (1,489) Net loss per share of Common Stock...... (.23) (.79) (.48) (.23) (.29) (.20) (4.97)(1) Weighted average shares of Common Stock and Common Stock equivalents outstanding........................... 6,715 8,284 8,398 9,224 9,642 9,441 10,760 Deemed dividend on 5% Preferred Stock... -- -- -- -- -- -- $ (51,975) AS OF DECEMBER 31, AS OF SEPTEMBER 30, -------------------------------------------------- ------------------------------ 1992 1993 1994 1995 1996 1996 1997 ------- ------- -------- -------- -------- -------------- -------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents............... $ 1,883 $ 777 $ 3,400 $ 1,800 $ 4,584 $ 4,942 $ 29,386 Designated cash(2)...................... -- -- -- -- -- -- 66,677 Working capital (deficit)............... 1,399 (250) 2,908 1,741 4,442 5,040 29,871 Total assets............................ 2,292 1,663 3,971 2,334 5,065 5,934 148,430 Deficit accumulated during the development stage..................... (2,965) (9,533) (13,598) (15,705) (18,536) (17,577) (72,000) Stockholders' equity.................... 1,791 505 3,431 1,991 4,898 5,460 32,265 Book value per share.................... .48 2.57
- ------------ (1) Includes a deemed dividend on the Company's 5% Preferred Stock of $52.0 million, or $4.83 per share. The deemed dividend relates to the discount feature associated with the 5% Preferred Stock, computed in accordance with the Commission's position on accounting for preferred stock which is convertible at a discount to the market price. (2) Represents proceeds of the offering of the 5% Preferred Stock which have been classified as designated cash reflecting the balance due to the FCC for the Company's FCC License. The Company paid this amount to the FCC in October 1997. 15 RISK FACTORS An investment in the Units offered hereby involves a high degree of risk. In addition to the other information in this Prospectus, the following factors should be considered carefully in evaluating the Company and its business before making an investment in the Units offered hereby. This Prospectus contains certain forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those projected in the forward-looking statements due to a number of factors, including those set forth below and elsewhere in this Prospectus. See 'Special Note Regarding Forward-Looking Statements.' EXPECTATION OF CONTINUING LOSSES; NEGATIVE CASH FLOW The Company is a development stage company and its proposed service, CD Radio, is in an early stage of development. Since its inception, the Company's activities have been concentrated on raising capital, obtaining required licenses, developing technology, strategic planning and market research. From its inception on May 17, 1990 through September 30, 1997, the Company has had no revenues and has incurred aggregate net losses of approximately $20.0 million, including net losses of approximately $2.8 million during the year ended December 31, 1996 and $1.5 million during the nine months ended September 30, 1997. The Company does not expect to generate any revenues from operations until late 1999 or 2000 at the earliest, and expects that positive cash flow from operations will not be generated until late 2000 at the earliest. The ability of the Company to generate revenues and achieve profitability will depend upon a number of factors, including the timely receipt of all necessary FCC authorizations, the successful and timely construction and deployment of its satellite system, the development and manufacture of radio cards, S-band radios and miniature satellite dish antennas by consumer electronics manufacturers, the timely establishment of its National Broadcast Studio and the successful marketing and consumer acceptance of CD Radio. There can be no assurance that any of the foregoing will be accomplished, that CD Radio will ever commence operations, that the Company will attain any particular level of revenues or that the Company will achieve profitability. NEED FOR SUBSTANTIAL ADDITIONAL FINANCING The Company estimates that it will require approximately $645.9 million to develop and commence commercial operation of CD Radio by the end of 1999. Of this amount, the Company has raised approximately $266.6 million to date. After giving effect to the Offerings, the Company will have raised approximately $442.0 million of funds, leaving anticipated additional cash needs of approximately $203.9 million to fund its operations through 1999. The Company anticipates additional cash requirements of approximately $100.0 million to fund its operations through the year 2000. The Company expects to finance the remainder of its funding requirements through the issuance of debt or equity securities or a combination thereof. Additional funds, however, would be required in the event of delays, cost overruns, launch failure or other adverse developments. Furthermore, if the Company were to exercise its option under the Loral Satellite Contract to purchase and deploy an additional satellite, substantial additional funds would be required. See 'Use of Proceeds.' The Company currently does not have sufficient financing commitments to fund all of its capital needs, and there can be no assurance that the Company will be able to obtain additional financing on favorable terms, if at all, or that it will be able to do so on a timely basis. The AEF Agreements (as defined herein) contain, the indenture governing the Notes (the 'Indenture') will contain and documents governing any other future indebtedness are likely to contain provisions that limit the ability of the Company to incur additional indebtedness. The Company has substantial near-term funding requirements related to the construction and launch of its satellites. The Company is committed to make aggregate payments of $277.1 million under the Loral Satellite Contract and of $176.0 million under the Arianespace Launch Contract. Under the Loral Satellite Contract, payments are to be made in 22 installments, which commenced in April 1997. Payments due under the Arianespace Launch Contract commence November 1997 for the first launch, and February 1998 for the second launch. See 'Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Funding Requirements.' Failure to secure the necessary financing on a timely basis could result in delays and increases in the cost of satellite construction or launch or other activities necessary to put CD Radio into operation, could cause the Company to default on its commitments to its satellite construction or 16 satellite launch contractors, its creditors or others, could render the Company unable to put CD Radio into operation and could force the Company to discontinue operations or seek a purchaser for its business. POSSIBLE DELAYS AND ADVERSE EFFECT OF DELAY ON FINANCING REQUIREMENTS The Company currently expects to begin offering CD Radio in late 1999. The Company's ability to meet that objective will depend on several factors. For both of the two satellites required for the CD Radio service to be launched and in operation by the end of 1999, Loral will be required to deliver the second satellite three months prior to the delivery date specified in the contract, which cannot be assured. See 'Business -- The CD Radio Delivery System -- The Satellites -- Satellite Construction.' Furthermore, the launch of both satellites will have to occur within the early months of the launch periods reserved with Arianespace, which also cannot be assured. See 'Business -- The CD Radio Delivery System -- The Satellites -- Launch Services.' A significant delay in the planned development, construction, launch and commencement of operation of the Company's satellites would have a material adverse effect on the Company. Other delays in the development or commencement of commercial operations of CD Radio may also have a material adverse effect on the Company. Any such delays could result from a variety of causes, including delays associated with obtaining additional FCC authorizations, coordinating use of spectrum with Canada and Mexico, inability to obtain necessary financing in a timely manner, delays in or modifications to the design, development, construction or testing of satellites, the National Broadcast Studio or other aspects of the CD Radio system, changes of technical specifications, delay in commercial availability of radio cards, S-band radios or miniature satellite dish antennas, failure of the Company's vendors to perform as anticipated or a delayed or unsuccessful satellite launch or deployment. During any period of delay, the Company would continue to have significant cash requirements, including capital expenditures, administrative and overhead costs, contractual obligations and debt service requirements that could materially increase the aggregate amount of funding required to permit the Company to commence operating CD Radio. Additional financing may not be available on favorable terms or at all during periods of delay. Delay also could cause the Company to be placed at a competitive disadvantage in relation to any competitor that succeeds in beginning operations earlier than the Company. See ' -- Unavailability of Radio Cards, S-band Radios and Miniature Satellite Dish Antennas,' ' -- Continuing Oversight by the FCC,' 'Business -- The CD Radio Delivery System -- The Receivers' and 'Business -- Government Regulations -- Communications Laws.' RELIANCE ON UNPROVEN APPLICATIONS OF TECHNOLOGY CD Radio is designed to be broadcast from two satellites in geosynchronous orbit that transmit identical signals to radio cards or S-band radios through miniature satellite dish antennas. This design involves new applications of existing technology which have not been deployed and there can be no assurance that the CD Radio system will work as planned. In addition, radio cards, S-band radios and miniature satellite dish antennas are not currently available. In certain areas with high concentrations of tall buildings and other obstructions, such as large urban areas, or in tunnels, signals from both satellites will be blocked and CD Radio reception will be adversely affected. In urban areas, the Company plans to install terrestrial repeating transmitters to rebroadcast CD Radio; however, certain areas with impediments to satellite line-of-sight may still experience 'dead zones.' Although management believes that the technology developed by the Company will allow the CD Radio system to operate as planned, there can be no assurance that it will do so. See ' -- Unavailability of Radio Cards, S-band Radios or Miniature Satellite Dish Antennas,' 'Business -- The CD Radio Delivery System' and 'Business -- Technology and Patents.' DEPENDENCE UPON SATELLITE AND LAUNCH CONTRACTORS The Company's business will depend upon the successful construction and launch of the satellites which will be used to transmit CD Radio. The Company will rely upon its satellite vendor, Loral, for the construction and timely delivery of these satellites. Failure by Loral to deliver functioning satellites in a timely manner could materially adversely affect the Company's business. Although the Loral Satellite Contract provides for certain late delivery penalties, Loral will not be liable for indirect or 17 consequential damages or lost revenues or profits resulting from late delivery or other defaults. Title and risk of loss for the first and second satellites are to pass to the Company at the time of launch. The satellites are warranted to be in accordance with the performance specifications in the Loral Satellite Contract and free from defects in materials and workmanship at the time of delivery, which for the first two satellites will be deemed to occur at the time of arrival of the satellites at the launch base. After delivery, no warranty coverage applies if the satellite is launched. See 'Business -- The CD Radio Delivery System -- The Satellites -- Satellite Construction.' The Company is dependent on its satellite launch vendor, Arianespace, for the construction of launch vehicles and the successful launch of the Company's satellites. Failure of Arianespace to launch the satellites in a timely manner could materially adversely affect the Company's business. The Arianespace Launch Contract entitles Arianespace to postpone either of the Company's launches for a variety of reasons, including technical problems, lack of co-passenger(s) for the Company's launch or the need to conduct a replacement launch for another customer, a launch of a scientific satellite whose mission may be degraded by delay, or a launch of another customer's satellite whose launch was postponed. Although the Arianespace Launch Contract provides liquidated damages for delay, depending on the length of the delay, and entitles the Company to terminate the agreement for delay exceeding 12 months, there can be no assurance that these remedies will adequately mitigate any damage to the Company's business caused by launch delays. See ' -- Possible Delays and Adverse Effect of Delay on Financing Requirements.' The liability of Arianespace in the event of a launch failure is limited to providing a replacement launch in the case of a total launch failure or paying an amount based on lost satellite capacity in the case of a partial launch failure. See 'Business -- The CD Radio Delivery System -- The Satellites -- Launch Services.' SATELLITE LAUNCH RISKS Satellite launches are subject to significant risks, including launch failure, satellite destruction or damage during launch and failure to achieve proper orbital placement. Launch failure rates may vary depending on the particular launch vehicle and contractor. Although past experience is not necessarily indicative of future performance, Arianespace has advised the Company that as of November 13, 1997, 87 of 92 Arianespace launches (or approximately 94.6%) have been completed successfully since May 1984. See 'Business -- The CD Radio Delivery System -- The Satellites -- Launch Services.' However, the Ariane 5, the particular launch vehicle intended for the launches of the Company's satellites, has had only two launches, one of which was a failure. In the event of a significant delay in the Ariane 5 program, the Company has the right to request launch on an Ariane 4 launch vehicle. There is no assurance that Arianespace's launches of the Company's satellites will be successful. Satellites also may fail to achieve a proper orbit or be damaged in space. See ' -- Limited Life of Satellites; In-orbit Failure.' As part of its risk management program, the Company plans to construct a third, backup satellite and to obtain insurance covering a replacement launch to the extent required to cover risks not assumed by Arianespace under the Arianespace Launch Contract. See ' -- Insurance Risks.' The launch of a replacement satellite would delay the commencement or continuation of the Company's commercial operations for a period of at least several months, which could have a material adverse effect on the demand for the Company's services and on its revenues and results of operations. See 'Business -- The CD Radio Delivery System -- The Satellites -- Launch Services.' UNCERTAIN MARKET ACCEPTANCE There is currently no satellite radio service such as CD Radio in commercial operation in the United States. As a result, the extent of the potential demand for such a service and the degree to which the Company's proposed service will meet that demand cannot be estimated with certainty, and there can be no assurance that there will be sufficient demand for CD Radio to enable the Company to achieve significant revenues or cash flow or profitable operations. The success of CD Radio in gaining market acceptance will be affected by a number of factors beyond the Company's control, including the willingness of consumers to pay subscription fees to obtain satellite radio broadcasts, the cost, availability and consumer acceptance of radio cards, S-band radios and miniature satellite dish antennas, the marketing and pricing strategies of competitors, the development of alternative technologies or services and general economic conditions. See 'Business -- The Radio Market,' 'Business -- The 18 CD Radio Service,' 'Business -- Marketing Strategy,' 'Business -- The CD Radio Delivery System' and 'Business -- Competition.' LIMITED LIFE OF SATELLITES; IN-ORBIT FAILURE A number of factors will affect the useful lives of the Company's satellites, including the quality of construction, the expected gradual environmental degradation of solar panels, the amount of fuel on board and the durability of component parts. Random failure of satellite components could result in damage to or loss of a satellite. In rare cases, satellites could also be damaged or destroyed by electrostatic storms or collisions with other objects in space. If the Company is required to launch the spare satellite, due to failure of the launch or in-orbit failure of one of the operational satellites, its operational timetable would be delayed for approximately six months or more. The launch or in-orbit failure of two satellites would require the Company to arrange for additional satellites to be built and could delay the commencement or continuation of the Company's operations for three years or more. The Company's satellites are expected to have useful lives of approximately 15 years, after which their performance in delivering CD Radio is expected to deteriorate. There can be no assurance, however, of the specific longevity of any particular satellite. The Company's operating results would be adversely affected in the event the useful life of its initial satellites is significantly shorter than 15 years. INSURANCE RISKS Pursuant to the Loral Satellite Contract and the Arianespace Launch Contract, the Company is the beneficiary of certain limited warranties with respect to the services provided under each agreement. However, these limited warranties do not cover a substantial portion of the risks inherent in satellite launches or in-orbit operations, and the Company will have to obtain insurance to adequately protect against such risks. The Arianespace Launch Contract contains a provision entitling the Company to a replacement launch in the event of a launch failure caused by the launch vehicle used to launch the Company's satellites. In such event, the Company would utilize the spare satellite that it is having constructed. Thus, the Company does not intend to purchase additional insurance for launch failure of the launch vehicle. The Company intends to insure against other contingencies, including a failure during launch caused by factors other than the launch vehicle and/or a failure involving the second or third satellite in a situation in which the spare satellite has been used to replace the first or second satellite. Any adverse change in insurance market conditions may result in an increase, which may be substantial, in the insurance premiums paid by the Company. There is no assurance that launch insurance will be available or, if available, that it can be obtained at a cost or on terms acceptable to the Company. If the launch of either of the Company's two satellites is a full or partial failure or if, following launch, either of the satellites does not perform to specifications, there may be circumstances in which insurance will not fully reimburse the Company for its expenditures with respect to the applicable satellite. In addition, the Company has not acquired insurance that would reimburse the Company for business interruption, loss of business and similar losses which might arise from such events or from delay in the launch of either of the satellites. Any insurance obtained by the Company also will likely contain certain exclusions and material change conditions that are customary in the industry. See 'Business -- The CD Radio Delivery System -- The Satellites -- Risk Management and Insurance.' RISK ASSOCIATED WITH CHANGING TECHNOLOGY The industry in which the Company operates is characterized by rapid technological advances and innovations. There is no assurance that one or more of the technologies utilized or under development by the Company will not become obsolete, or that its services will be in demand at the time they are offered. The Company will be dependent upon technologies developed by third parties to implement key aspects of its proposed system, and there can be no assurance that more advanced technologies will be available to the Company on a timely basis or on reasonable terms or that more advanced technologies will be used by the Company's competitors and that such technologies will be available to the Company. In addition, unforeseen problems in the development of the Company's satellite radio 19 broadcasting system may occur that could adversely affect performance, cost or timely implementation of the system and could have a material adverse effect on the Company. UNAVAILABILITY OF RADIO CARDS, S-BAND RADIOS OR MINIATURE SATELLITE DISH ANTENNAS The Company's business strategy requires that subscribers to CD Radio purchase radio cards or S-band radios as well as the associated miniature satellite dish antennas in order to receive the service. See 'Business -- The CD Radio Delivery System.' Neither the radio cards, S-band radios nor miniature satellite dish antennas currently are available, and the Company is unaware of any manufacturer currently developing such products. The Company does not intend to manufacture or distribute radio cards, S-band radios or miniature satellite dish antennas. The Company has entered into non-binding memoranda of understanding with two major consumer electronics manufacturers, and has commenced discussions with several other such manufacturers, regarding the manufacture of radio cards, S-band radios and miniature satellite dish antennas for retail sale in the United States. The Company currently intends to select one manufacturer of these products on an exclusive basis for the first year of CD Radio broadcasts. There can be no assurance, however, that these discussions or memoranda of understanding will result in a binding commitment on the part of any manufacturer to produce radio cards, S-band radios and miniature satellite dish antennas in a timely manner and at an affordable price so as to permit the widespread introduction of CD Radio in accordance with the Company's business plan or that sufficient quantities of radio cards, S-band radios and miniature satellite dish antennas will be available to meet anticipated consumer demand. The failure to have one or more consumer electronics manufacturers develop these products for commercial sale in a timely manner, at an affordable price and with mass market nationwide distribution would have a material adverse effect on the Company's business. In addition, the FCC, in its order granting the FCC License, conditioned the Company's license on certification by the Company that its final receiver design is interoperable with respect to the final receiver design of the other licensee, which has proposed to use a significantly different transmission technology from that of the Company. The Company believes that it can design an interoperable receiver, but there can be no assurance that this effort will be successful or result in a commercially feasible receiver. See 'Business -- The CD Radio Delivery System,' 'Business -- Marketing Strategy,' and 'Business -- Technology and Patents.' NEED TO OBTAIN RIGHTS TO PROGRAMMING In connection with its music programming, the Company will be required to negotiate and enter into royalty arrangements with performing rights societies, such as The American Society of Composers, Authors and Publishers ('ASCAP'), Broadcast Music, Inc. ('BMI') and SESAC, Inc. ('SESAC'). These organizations collect royalties and distribute them to songwriters and music publishers. Copyright users negotiate a fee with these organizations based on a percentage of advertising and/or subscription revenues. Broadcasters currently pay a combined total of approximately 3% of their revenues to the performing rights societies. The Company also will be required to negotiate similar arrangements, pursuant to the Digital Performance Right in Sound Recordings Act of 1995 (the 'Digital Recording Act'), with the owners of the sound recordings. The determination of certain royalty arrangements with the owners of sound recordings under the Digital Recordings Act currently are subject to arbitration proceedings. The Company believes that it will be able to negotiate royalty arrangements with these organizations and the owners of sound recordings, but there can be no assurance as to the terms of any such royalty arrangements ultimately negotiated or established by arbitration. DEVELOPMENT OF BUSINESS AND MANAGEMENT OF GROWTH The Company has not yet commenced CD Radio broadcasts. The Company expects to experience significant and rapid growth in the scope and complexity of its business as it proceeds with the development of its satellite radio system and the commencement of CD Radio. Currently, the Company has only ten employees and does not have sufficient staff to program its broadcast service, manage operations, control the operation of its satellites, handle sales and marketing efforts or perform finance and accounting functions. Although the Company has recently retained experienced executives in several of these areas, the Company will be required to hire a broad range of additional personnel before its planned service begins commercial operations. Growth, including the creation of a 20 management infrastructure and staffing, is likely to place a substantial strain on the Company's management and operational resources. The failure to develop and implement effective systems or to hire and train sufficient personnel for the performance of all of the functions necessary to the effective provision of its service and management of its subscriber base and business, and the failure to manage growth effectively, would have a material adverse effect on the Company. CONTINUING OVERSIGHT BY THE FCC In order to offer CD Radio, the Company was required to obtain a license from the FCC to launch and operate its satellites. The Company was a winning bidder in the April 1997 FCC auction for an FCC license to build, launch and operate a national satellite radio broadcast service (the 'FCC License'), and the FCC's International Bureau issued such a license to the Company on October 10, 1997 (the 'IB Order'). Although the FCC License is effective immediately, for a period of 30 days following the grant of the FCC License certain parties could petition either the International Bureau or the full FCC to reconsider the decision to grant the FCC License to the Company. An application for review by the full Commission was filed by one of the low-bidding applicants in the auction. This petition requests, among other things, that the Commission adopt restrictions on foreign ownership, which were not applied in the IB Order, and, on the basis of the Company's ownership, overrule the IB Order. If this petition is denied, the complaining party may file an appeal with the U.S. Court of Appeals, which must find that the decision of the FCC was not supported by substantial evidence, or was arbitrary, capricious or unlawful in order to overturn the grant of the Company's FCC License. Although the Company believes the FCC will uphold the IB Order, the Company cannot predict the ultimate outcome of any proceeding's relating to this petition or any other proceedings that may be filed. See 'Business -- Government Regulation -- Communications Laws.' In order to ensure compliance with the transfer of control rule restrictions contained in the Communications Act of 1934, as amended (the 'Communications Act'), any future assignments or transfers of control of the Company's license must be approved by the FCC. There can be no assurance that the FCC would approve any such transfer or assignment. The term of the FCC License with respect to each satellite is eight years, commencing from the date each satellite is declared operational after having been inserted into orbit. Upon the expiration of the term with respect to each satellite, the Company will be required to apply for a renewal of the relevant license. Although the Company believes that the FCC will grant such renewals absent significant misconduct on the part of the Company, there can be no assurance that such renewals in fact will be obtained. The CD Radio system is designed to permit CD Radio to be received by motorists in all outdoor locations where the vehicle has an unobstructed line-of-sight with one of the Company's satellites. However, in certain areas with high concentrations of tall buildings, such as urban cores, or in tunnels, signals from both satellites will be blocked and reception will be adversely affected. Therefore, the Company plans to install terrestrial repeating transmitters to rebroadcast CD Radio in certain areas. The FCC has not yet established rules governing the application procedure for obtaining authorizations to construct and operate terrestrial repeating transmitters. The Company cannot predict the outcome of this process. In addition, in connection with the installation and operation of the terrestrial repeating transmitters, the Company will need to obtain the rights to use the roofs of certain structures where the repeating transmitters will be installed. There can be no assurance that the Company can obtain such roof rights on acceptable terms or in appropriate locations for the operation of CD Radio. Also, the FCC Licensing Rules (as defined herein) require that the Company complete frequency coordination with Canada and Mexico. There can be no assurance that the Company will be able to coordinate use of this spectrum or will be able to do so in a timely manner. Changes in law, FCC regulations or international agreements relating to communications policy generally or to matters relating specifically to the services to be offered by the Company could affect the Company's ability to retain the FCC License and obtain or retain other approvals required to provide CD Radio or the manner in which CD Radio would be offered or regulated. See 'Business -- Government Regulation.' 21 The IB Order determined that as a private carrier, the Company would not be subject to the current provisions of the Communications Act restricting ownership in the Company by non-U.S. private citizens or organizations. The Executive Branch of the U.S. government has expressed interest in changing this policy, which could lead to restrictions on foreign ownership of the Company's shares in the future. The IB Order stated that its finding that the Company is not subject to the foreign ownership restrictions of the Communications Act is subject to being revisited in a future proceeding. The pending application for review of the IB Order brings the question of foreign ownership restrictions before the full FCC. The FCC has indicated that it may in the future impose public service obligations, such as channel set-asides for educational programming, on satellite radio licensees. The Company cannot predict whether the FCC will impose public service obligations or the impact that any such obligations, if imposed, would have on the Company. The Trustee under the Indenture may not exercise any rights with respect to the Pledged Stock upon the occurrence of an Event of Default if such action would constitute or result in any assignment of the FCC License or any change of control (whether de jure or de facto) of the Company unless the prior approval of the FCC is first obtained. There can be no assurance that any such required FCC approval can be obtained on a timely basis, or at all. DEPENDENCE ON KEY PERSONNEL The Company is highly dependent on the services of David Margolese, Chairman and Chief Executive Officer, who is responsible for the Company's operations and strategic planning. The loss of the services of Mr. Margolese could have a material adverse effect upon the business and prospects of the Company. See 'Business -- Government Regulation' and 'Management.' APPLICATION OF EXPORT CONTROL REGULATIONS Shipment of the Company's satellites to territory outside the United States is subject to U.S. export control regulation. Because Arianespace, the Company's satellite launch vendor, intends to launch the Company's satellites from an Arianespace launch facility in French Guiana, a department of France, export licenses will be required under U.S. export control regulations. There can be no assurance, however, that the required export licenses will be obtained. RISK OF SIGNAL THEFT The CD Radio signal, like all broadcasts, is subject to the risk of piracy. Although the Company plans to use encryption technology to mitigate signal theft, the Company does not believe that any such technology is infallible. Accordingly, there can be no assurance that theft of the CD Radio signal will not occur. Signal theft, if widespread, could have a material adverse effect on the Company. COMPETITION The Company will be seeking market acceptance of its proposed service in a new, untested market and will compete with established conventional radio stations, which do not charge subscription fees or require the purchase of radio cards or S-band radios and associated miniature satellite dish antennas to receive their services. Many radio stations also offer information programming of a local nature such as local news or traffic reports which the Company will be unable to offer. In addition, the Company expects that, prior to the commercial launch of CD Radio, some traditional FM radio broadcasting stations will begin to transmit digital, compact disc quality signals. The Company also expects to compete directly with American Mobile Radio Corporation ('AMRC'), a subsidiary of American Mobile Satellite Corporation ('AMSC'), which is the holder of the other FCC License. AMSC, which is owned in part by the Hughes Electronics Corporation subsidiary of General Motors Corporation, has financial, management and technical resources that greatly exceed those of the Company. See 'Business -- Competition.' In addition, the FCC could grant new licenses which would enable further competition to broadcast satellite radio. Finally, there are many portions of the electromagnetic spectrum that are currently licensed for other uses and certain other portions for which licenses have been granted by the FCC without restriction as to use, and there can be no assurance that these 22 portions of the spectrum could not be utilized for satellite radio broadcasting in the future. Although any such licensees would face cost and competition barriers, there can be no assurance that there will not be an increase in the number of competitors in the satellite radio industry or any assurance that one or more competitors will not design a satellite radio broadcast system that is superior to the Company's system, either of which events could have a material adverse effect on the Company. See 'Business -- Competition.' UNCERTAIN PATENT PROTECTION The Company has been granted certain U.S. patents covering various features of satellite radio technology including, among other features, signal diversity and memory reception. There can be no certainty that the Company's system or products will be covered by the Company's patents. If the Company's system or products are not covered by the Company's patents, others may duplicate the Company's system or products without liability to the Company. In addition, there can be no assurance that the Company's U.S. patents will not be challenged, invalidated or circumvented by others. Litigation, which could result in substantial cost to the Company, may be necessary to enforce the Company's patents or may occur to determine the scope and validity of other parties' proprietary rights, and there can be no assurance of success in any such litigation. There can be no assurance that there are no patents, or pending patent applications which will later mature into patents, or inventions developed earlier which will later mature into patents, of others which may block the Company's ability to operate its system or license its technology. The earliest of the Company's patents is due to expire, upon payment of all necessary fees, on April 10, 2012. See 'Business -- Technology and Patents.' RISK OF INABILITY TO SATISFY A CHANGE IN CONTROL OFFER Upon the occurrence of any change of control (as defined in the Indenture and the certificate of designations for the Series C Preferred Stock, respectively), the Company will be required to make a change of control offer for the Notes and a similar offer to purchase shares of the Series C Preferred Stock. If such a change of control offer is made, there can be no assurance that the Company will have available funds sufficient to pay the purchase price for any or all of the Notes and the Series C Preferred Stock that might be delivered by holders of the Notes or the Series C Preferred Stock seeking to accept the change of control offer. The Indenture provides that the Company must purchase all Notes delivered by holders pursuant to a change of control offer prior to purchasing any shares of the Series C Preferred Stock. The failure of the Company to make or consummate the change of control offer or to pay the purchase price for the Notes when due will give the trustee under the Indenture and the holders of the Notes the right to require the Company to prepay all of its outstanding indebtedness and other obligations under the Notes. The failure of the Company to make or consummate the change of control offer or pay the purchase price for the Series C Preferred Stock when due will give the holders of a majority of the Series C Preferred Stock the right, voting as a separate class, to elect a number of directors of the Company equal to the lesser of two directors and the number of directors constituting at least 25% of the Board of Directors of the Company. In addition, a change in control of the Company could require FCC approval. See 'Business -- Regulation.' SECURITY FOR THE NOTES The Company's obligations under the Indenture and the Notes will be secured by a pledge of the stock of Satellite CD Radio Inc., a wholly-owned subsidiary of the Company. Satellite CD Radio Inc. conducts no business activities and its only asset is an FCC License. The Notes are not secured by any lien on, or other security interest in, any other properties or assets of the Company or Satellite CD Radio, Inc. In addition, the Indenture permits the Company to incur other secured indebtedness which indebtedness may be secured on a pari passu basis with the Notes with respect to the Pledged Stock. There can be no assurance that the proceeds from the sale of the Pledged Stock will be sufficient to satisfy the amounts due on the Notes. If, upon a foreclosure by the Trustee on the Pledged Stock, the proceeds from the Pledged Stock is insufficient to satisfy the entire amount due on the Notes, the claim by the holders of the notes against 23 the Company for such deficiency would rank pari passu with the claims of the other general, unsubordinated creditors of the Company. There can be no assurance that the remaining assets of the Company would be sufficient to satisfy any such deficiency. INVESTMENT COMPANY ACT OF 1940 On July 22, 1997, the Company filed an application with the Securities and Exchange Commission for an order declaring that the Company is not an 'investment company' as that term is defined in the Investment Company Act of 1940, as amended (the '1940 Act'). The 1940 Act defines an investment company to include a company that owns or proposes to acquire 'investment securities' (as that term is defined in the 1940 Act) exceeding 40% of the value of such company's assets (exclusive of U.S. government securities and cash items). Because the Company had temporarily invested the proceeds from its recent public and private offerings in investment securities prior to their expenditure, the Company could have fallen within the definition of an investment company. Investment companies must be registered and are subject to extensive regulation by the Commission under the 1940 Act. The filing of the application gave the Company an automatic 60-day exemption (the final day of which was September 19, 1997) from the provisions of the 1940 Act pending a final determination of the merits of its application. Because the Commission has not yet acted on the Company's application, the Company has now invested in U.S. government securities at least that proportion of its assets as the Company believes will be sufficient to avoid any determination that it is an 'investment company' within the meaning of the 1940 Act. If the request relief is ultimately denied, the Company may be required to register as an investment company or, in the alternative, to invest a substantial portion of the proceeds from the Offerings in U.S. government securities, pending expenditure of such proceeds by the Company for its corporate purposes. ABSENCE OF PUBLIC MARKET FOR UNITS, NOTES OR WARRANTS Prior to the offering of the Units, there has been no public market for the Units, Notes or Warrants and the Company does not intend to apply for listing of the Units, Notes or Warrants on any securities exchange or for quotation of the Units, Notes or Warrants on the Nasdaq National Market. The Company has been advised by the Underwriters that they presently intend to make a market in the Units, Notes and Warrants, as permitted by applicable laws and regulations, after consummation of the sale of the Units. The Underwriters are not obligated, however, to make a market in the Units, Notes or Warrants and any such market making activity may be discontinued at any time without notice at the sole discretion of each Underwriter. There can be no assurance as to the liquidity of the public market for the Units, Notes or Warrants or that an active public market for the Units, Notes or Warrants will develop. If an active public market does not develop, the market price and liquidity of the Units, Notes or Warrants may be adversely affected. See 'Underwriting.' Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the Notes. There can be no assurances that any market for the Notes will not be subject to similar disruptions. ORIGINAL ISSUE DISCOUNT The Notes will be issued at a substantial discount from their principal amount at maturity. Consequently, United States holders of the Notes generally will be required to include amounts in gross income for United States federal income tax purposes in advance of receipt of the cash payments to which such income is attributable. If the Notes are treated as 'applicable high yield discount obligations,' the Company's deductions with respect to the original issue discount on the Notes will be either deferred until the Company makes the related payments or possibly, in part, disallowed. See 'Certain United States Income Tax Considerations' for a more detailed discussion of the United States federal income tax consequences to United States holders of the purchase, ownership and disposition of the Notes and of the possible deferral or disallowance (in part) of original issue discount deductions to the Company. 24 If a bankruptcy case is commenced by or against the Company under the United States Bankruptcy Code after the issuance of the Notes, the claim of a holder of Notes may be limited to an amount equal to the sum of (i) the initial public offering price for the Notes and (ii) that portion of the original issue discount that is not deemed to constitute 'unmatured interest' for purposes of the United States Bankruptcy Code. Any original issue discount that was not amortized as of the date of the commencement of any such bankruptcy filing would constitute 'unmatured interest.' NO DIVIDENDS The Company has not declared or paid any dividends on its Common Stock since its inception, and does not currently anticipate paying any such dividends. The AEF Agreements contain and the Indenture will contain provisions that limit the Company's ability to pay dividends. ANTI-TAKEOVER PROVISIONS The Company's Board of Directors has the authority to issue up to 50,000,000 shares of preferred stock (the 'Preferred Stock') in one or more series and to determine the price, rights, preferences and privileges of those shares without any further vote or action by the stockholders. Of that amount, 8,000,000 shares have been designated as 5% Preferred Stock and 7,000,000 shares of Preferred Stock have been designated Series C Preferred Stock. In the Exchange Offer, all of the outstanding shares of 5% Preferred Stock were tendered for 1,846,799 shares of Series C Preferred Stock (which shares of Series C Preferred Stock will constitute all of the issued and outstanding shares of preferred stock of the Company). In addition, the Company has adopted a stockholders rights plan and in connection with the stockholders rights plan, 300,000 shares of Preferred Stock have been designated Series B Preferred Stock. Any issuance of Preferred Stock, including Preferred Stock with voting and conversion rights, as well as the Series C Preferred Stock which are convertible into shares of Common Stock, may adversely affect the voting power of the holders of Common Stock. The stockholders rights plan and any issuance of Preferred Stock may be deemed to have anti-takeover effects and may delay, deter or prevent a change in control of the Company that a stockholder might consider to be in his or her best interest. The Company may also become subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. The effect of these provisions could have the effect of delaying or preventing a change of control of the Company or adversely affect the market price of the Company's Common Stock. Furthermore, the severance provisions of employment agreements with certain members of the Company's management provide for payments that could discourage an attempted change in control of the Company. Any change in the composition of the Company's ownership after Arianespace Finance S.A. ('AEF') has determined that the Tranche A Loans are eligible for Conversion (as defined below), which could reasonably be expected to have a Material Adverse Effect (as defined in the AEF Agreements), would constitute a default under the AEF Agreements. Therefore, upon the occurrence of such change in the Company's ownership, AEF would have the right to accelerate its loans to the Company and the Company may be required to prepay all of its outstanding obligations under the AEF Agreements. See 'Description of Certain Indebtedness -- Vendor Financing.' There can be no assurance that the Company will satisfy the conditions for Conversion. However, any other financing obtained by the Company to repay or refinance the Tranche A Loans likely would contain restrictions on significant changes in the Company's stock ownership. Upon the occurrence of any Change of Control (as defined in the Indenture), or a Change in Control (as defined in the Series C Preferred Stock certificate of designations), the Company will be required to make an offer to purchase the Notes, after issuance thereof, and the Series C Preferred Stock. If such an offer is made, there can be no assurance that the Company will have available funds sufficient to pay the purchase price for any or all of the Notes and the Series C Preferred Stock that might be delivered by holders of the Notes or the Series C Preferred Stock seeking to accept the offer. After the issuance of the Notes the failure of the Company to make or consummate the Change of Control offer or to pay the purchase price for the Notes when due will give the trustee under the Indenture and the holders of the Notes the right to require the Company to prepay all of its outstanding indebtedness and other obligations under the Notes. The failure of the Company to make or consummate the offer to purchase or pay the purchase price for the Series C Preferred Stock when due 25 will give the holders of a majority of the Series C Preferred Stock the right, voting as a separate class, to elect a number of directors of the Company equal to the lesser of two directors and the number of directors constituting at least 25% of the Board of Directors of the Company. In addition, a change in control of the Company could require FCC approval. See 'Business -- Regulation.' CONTROL BY EXISTING STOCKHOLDERS The executive officers and directors of the Company currently beneficially own, or have voting power with respect to, approximately 42.0% of the outstanding Common Stock, and upon consummation of the Stock Offerings, such executive officers and directors are expected to beneficially own, or have voting power with respect to, approximately 32.7% of the outstanding Common Stock (assuming none of the executive officers, directors, any grantor under a voting trust granting voting power over shares of Common Stock purchased by such grantor or such grantor's affiliates to any such executive or director, or such grantor's affiliates purchases any shares of Common Stock in the Stock Offerings). This concentration of ownership will enable such stockholders, either acting alone or together with other existing stockholders, to exert considerable influence over the management and policies of the Company. Such a concentration of ownership may have the effect of delaying, deferring or preventing a change of control. SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of the Stock Offerings, the Company will have 15,377,884 shares of Common Stock outstanding, assuming no exercise of (i) the Underwriters' over-allotment option, (ii) outstanding options. Of these shares, 9,695,896 shares will be freely tradeable without restriction under the Securities Act unless such shares are purchased in the Stock Offerings by 'affiliates' of the Company, as such term is defined in Rule 144 under the Securities Act (the 'Affiliates'). Of the remaining 6,381,988 shares of Common Stock, 3,547,488 shares are 'restricted securities' as that term is defined in Rule 144 under the Securities Act (the 'Restricted Shares'). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act. Up to 1,642,000 of the Restricted Shares held by the directors and certain officers of the Company will be eligible for sale, subject to the restrictions of Rule 144, upon expiration of certain lock-up agreements entered into between each of such directors and officers of the Company and the underwriters of the Stock Offering (the 'Lock-up Agreements'), which shall expire, with respect to a Lock-up Agreement concerning 1,600,000 of such shares, on a cumulative basis as to 25% of such 1,600,000 shares at the expiration of each of the 15th, 18th, 21st and 24th month following August 26, 1997, and, with respect to Lock-up Agreements concerning the remaining 42,000 shares, 180 days after the effective date of the Stock Offerings. The remaining 1,905,488 Restricted Shares will not become eligible for resale until August 1998, and then only pursuant to the restrictions under Rule 144. In addition, the Company's largest stockholder has entered into a lock-up agreement relating to 2,834,500 shares lasting for a period ending, on a cumulative basis, as to 25% of the shares of Common Stock owned by such holder, on the expiration of the 15th, 18th, 21st and 24th month following August 26, 1997. As such shares become free of such lock-up, they will be eligible for sale without restriction. The Company is unable to predict the effect that sales made under Rule 144, pursuant to future registration statements, or otherwise, may have on any then prevailing market price for shares of the Common Stock. Nevertheless, sales of a substantial amount of Common Stock in the public market, or the perception that such sales could occur, could adversely affect market prices. 26 USE OF PROCEEDS The net proceeds to the Company from the Units Offering are estimated to be approximately $118.9 million after deducting estimated underwriting discounts and estimated expenses relating thereto. Concurrently with the sale of the Units, the Company intends to complete the Stock Offerings and, prior thereto, consummate the Exchange Offer. The net proceeds to the Company from the Stock Offerings are estimated to be approximately $45.6 million ($52.5 million if the related underwriters' over-allotment option is exercised in full) after deducting estimated underwriting discounts and estimated expenses of the Stock Offerings. The Company will receive no proceeds from the Exchange Offer. The Company expects to use the net proceeds of the Offerings to partially finance the construction and launch of the Company's satellites. The remainder of the net proceeds of the Offerings will be used for general corporate purposes, including marketing and working capital. The Company estimates that it will require approximately $645.9 million to develop and commence commercial operation of CD Radio by the end of 1999. Of this amount, the Company has raised approximately $266.6 million to date. After giving effect to the Offerings, the Company will have raised $442.0 million of funds, leaving anticipated additional cash needs of approximately $203.9 million to fund its operations through 1999. The Company anticipates additional cash requirements of approximately $100.0 million to fund its operations through the year 2000. The Company expects to finance the remainder of its funding requirements through the issuance of debt or equity securities or a combination thereof. There can be no assurance, however, that the Company's cash requirements will not increase or that such funds will be sufficient. In addition, although the Company's business plan is based upon the deployment of two satellites and the construction of a third spare satellite, it has the right to exercise an option under the Loral Satellite Contract to acquire an additional satellite. If the Company elects to exercise this option, substantial additional funds would be required and the Company would have to obtain additional regulatory approvals. Deployment of an additional satellite also could result in a delay in the introduction of CD Radio. Any decision to deploy a three satellite system would have to be made prior to the launch of the Company's first satellite. The Company intends to seek additional financing through the issuance of debt or equity securities in the public or private markets. However, there can be no assurance that the Company will be able to obtain additional financing on favorable terms, or at all, or that such financing will be available in a timely manner. See 'Risk Factors -- Need for Substantial Additional Financing.' SOURCES AND USES OF FUNDS BY CD RADIO The following table describes the estimated sources and uses of funds by the Company from its inception through the end of 1999 when CD Radio is targeted to commence commercial operations. The projection of total sources and total uses of funds is forward looking and could vary, perhaps substantially, from actual results, due to events outside the Company's control, including unexpected costs and unforeseen delays. 27 PRE-OPERATIONAL PERIOD(1)
SOURCES OF FUNDS - ---------------------------------------------------------------------------------------------------------- (IN MILLIONS) ------------- Funds Committed to Date: Net proceeds from equity investments prior to the FCC auction(2).................... $ 21.6 Net proceeds from issuance of 5% Preferred Stock(3)................................. 120.5 Net proceeds from sale of Common Stock to Loral Space(4)............................ 24.5 Vendor financing(5)................................................................. 100.0 ------------- Total to Date.................................................................. 266.6 Gross proceeds of the Offerings.......................................................... 175.4 ------------- Pro forma funds to date.................................................................. 442.0 Net future funds(6)...................................................................... 203.9 ------------- Total pre-operational sources.................................................. $ 645.9 ------------- ------------- USES OF FUNDS CD Radio system: Satellite contract(7)............................................................... $ 246.8 Launch services and insurance(8).................................................... 191.1 Ground segment(9)................................................................... 47.3 ------------- Subtotal....................................................................... 485.2 FCC License.............................................................................. 83.3 Operating expenses and working capital(10)............................................... 60.6 Net cash interest expense(11)............................................................ 2.2 Estimated fees and expenses of the Offerings, Exchange Offer............................. 14.6 Total pre-operational uses..................................................... $645.9 ------------- -------------
- ------------ (1) Assumes that CD Radio will commence commercial operations in December 1999. The Company anticipates that it will require total net future funds of $203.9 million following the Offerings to finance additional expenses through 1999. The Company anticipates additional funding requirements of $100.0 million to fund its operations through year end 2000. Many factors, including the Company's ability to generate significant revenues, could affect this estimate. See 'Risk Factors' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations.' (2) Includes (i) proceeds from sales of Common Stock and units of $14.5 million, (ii) proceeds from exercise of warrants of $4.6 million, (iii) proceeds from exercise of options of $0.2 million, (iv) issuance of Common Stock in satisfaction of notes and interest of $1.4 million and (v) issuance of Common Stock for services rendered of $0.9 million. (3) In April 1997, the Company issued a total of 5,400,000 shares of 5% Preferred Stock for aggregate consideration of $135 million in a private placement transaction. The net proceeds to the Company after fees payable to the placement agent and the Company's financial advisor and related expenses were approximately $120.5 million. (4) On August 5, 1997, the Company completed the sale of 1,905,488 shares of Common Stock to Loral Space for aggregate consideration of $25 million, less fees of $0.5 million. (5) The Company has available up to $105 million under the AEF Vendor Financing to finance a portion of the costs of launching two satellites (and can also defer certain interest payments thereon), and $20 million of deferred payments under the Loral Satellite Contract. Under the AEF Agreements not more than $80 million may be converted into term loans that mature beyond the launch date of the satellites. The Company may be unable to comply with certain conditions of conversion or to comply with the covenants of term loans if converted, in which case the Company will need to refinance the amounts outstanding under the AEF Agreements. See 'Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity' and 'Description of Certain Indebtedness -- Vendor Financing.' (6) The Company currently expects to satisfy its future funding requirements through the incurrence of additional debt and/or the issuance of additional equity securities in the public or private markets. Although the Company believes that it will be able to meet its additional funding requirements, there can be no assurance that such financing will be available on favorable terms, on a timely basis, or not at all. Among other things, any financing is subject to market conditions at the time of any proposed financing. See 'Risk Factors -- Need for Substantial Additional Financing' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations.' (footnotes continued on next page) 28 (footnotes continued from previous page) (7) As of September 30, 1997, the Company had incurred $31.1 million of this amount. See 'Risk Factors -- Dependence upon Satellite and Launch Contractors.' The amount shown excludes $29.8 million related to the purchase of the Company's ground spare (third) satellite which is payable subsequent to December 31, 1999. The total contract amount of $277.1 million assumes a one-time inflation adjustment (estimated by Loral to be 2%) for the period November 1996 to September 1997. (8) Includes $176 million for launch services and an estimated $15.1 million for insurance. As of September 30, 1997, the Company had incurred $3.5 million of the launch services amount. See 'Risk Factors -- Dependence on Satellite and Launch Contractors' and 'Business -- The CD Radio Delivery System -- The Satellites.' (9) Includes an estimated $6.7 million for the National Broadcast Studies, $38.2 million for terrestrial repeaters and $2.4 million for corporate office capital expenditures. (10) Includes cumulative historical operating expenses through September 30, 1997 of $23.1 million, and projected operating expenses from October 1, 1997 through the end of the pre-operational period of $39.8 million. (11) Includes estimated cash interest expense of $17.1 million, less cash interest income of $14.9 million, based on assumed interest rates, cash balances, borrowing levels and the timing, amount and structure of future financings. 29 CAPITALIZATION The following table sets forth the cash and capitalization of the Company as of September 30, 1997 (i) on an historical basis; (ii) as adjusted for payment by the Company of the balance due to the FCC for the FCC License in October 1997 and the Exchange Offer (effective November 20, 1997, all of the outstanding shares of the 5% Preferred Stock had been exchanged for shares of Series C Preferred Stock) after deducting Dealer Manager fees and other estimated expenses; and (iii) as adjusted for the estimated net proceeds from the sale of 2,800,000 shares of Common Stock pursuant to the Stock Offerings (at the offering price of $18 per share, and after deducting the underwriting discounts and commissions and estimated offering expenses) and the sale of Units for net proceeds of $118.9 million pursuant to the Units Offering.
AS OF SEPTEMBER 30, 1997 -------------------------------------------- AS ADJUSTED AS FURTHER FOR THE ADJUSTED FOR EXCHANGE THE ACTUAL OFFER OFFERINGS ------------ ------------ ------------ (IN THOUSANDS, EXCEPT SHARE DATA) Cash and cash equivalents......................................... $ 29,386 $ 25,393 $ 189,909 Designated cash(1)................................................ 66,667 -- -- ------------ ------------ ------------ Total cash and cash equivalents................................... $ 96,053 $ 25,393 $ 189,909 ------------ ------------ ------------ ------------ ------------ ------------ 15% Senior Discount Notes(2)...................................... $ -- $ -- $ 118,900 5% Delayed Convertible Preferred Stock, 5,222,608 shares issued and outstanding, actual(3)...................................... 116,083 -- -- 10 1/2% Series C Convertible Preferred Stock, no par value, 1,846,799 shares issued and outstanding, as adjusted and as further adjusted(4)............................................. -- 184,632 184,632 Common Stock, $.001 par value; 12,577,884 shares issued and outstanding, actual and as adjusted; and 15,377,884 shares issued and outstanding, as further adjusted(5).................. 13 13 15 Additional paid in capital........................................ 104,252 48,259 93,873 Deficit accumulated during the development stage.................. (72,000) (88,549) (88,549) ------------ ------------ ------------ Total capitalization(6)...................................... $148,348 $144,355 $ 308,871 ------------ ------------ ------------ ------------ ------------ ------------
- ------------ (1) Represents proceeds of the offering of the 5% Preferred Stock which have been classified as designated cash reflecting the balance due to the FCC for the Company's FCC License. The Company paid this amount to the FCC in October 1997. (2) In accordance with generally accepted accounting principles the Company will recognize approximately $38.7 million of interest expense over the life of the Notes related to the Warrants, which amount will be added to the principal amount of the Notes. (3) All capitalization excludes warrants issuable by the Company as of September 30, 1997 to purchase 486,000 shares of 5% Preferred Stock. (4) Assumes no redemption of Series C Preferred Stock after consummation of the Exchange Offer. (5) All capitalization excludes: (i) options outstanding as of September 30, 1997 to purchase 2,013,000 shares of Common Stock, of which 1,652,000 shares are subject to currently exercisable options, and (ii) warrants issuable as of September 30, 1997 to purchase 2,000,000 shares of Common Stock. (6) Total capitalization does not include any amount for the AEF Agreements (as defined herein). 30 SELECTED HISTORICAL FINANCIAL INFORMATION The selected consolidated financial data for the Company set forth below with respect to the statements of operations for the years ended December 31, 1994, 1995 and 1996 and with respect to the balance sheets at December 31, 1995 and 1996 are derived from the consolidated financial statements of the Company, audited by Coopers & Lybrand L.L.P., independent accountants, incorporated herein by reference. The selected consolidated financial data for the Company with respect to the balance sheets at December 31, 1992, 1993 and 1994 and with respect to the statement of operations data for the years ended December 31, 1992 and 1993, are derived from the Company's audited consolidated financial statements, which are not incorporated herein by reference. The financial information as of and for the six months ended June 30, 1996 and 1997 is derived from unaudited consolidated financial statements incorporated herein by reference. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, that are necessary for a fair presentation of the financial position and results of operations for these periods. The selected consolidated financial data should be read in conjunction with the consolidated financial statements and related notes thereto incorporated herein by reference.
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, -------------------------------------------------- ---------------------------------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------- -------- -------- -------- ------------------- ------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Operating revenues.......... $ -- $ -- $ -- $ -- $ -- $ -- $ -- Net loss............ (1,551) (6,568) (4,065) (2,107) (2,831) (1,871) (1,489) Net loss per share of Common Stock... (.23) (.79) (.48) (.23) (.29) (.20) $ (4.97)(1) Weighted average shares of Common Stock and Common Stock equivalents outstanding....... 6,715 8,284 8,398 9,224 9,642 9,441 10,760 Deemed dividend on 5% Preferred Stock............. -- -- -- -- -- -- $ (51,975) AS OF DECEMBER 31, AS OF SEPTEMBER 30, -------------------------------------------------- ---------------------------------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------- -------- -------- -------- ------------------- ------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents....... $ 1,883 $ 777 $ 3,400 $ 1,800 $ 4,584 $ 4,942 $ 29,386 Designated cash(2)........... -- -- -- -- -- -- 66,677 Working capital (deficit)......... 1,399 (250) 2,908 1,741 4,442 5,040 29,871 Total assets........ 2,292 1,663 3,971 2,334 5,065 5,934 148,430 Deficit accumulated during the development stage............. (2,965) (9,533) (13,598) (15,705) (18,536) (17,577) (72,000) Stockholders' equity............ 1,791 505 3,431 1,991 4,898 5,460 32,265 Book value per share............. .48 2.57
- ------------ (1) Includes a deemed dividend on the Company's 5% Preferred Stock of $52.0 million, or $4.83 per share. The deemed dividend relates to the discount feature associated with the 5% Preferred Stock, computed in accordance with the Commission's position on accounting for preferred stock which is convertible at a discount to the market price. (2) Represents proceeds of the offering of the 5% Preferred Stock which were classified as designated cash reflecting the balance due to the FCC for the Company's FCC License. The Company paid this amount to the FCC in October 1997. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Prospectus contains certain forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those projected in the forward-looking statements due to a number of factors, including those set forth under 'Risk Factors' and elsewhere in this Prospectus. See 'Special Note Regarding Forward-Looking Statements.' OVERVIEW The Company was organized in May 1990 and is in its development stage. The Company's principal activities to date have included technology development, pursuing regulatory approval for CD Radio, market research, design, development, contract negotiations with satellite and launch vehicle contractors, technical efforts with respect to standards and specifications, strategic planning and securing adequate financing for working capital and capital expenditures. The Company does not expect to derive any revenues from operations prior to the commercial launch of CD Radio, which is expected to occur no earlier than the end of 1999. The Company has incurred substantial losses to date and expects to incur substantial losses until at least a year after the commercial launch of CD Radio. In addition, the Company will require substantial additional capital to complete development and commence commercial operations of CD Radio. There can be no assurance that CD Radio will ever commence operations, that the Company will attain any particular level of revenues or that the Company will achieve profitability. Upon commencing commercial operations, the Company expects its primary source of revenues to be monthly subscription fees. The Company currently anticipates that its subscription fee will be approximately $10 per month to receive CD Radio broadcasts, with a one time, modest activation fee per subscriber. To receive CD Radio, subscribers will need to purchase a radio card or S-band radio together with the associated miniature satellite dish antenna. The Company does not intend to manufacture these products and thus will not receive any revenues from their sale. Although the Company holds patents covering various features of its satellite broadcasting system, which system includes, among other features, certain technology to be used in the radio cards, S-band radios and miniature satellite dish antennas, the Company expects to license its technology to manufacturers at no charge. As the number of subscribers to CD Radio increases, the Company also may derive revenues from payments from producers of sports, news and talk programming for providing national distribution of their programming to subscribers. The Company expects that the operating expenses associated with commercial operations will consist primarily of costs to acquire programming; costs to maintain and operate its satellite broadcasting system and National Broadcasting Studio; and sales, general and administrative costs. Costs to acquire programming are expected to include payments to build and maintain an extensive music library and royalty payments for broadcasting music (calculated based on a percentage of revenues). Sales, general and administrative costs are expected to consist primarily of advertising costs, salaries of executives, studio personnel, program hosts, administrators, technical staff, rent and other administrative expenses. The Company expects that the number of its employees will increase from 11 to approximately 100 by the time it commences commercial operations. In addition to funding initial operating losses, the Company will require funds for working capital, interest and financing costs on borrowings and capital expenditures. The Company's interest expense will increase significantly as a result of its financing plan. However, a substantial portion of its planned indebtedness will not require cash payments of interest and principal for some time. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1996 The Company recorded net losses of $1,489,000 and $1,872,000 for the nine months ended September 30, 1997 and 1996, respectively, and $654,000 and $667,000 for the three months ended September 30, 1997 and 1996, respectively. The Company's total operating expenses were $4,357,000 32 and $1,921,000 for the nine months ended September 30, 1997 and 1996, respectively, and were $2,230,000 for the three months ended September 30, 1997 compared to $682,000 for the three months ended September 30, 1996. Legal, consulting and regulatory fees increased for the nine months ended September 30, 1997 to $2,603,000 from $979,000 for the nine months ended September 30, 1996, and increased to $1,357,000 from $372,000 for the three months ended September 30, 1997 and 1996, respectively. These levels of expenditures are the result of increased activity since winning an auction for a national satellite radio broadcast license conducted by the FCC in April 1997. Research and development costs were $43,000 and $77,000 for the nine months ended September 30, 1997 and 1996, respectively, and $8,000 and $24,000 for the three months ended September 30, 1997 and 1996, respectively. The Company completed the majority of such activities in 1994. Other general and administrative expenses increased for the nine months ended September 30, 1997 to $1,711,000 from $866,000 for the nine months ended September 30, 1996 and to $865,000 from $285,000 for the three months ended September 30, 1997 and 1996, respectively. General and administrative expenses are expected to continue to increase as the Company continues to develop its business. The Company also incurred a non-cash charge of $240,000 for the nine month period ended September 30, 1996, attributable to the recognition of compensation expense in connection with stock options issued to officers of the Company. The increase in interest income to $2,873,000 for the nine months ended September 30, 1997, from $62,000 in the nine months ended September 30, 1996 and to $1,575,000 from $17,000 for the three months ended September 30, 1997 and 1996, respectively, was the result of a higher average cash balance during 1997. The cash and cash equivalents on hand were primarily obtained from the 5% Preferred Stock Offering and the sale of Common Stock to Loral Space in 1997. YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995 The Company recorded net losses of $2,831,000 ($.29 per share) and $2,107,000 ($.23 per share) for the years ended December 31, 1996 and 1995, respectively. The Company's total operating expenses were $2,930,000 in 1996 compared to $2,230,000 in 1995. Legal, consulting and regulatory fees increased in 1996 to $1,582,000 from $1,046,000 in 1995, as the result of increased efforts to obtain the FCC License. Research and development costs were $117,000 in 1996, compared with $122,000 in 1995. Non-recurring costs associated with the design and development of the CD Radio demonstration system were substantially completed in 1993. Costs incurred in subsequent years relate to the operations of the demonstration system, including leasing satellite time, taking transmission measurements, and testing multipath fading. Other general and administrative expenses increased in 1996 to $1,231,000 from $1,062,000 in 1995. The increase is due to the Company requiring general administrative support for the effort to obtain the FCC License. Interest income decreased to $113,000 in 1996 from $143,000 in 1995 as a result of the Company having a higher average cash balance in 1995. Proceeds relating to the exercise of stock warrants were not received until late 1996 and, therefore, did not generate a significant amount of interest income. Interest expense decreased from $20,000 in 1995 to $13,000 in 1996 as a result of the Company repaying a promissory note due to an officer of the Company in 1996. YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994 The Company recorded net loss of $2,107,000 ($.23 per share) and $4,065,000 ($.48 per share) for the years ended December 31, 1995 and 1994, respectively. The Company's total operating expenses were $2,230,000 in 1995 compared to $4,076,000 in 1994. 33 Legal, consulting and regulatory fees decreased from $1,245,000 in 1994 to $1,046,000 in 1995 as the Company continued to reduce costs while awaiting action by the FCC on the Company's application for an FCC License. Other general and administrative expenses also decreased from $2,455,000 in 1994 to $1,062,000 in 1995 reflecting a reduction of costs such as payroll, rent and compensation expense in connection with issuance of stock options. The Company completed the majority of the research and development necessary for product development prior to FCC licensing by 1994 which was reflected in the decrease of research and development costs from $375,000 in 1994 to $122,000 in 1995. The increase in interest income from $51,000 in 1994 to $143,000 in 1995 was the result of a higher average cash balance in 1995. The cash and cash equivalents on hand were originally obtained from the Company's initial public offering in September 1994, which raised $4.8 million. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1997, the Company had working capital of approximately $29,870,000 compared to $4,442,000 at December 31, 1996. The increase in working capital was primarily the result of remaining cash proceeds from the offering of 5% Preferred Stock and the sale of Common Stock to Loral Space in 1997. FUNDING REQUIREMENTS The Company is a development stage company and as such will require substantial amounts of continued outside financing to acquire and develop its assets and commence commercial operations. The Company estimates that it will require approximately $645.9 million to develop and commence commercial operation of CD Radio by the end of 1999. Of this amount, the Company has raised approximately $266.6 million to date. After giving effect to the Offerings, the Company will have raised approximately $442.0 million, leaving anticipated additional cash needs of approximately $203.9 million to fund its operations through 1999. The Company anticipates additional cash requirements of approximately $100.0 million to fund its operations through the year 2000. The Company expects to finance the remainder of its funding requirements through the issuance of debt or equity securities or a combination thereof. Furthermore, if the Company were to exercise its option under the Loral Satellite Contract to purchase and deploy an additional satellite, substantial additional funds would be required. See 'Use of Proceeds.' In April 1997, the Company was the winning bidder in an FCC auction for one of two national satellite broadcast licenses with a winning bid of $83.3 million, of which $16.7 million was paid as a deposit. The Company paid the balance due the FCC in October 1997 and was awarded the FCC License on October 10, 1997. To build and launch the satellites necessary for the operations of CD Radio, the Company has entered into the Loral Satellite Contract and the Arianespace Launch Contract. The Loral Satellite Contract provides for Loral to construct for the Company three satellites, two of which the Company intends to launch and the third of which will be kept in reserve as a spare, and for an option to be granted to the Company to purchase a fourth satellite. Under the Arianespace Launch Contract, Arianespace has agreed to launch two of the Company's satellites into orbit. See 'Business -- The CD Radio Delivery System -- The Satellites.' The Company is committed to make aggregate payments of $277.1 million under the Loral Satellite Contract and of $176.0 million under the Arianespace Launch Contract. Under the Loral Satellite Contract, with the exception of a payment made at the time of the signing of the Loral Satellite Contract in March 1993, payments are to be made in 22 installments commencing in April 1997 and ending in November 2000, the expected delivery date for the third satellite. Approximately half of these payments are contingent on Loral meeting specified milestones in the manufacture of the three satellites. In addition, Loral has agreed to defer a total of $20.0 million of the contract price, which is to be paid in four equal installments of $5.0 million commencing November 2001 until March 2003. See ' -- Sources of Funding.' Amounts due under the Arianespace Launch Contract, except for payments made prior to the execution of the Arianespace Launch Contract, are 34 payable on various dates between November 1997 and July 1999 for the first launch, and, for the second launch, are payable on various dates between February 1998 and the earlier of October 1999, or ten days prior to the second launch. The Company also will require funds for construction of its National Broadcast Studio, working capital, interest on borrowings, acquisition of programming, financing costs and operating expenses until some time after the commencement of commercial operations of CD Radio. The Company's interest expense will increase significantly as a result of its financing plan; however, a substantial portion of its planned indebtedness will not require immediate cash payments. The Notes are not expected to require cash payments until 2003. Interest on funds borrowed by the Company under the AEF Agreements is deferred until repayment of such amounts. SOURCES OF FUNDING The Company historically has funded its operations through equity capital. As of September 30, 1997, the Company had received a total of $166.6 million in equity capital and had no outstanding indebtedness. A significant portion of the Company's equity capital was received in April 1997 as a result of the Company's issuance of 5,400,000 shares of 5% Preferred Stock for aggregate net proceeds of $120.5 million in a private placement transaction. These proceeds were used primarily to finance the payment of the purchase price for the FCC License and for working capital. On July 22, 1997, the Company entered into two loan agreements (collectively the 'AEF Agreements') with Arianespace Finance S.A. ('AEF'), a subsidiary of Arianespace, to finance approximately $105 million of the estimated $176 million price of the launch services to be provided by Arianespace (the 'AEF Vendor Financing'). Under these agreements, the Company is able to borrow funds to meet the progress payments due to Arianespace for the construction of each launch vehicle and other launch costs (the 'Tranche A Loans'). The Company has the opportunity upon satisfying a variety of conditions specified in the AEF Agreements to extend the term of the Tranche A Loans. If the term is not extended, or if the Company is unable to comply with the terms and covenants of such extended loans, the Company will be required to repay the Tranche A Loans in full, together with accrued interest and all fees and other amounts due, approximately three months before the applicable launch date, which will be prior to the time CD Radio commences commercial operations. There can be no assurance that the Company will have sufficient funds to make such repayment. The AEF Agreements impose restrictions on the Company's ability to incur additional indebtedness, make investments or permit liens on certain assets of the Company, other than liens in favor of AEF. If AEF determines that the Tranche A Loans are eligible for conversion into term loans, the Company will also be subject to provisions restricting its ability to change its capital structure or organizational documents or to merge, consolidate or combine with another entity. If the Tranche A Loans are converted, the Company's obligations to AEF will be secured by a lien on specified assets of the Company, including the satellites and, to the extent permitted by applicable law, the FCC License. In addition, the Indenture permits indebtedness under the AEF Agreements to be secured on a pari passu basis with the Notes by a first priority security interest in the Pledged Stock. See 'Description of Certain Indebtedness -- Vendor Financing.' Pursuant to a Multiparty Agreement among the Company, AEF and Arianespace in connection with the AEF Agreements, if the Company is unable to obtain sufficient financing to complete the construction and launch of the satellites, or if the Company terminates the Arianespace Launch Contract, the Company will be required to pay Arianespace a termination fee ranging from 5% to 40% of the launch services price, based on the proximity of the date of termination to the scheduled launch date. The termination fee will be payable prior to the time the Company commences commercial operations and there can be no assurance that the Company will have sufficient funds to pay this fee. The Loral Satellite Contract provides for payments to be made in installments commencing in April 1997 and ending in November 2000, subject to achievement by Loral of certain milestones in the manufacture of the satellites. Loral has agreed to defer payment of $20.0 million from two milestone payments due in June and September of 1998. The deferred amount will be paid in four installments of $5.0 million, with the first payment to be made 27 months after the delivery of the first satellite, the 35 second payment to be made 27 months after delivery of the second satellite, the third payment to be made 365 days after the first payment date and the fourth payment to be made 365 days after the second payment date. In the event of a satellite or launch failure, the Company will be required to pay Loral the full deferred amount for the affected satellite no later than 120 days after the date of the failure. If the Company should elect to put a satellite into ground storage, rather than having it shipped to the launch site, the full deferred amount for the affected satellite will become due within 60 days of such election. As a condition to the deferred payments, the Company has agreed to provide Loral a security interest in the properties and assets of the Company and its subsidiaries, of substantially the same nature and quality, and of substantially equivalent value relative to the amount of the secured obligations, and on the same terms and covenants, as the Company has provided or may provide to any other party under any and all of its loan, credit and other similar agreements. The Stock Pledge constitute such a security interest. The Indenture permits indebtedness under the Loral Satellite Contract to be secured on a pari passu basis with the Notes by a first priority security interest in the Pledged Stock. After giving effect to the Offerings and the AEF Agreements, the Company expects it will require at least an additional $203.9 million in financing through 1999. Thereafter, the Company expects it will require additional financing. However, there can be no assurance that the Company's actual cash requirements will not increase. Potential sources of additional financing include the sale of debt or equity securities in the public or private markets. There can be no assurance that the Company will be able to obtain additional financing on favorable terms, or at all, or that it will be able to do so in a timely fashion. The AEF Agreements contain, the indenture will contain and documents governing any indebtedness incurred in the future are expected to contain provisions limiting the ability of the Company to incur additional indebtedness. If additional financing were not available on a timely basis, the Company would be required to delay satellite and/or launch vehicle construction in order to conserve cash to fund continued operations, which would cause delays in the commencement of operations and increased costs. See 'Risk Factors -- Need for Substantial Additional Funding.' The amount and timing of the Company's actual cash requirements will depend upon numerous factors, including costs associated with the construction and deployment of its satellite system and the rate of growth of its business subsequent to commencing service, costs of financing and the possibility of unanticipated costs. Additional funds would be required in the event of delay, cost overruns, launch failure, launch services or satellite system change orders, or any shortfalls in estimated levels of operating cash flow, or to meet unanticipated expenses. As a result of the issuance of the Notes and the Warrants and the expected incurrence of significant additional indebtedness required to meet its capital requirements, the Company will have substantial indebtedness. The Company's ability to meet all of its debt service obligations when due may require it to refinance its then outstanding indebtedness. No assurance can be given that the Company will be able to generate sufficient cash flow to service its indebtedness or be able to refinance indebtedness. The AEF Agreements contain, the Indenture will contain, and debt instruments governing any future indebtedness of the Company are expected to contain, restrictions on, among other things, the ability of the Company to incur additional indebtedness. 36 BUSINESS This Prospectus contains certain forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those projected in the forward-looking statements due to a number of factors, including those set forth under 'Risk Factors' and elsewhere in this Prospectus. See 'Special Note Regarding Forward-Looking Statements.' GENERAL CD Radio Inc. was founded in 1990 to pioneer and commercialize a compact disc quality, multi-channel radio service broadcast directly from satellites to vehicles. In October 1997, the Company was granted one of two licenses from FCC to build, launch and operate a national satellite radio broadcast system. The Company has begun construction of two satellites that it plans to launch into geosynchronous orbit to broadcast its radio service throughout the United States. The Company's service, which will be marketed under the brand name 'CD Radio,' is expected to consist of 30 channels of commercial-free, compact disc quality music programming and 20 channels of news, sports and talk programming. CD Radio will be broadcast over a frequency band, the 'S-band', that will augment traditional AM and FM radio bands. Under its FCC license, the Company has the exclusive use of a 12.5 megahertz portion of the S-band for this purpose. The Company currently expects to commence CD Radio broadcasts in late 1999 at a subscription price of $10 per month. The Company is positioning itself as an entertainment company and accordingly plans to design and originate programming on each of its 30 music channels. Each channel will be operated as a separate radio station, with a distinct format. Certain music channels will offer continuous music while others will have program hosts, depending on the type of music programming. CD Radio will offer a wide range of music categories, such as: Symphonic Chamber Music Opera Today's Country Traditional Country Contemporary Jazz Classic Jazz Blues Big Band/Swing Top of the Charts Classic Rock 50's Oldies 60's Oldies Folk Rock Latin Ballads Latin Rhythms Reggae Rap Dance Urban Contemporary Soft Rock Singers & Songs Beautiful Instrumentals Album Rock Alternative Rock New Age Broadway's Best Gospel Children's Entertainment World Beat The Company's 50 music and non-music stations will be housed at the National Broadcast Studio. The National Broadcast Studio will contain the Company's music library, facilities for programming origination, programming personnel and program hosts, as well as facilities to uplink programming to the satellites, to activate or deactivate service to subscribers and to perform the tracking, telemetry and control of the orbiting satellites. THE CD RADIO OPPORTUNITY The Company believes that there is a significant market for music and other radio programming delivered through advanced radio technology. While television technology has advanced steadily -- from black and white to color, from broadcast to cable, and from ordinary to high-definition television -- the last major advance in radio technology was the introduction of FM broadcasts. CD Radio will provide a new generation of radio service, offering a wide variety of music formats available on demand, 'seamless' signal coverage throughout the United States and commercial-free, compact disc quality music programming. The Company's planned multiplicity of formats currently is not available to motorists in any market within the United States. CD Radio is primarily a service for motorists. The Yankee Group, a market research organization, estimates that there will be approximately 198 million registered private motor vehicles in the United States by the end of 1999, when the Company expects to commence broadcasting. At present, approximately 89% of all private vehicles have a radio that could easily be utilized to receive 37 CD Radio's broadcasts, with this number estimated to be approximately 182 million vehicles in 1999, and approximately 199 million in 2004. CD Radio will initially target a number of demographic groups among the drivers of these vehicles, including 110 million commuters, 34 million of whom spend between one and two hours commuting daily, three million truck drivers and three million owners of recreational vehicles, among other groups. According to Arbitron, in 1996, despite the fact that almost all vehicles contain either a cassette or compact disc player, 87% of automobile commuters listened to the radio an average of 50 minutes a day while commuting. According to the Radio Advertising Bureau, each week radio reaches approximately 95% of all Americans over the age of 12, with the average listener spending more than three hours per weekday and more than five hours per weekend listening to the radio. More than 40% of all radio listening is done in cars. In addition, in 1996, approximately 79% of total radio listening was to FM stations, which primarily provides music programming, as compared with AM stations which devote a greater proportion of their programming to talk and news. The Company believes that its ability to offer a wide variety of musical formats simultaneously throughout the United States will enable it to tap significant unmet consumer demand for specialized musical programming. The economics of the existing advertiser supported radio industry dictate that conventional radio stations generally program for the greatest potential audience. Even in the largest metropolitan areas, station formats are limited. Nearly half of all commercial radio stations in the United States offer one of only three formats: country, adult contemporary and news/talk, and the next three most prevalent formats account for another 30% of all stations. Although niche music categories such as classical, jazz, rap, gospel, oldies, soundtracks, new age, children's programming and others accounted for approximately 27% of sales of recorded music in 1996, such formats generally are unavailable on existing radio stations in many markets. Even in New York City, the nation's largest radio market, there are no radio stations devoted solely to such programming as opera, blues, chamber music, soundtracks, reggae, children's programming and many others. CD Radio's wide choice of formats is expected to appeal to a large number of currently underserved listeners. In addition, the limited coverage area of conventional radio broadcasting means that listeners often travel beyond the range of any single station. Unlike conventional FM stations, which have an average range of only approximately 30 miles before reception fades, CD Radio's signal is designed to cover the entire continental United States enabling listeners almost always to remain within its broadcast range. The Company's satellite delivery system is designed to permit CD Radio to be received by motorists in all outdoor locations where the vehicle has an unobstructed line-of-sight with one of the Company's satellites or is within range of one of the Company's terrestrial repeating transmitters. The ability to broadcast nationwide will also allow the Company to serve currently underserved radio markets. In the United States, there are more than 45 million people aged 12 and over living in areas with such limited radio station coverage that the areas are not monitored by Arbitron. Of these, the Company believes approximately 22 million people receive five or fewer FM stations, 1.6 million receive only one FM station and at least one million people receive no FM stations. This segment of the population also has a limited choice of radio music formats and is one of CD Radio's primary target markets. The Company also believes that CD Radio will have a competitive advantage over conventional radio stations due to its music channels being commercial-free. In contrast, conventional radio stations interrupt their broadcasts with up to 18 minutes of commercials in every hour of music programming, and most stations also frequently interrupt programming with news, promotional announcements, public service announcements and miscellaneous information. The Company believes that consumers dislike frequent radio commercial interruptions and that 'station surfing' to avoid them is common. PROGRESS TO DATE AND SIGNIFICANT DEVELOPMENT MILESTONES The following chart sets forth the Company's past and projected development milestones. There can be no assurance that the Company will be able to meet any of its projections for 1998 or 1999, including completion of construction of its National Broadcast Studio, completion of its satellite launches, or commencement of its commercial operations in late 1999 as planned. See 'Risk Factors -- Possible Delays and Adverse Effect of Delay on Financing Requirements.' 38 1990: CD Radio Inc. incorporated Proposed FCC create satellite radio service and filed license application 1991: Conducted stationary service simulation Conducted nationwide focus groups 1992: Satellite radio spectrum allocated at WARC-92 Conducted radio manufacturer discussions 1993: Contracted with Loral for construction of its satellites Contracted with Arianespace for launch of two of its satellites Conducted additional nationwide focus groups 1994: Completed an initial public offering of its Common Stock 1995: Completed Loral satellite design Filed orbital slot registrations Completed development of its proprietary miniature satellite dish antenna 1996: Designed the radio card receiver 1997: Won auction for FCC License Received one of two FCC national satellite radio broadcasting licenses Completed a $135 million private placement of 5% Preferred Stock Commenced construction of two satellites Completed receipt of satellite broadcast patents Arranged $105 million of vendor financing with Arianespace Finance S.A. Recruited its key programming, marketing and financial management team Completed a strategic sale of $25 million of Common Stock to Loral Space Executed radio manufacturer memoranda of understanding 1998: Select radio card manufacturer Select non-music channel content providers Complete significant satellite construction milestones Begin terrestrial repeating transmitter build-out 1999: Complete construction of National Broadcast Studio Begin commercial production of radio cards Complete satellite launches Test markets Begin commercial operations
THE CD RADIO SERVICE CD Radio will offer motorists (i) a wide choice of finely focused music formats; (ii) nearly seamless signal coverage throughout the continental United States; (iii) commercial-free music programming; and (iv) plug and play convenience. 39 Wide Choice of Programming. Each of CD Radio's 30 music channels will have a distinctive format, such as opera, reggae, classic jazz and children's entertainment, intended to cater to specific subscriber tastes. In most markets, radio broadcasters target their programming to broad audience segments. Even in the largest metropolitan markets the variety of station formats generally is limited, and many of the Company's planned formats are unavailable. 'Seamless' Signal Coverage. CD Radio will be available throughout the continental United States, enabling listeners almost always to be within its broadcast range. The Company expects its nearly seamless signal will appeal to motorists who frequently travel long distances, including truck drivers and recreational vehicle owners, as well as commuters and others who outdrive the range of their FM signals. In addition, the Company expects its broadcasts will appeal to the 45 million consumers who live in areas that currently receive only a small number of FM stations. Commercial-Free Music Programming. The Company will provide commercial-free music programming. The Company's market research indicates that a principal complaint of radio listeners concerning conventional broadcast radio is the frequency of commercials. Because CD Radio, unlike most commercial AM and FM stations, will be a subscription and not an advertiser-supported service, its music channels will not contain commercials. Plug and Play Convenience. Consumers will be able to receive CD Radio broadcasts by acquiring a radio card and an easily attachable, silver dollar-sized satellite dish antenna. Listeners will not be required to replace their existing car radios and will be able to use the radio card by plugging it into their radio's cassette or compact disc slot. CD Radio listeners using a radio card will be able to push a button to switch between AM, FM and CD Radio. Radio cards will be portable and will be able to be moved from car to car. Radio card activation will be accomplished directly via satellite by calling the Company's customer service center at 888-CD-RADIO. The Company intends to offer 30 channels of commercial-free, all-music programming and 20 additional channels of other formats that do not require compact disc quality audio, such as all-news, all-sports and all-talk programming. Each music channel will have a distinctive format, intended to cater to specific subscriber tastes. The Company expects the initial subscription fee for CD Radio, which will entitle subscribers to receive all CD Radio channels, will be $10 per month. The Company intends to recruit program managers from the recording, broadcasting and entertainment industries to manage the development of daily programming for each CD Radio channel. In order to be accessible to these industries, the Company plans to locate its programming operations and the National Broadcast Studio in the New York metropolitan region. Program managers also will coordinate the Company's continuing market research to measure audience satisfaction, refine channel definitions and themes and select program hosts for those channels that have hosts. Music programming will be selected from the Company's music library. The Company intends to create an extensive music library which will consist of a deep range of recorded music in each genre broadcast. In addition to updating its music library with new recordings as they are released, the Company will seek to acquire recordings that in certain cases are no longer commercially available. The Company believes that CD Radio will provide an opportunity for the recording industry to expose and promote new releases and artists to targeted listener groups nationwide. The Company plans to solicit promotional copies of new recordings, and contemplates showcasing these releases as part of a service to be developed for record companies. The Company intends to work with the recording industry and performing artists to develop innovative programming formats. In connection with its music programming, the Company will be required to negotiate and enter into royalty arrangements with performing rights societies, such as ASCAP, BMI and SESAC. These organizations collect royalties and distribute them to songwriters and music publishers. Copyright users negotiate a fee with these organizations based on a percentage of revenues. Broadcasters currently pay a combined total of approximately 3% of their revenues to the performing rights societies. The Company also will be required to negotiate similar arrangements, pursuant to the Digital Recordings Act, with the owners of the sound recordings. The determination of certain royalty arrangements with the owners of sound recordings under the Digital Recordings Act currently are subject to arbitration proceedings. The Company believes that it will be able to negotiate satisfactory royalty arrangements 40 with the above organizations and the owners of sound recordings, but there can be no assurance as to the terms of any such royalty arrangements ultimately negotiated or established by arbitration. In addition to its music channels, the Company expects to offer 20 channels of news, sports and talk programming. The Company does not intend to produce the programming for these non-music channels. The Company believes, based on its discussions to date, that there is sufficient interest on the part of providers of news, sports and talk programming in CD Radio to permit the Company to offer a variety of non-music programming. News, talk and sports programming obtained from third party sources will include commercial advertising. To date, the Company has not reached any understandings or entered into any agreements with respect to the supply of such programming. MARKETING STRATEGY The Company plans to offer a high quality broadcast service with targeted music formats, nearly seamless signal coverage throughout the continental United States, commercial-free music programming and compact disc quality fidelity. The Company's marketing strategy for CD Radio has three interrelated components: (i) the strategy for creating consumer awareness of CD Radio, (ii) the strategy for generating subscriptions to CD Radio and (iii) the strategy for generating purchases of radio cards and S-band radios and their associated miniature satellite dish antennas. CREATING CONSUMER AWARENESS The Company believes that the introduction of CD Radio will have high news value, which it expects will result in significant national and local publicity prior to and during the initial launch of the service. In addition, the Company plans to engage in extensive marketing, advertising and promotional activities to create consumer awareness of CD Radio. This includes an ongoing major advertising campaign funded principally by the Company, together with expected significant manufacturer and retailer cooperative advertising. A major national umbrella campaign will utilize a full mix of media, including network and cable television, radio, print and billboard. GENERATING SUBSCRIPTIONS TO CD RADIO The Company also intends to focus its initial efforts on a number of demographic groups that it believes represent potential target markets for CD Radio, including commuters, niche music listeners, truck drivers, recreational vehicle owners, consumers in areas with sparse radio coverage and operators of rental car fleets. In addition, the Company intends to aggressively target early adopters of new technologies, who it believes are likely to have a high level of interest in CD Radio. Commuters. Of the 110 million commuters, the Company has identified 34 million as highly addressable by virtue of their commute times averaging between one and two hours daily. To reach these commuters, the Company plans to purchase radio advertising spots on stations with frequent traffic reports, purchase outdoor billboard advertising on long commute roads and place inserts in gasoline credit card bills. Niche Music Listeners. Niche music categories, such as classical, jazz, rap, gospel, soundtracks, oldies and children's programming, constitute approximately 27% of the market for recorded music sales. To reach niche music listeners, the Company intends to work with the recording industry to include print material about CD Radio inside niche music compact disc packaging, place print advertising in specialty music magazines targeted to niche music listeners and members of fan clubs, conduct direct mailings to specialized music mailing lists of record clubs and sponsor and advertise at certain music events. Truck Drivers. According to the U.S. Department of Transportation, there are approximately three million professional truck drivers in the United States, of whom approximately 1.1 million are long-distance haulers. The Company intends to place sampling displays at truck stops and to advertise in publications and on internet sites which cater to truck drivers. Recreational Vehicle Owners. There are approximately three million recreational vehicles in the United States. The Company plans to advertise in magazines targeted to recreational vehicle 41 enthusiasts, conduct direct mailings targeted to these individuals and place sampling displays at recreational vehicle dealerships. Sparse Radio Zones. More than 45 million people aged 12 and over live in areas with such limited radio station coverage that the areas are not monitored by Arbitron. The Company believes that of these people, approximately 22 million people receive five or fewer FM stations, 1.6 million receive only one FM station and at least one million people receive no FM stations. To reach these consumers, the Company plans to utilize local newspaper advertisements during the Company's initial launch period and target direct mailings to music enthusiasts in these areas. Rental Car Fleets. The Company intends to conduct a major promotional effort with car rental companies to provide CD Radio in the approximately 1.4 million rental cars in the United States. The Company has begun discussions with car rental companies in this regard. SALES OF RADIO CARDS AND S-BAND RADIOS Consumers will receive CD Radio through radio cards or S-band radios and associated miniature satellite dish antennas. Although the Company does not intend to manufacture or distribute radio cards, S-band radios or miniature satellite dish antennas, their availability will be critical to the Company because they are the only means by which to receive CD Radio. Accordingly, the Company has devised strategies to make radio cards and S-band radios together with their associated miniature satellite dish antennas widely available to consumers. Sales of Radio Cards. The Company believes that the availability of radio cards will be critical to the Company's market penetration for a number of years following the introduction of CD Radio. The Company expects that radio cards will be sold at retail outlets and mass merchandisers that sell consumer electronics. The retail price of the radio card together with the miniature satellite dish currently is expected to be approximately $200. Sales of S-band Radios. Distribution of S-band radios is an important element in the Company's marketing strategy. In 1996, U.S. consumers spent approximately $3 billion on autosound equipment for aftermarket installation in their vehicles, which the Company believes included approximately 4.6 million new AM/FM radios. The Company believes that this autosound equipment market is comprised largely of young, music oriented early adopters of new technology and that, in the course of purchasing a new car radio, some of these consumers would select one with built-in S-band capability. The Company expects S-band radios to be sold at retail outlets that sell consumer electronics, as well as at autosound specialty dealers. Like existing autosound equipment, S-band radios will require installation by the retailer or a third party. The Company's long term objective is to promote the adoption of S-band radios as standard equipment or a factory-installed option in every vehicle sold in the United States. The Company, however, expects sales of radio cards and S-band radios through the consumer electronics retail distribution system to be the primary distribution channel for receivers capable of receiving CD Radio for many years. SUBSCRIPTION AND BILLING The Company intends to contract out customer service and billing functions to a national teleservices company, whose functions will include the handling of orders from subscribers, establishing and maintaining customer accounts, inbound telemarketing, billing and collections. Access to the Company's customer service center will be via the Company's toll-free number, 888-CD-RADIO, with all interaction with subscribers being conducted under the CD Radio name. Payment to the Company's selected teleservices company is expected to be based on transaction volumes, and the Company plans to charge subscribers a modest one-time activation fee to cover certain transaction costs. The Company will require payment for CD Radio with a national credit or debit card. 42 THE CD RADIO DELIVERY SYSTEM The Company has designed the CD Radio delivery system to transmit an identical signal from two satellites placed in geosynchronous orbit. The two satellite system will permit CD Radio to provide 'seamless' signal coverage throughout the continental United States. This means that listeners will almost always be within the broadcast range of CD Radio, unlike current FM radio broadcasts, which have an average range of only approximately 30 miles. The CD Radio system is designed to provide clear reception in most areas despite variations in terrain, buildings and other obstructions. The system is designed to enable motorists to receive CD Radio in all outdoor locations where the vehicle has an unobstructed line-of-sight with one of the Company's satellites or is within range of one of the Company's terrestrial repeating transmitters. The portion of the S-band located between 2320 MHz and 2345 MHz has been allocated by the FCC exclusively for national satellite radio broadcasts, and will augment traditional AM and FM radio bands. This portion of the spectrum was selected because there are virtually no other users of this frequency band in the United States, thus minimizing potential signal interference. In addition, this frequency band is relatively immune to weather related attenuation, which is not the case with higher frequencies. The Company expects to use 12.5 MHz of bandwidth in the 7025.0-7075.0 MHz band (or some other suitable frequency) for uplink transmissions from the National Broadcast Studio to the Company's satellites. Downlink transmission from the satellites to subscribers' radio cards or S-band radios will use 12.5 MHz of bandwidth in the 2320-2332.5 MHz frequency band. The CD Radio delivery system will consist of three principal components: (i) the satellites; (ii) the receivers; and (iii) the National Broadcast Studio. THE SATELLITES Satellite Design. The Company's satellites are of the Loral FS-1300 model series. This family of satellites has a total in-orbit operation time of 270 years, and to date more than 62 such satellites have been built or ordered, including 24 that are currently in production. The satellites are designed to have a useful life of approximately 15 years. To ensure the durability of its satellites, the Company has selected components and subsystems that have a demonstrated track record on operational FS-1300 satellites, such as N-STAR, INTELSAT VII and TELSTAR. In addition, a full series of ground tests will be performed on each of the Company's satellites prior to launch in order to detect assembly defects and avoid premature satellite failure. The satellites will utilize a three-axis stabilized design. Each satellite will contain an active attitude and position control subsystem; a telemetry, command and ranging subsystem; a thermal control subsystem and an electrical power subsystem. Power will be supplied by silicon solar arrays and, during eclipses, by nickel-hydrogen batteries. Each satellite after deployment will be 27.2 meters long, 8.65 meters wide and 3.8 meters tall. Simple Design ('Bent Pipe'). The Company's satellites will incorporate a repeater design which will act essentially as a 'bent pipe,' relaying received signals directly to the ground. The Company's satellites will not contain on-board processors or switches. All of the Company's processing operations will be on the ground where they are accessible for maintenance and continuing technological upgrade without the need to launch replacement satellites. Spread Spectrum (Code Division Multiplex). The Company's radio transmission system will utilize Code Division Multiplex ('CDM') and spread spectrum technology which permits a large number of program channels to utilize a single radio frequency band. The system, incorporating CDM and spread spectrum modulation, combined with multiple satellite coverage and terrestrial repeating transmitters, is designed to provide a high capacity, high quality service. Signal Diversity. The Company believes that two satellites are the minimum number required to provide nearly seamless signal coverage throughout the continental United States. The Company plans to position its two satellites in complementary orbital locations so as to achieve efficient signal diversity and thereby mitigate service interruptions which can result from signal blockage and fading. The Company currently expects that its two satellites will be placed in a geosynchronous orbit at equatorial 43 crossings of 80[d] W and 110[d] W longitude. Each of the Company's satellites will broadcast the same signal. The Company's transmission design also incorporates the use of a memory reception buffer contained within radio cards and S-band radios, designed to work in conjunction with signal diversity. The Company has been granted patents on its satellite broadcasting system, which incorporates a multi-satellite design and memory reception features. As with any wireless broadcast service, the Company expects to experience occasional 'dead zones' where the service from one satellite will be interrupted by nearby tall buildings, elevations in topography, tree clusters, highway overpasses and similar obstructions; however, in most such places the Company expects subscribers will continue to receive a signal from its other satellite. In certain areas with high concentrations of tall buildings, such as urban cores, or in tunnels, however, signals from both satellites will be blocked and reception will be adversely affected. In such urban areas, the Company plans to install terrestrial repeating transmitters to rebroadcast its satellite signals, improving the quality of reception. The FCC has not yet established rules governing such terrestrial repeaters, and the Company cannot predict the outcome of the FCC's current rulemaking on this subject. See 'Business -- Government Regulation.' The Company also will need to obtain the rights to use of roofs of certain structures where the repeaters will be installed. There can be no assurance that the Company can obtain such roof rights on acceptable terms or in appropriate locations for the operation of CD Radio. Satellite Construction. The Company has entered into the Loral Satellite Contract, pursuant to which Loral is building three satellites, two of which the Company intends to launch and one of which it intends to keep in reserve as a spare. Loral has agreed to deliver the first satellite to the launch site in Kourou, French Guiana by August 11, 1999, to deliver the second satellite to the launch site five months after the delivery of the first satellite and to deliver the third satellite to a Company designated storage site within eleven months of delivery of the second satellite. Loral has also agreed to endeavor to accelerate delivery of the second satellite to October 1999 and of the third satellite to April 2000. There can be no assurance, however, that Loral will be able to meet such an accelerated schedule. Although the Loral Satellite Contract provides for certain late delivery payments, Loral will not be liable for indirect or consequential damages or lost revenues or profits resulting from late delivery or other defaults. Under the Loral Satellite Contract, the Company has an option to order, at any time prior to March 10, 1999, a fourth satellite identical to the first three on preset price and delivery terms. Title and risk of loss for the first and second satellites are to pass to the Company at the time of launch. Title for the third satellite is to pass to the Company at the time of shipment of the satellite to the designated storage site. The satellites are warranted to be in accordance with the performance specifications in the Loral Satellite Contract and free from defects in materials and workmanship at the time of delivery. After delivery, no warranty coverage applies, unless a satellite is not launched, in which case the warranty extends two years from the date of delivery. In the event of any delay in the construction of the satellites that is caused by the Company, the Loral Satellite Contract provides that the terms of the contract will be equitably adjusted. Following the launch of each satellite, Loral will conduct in-orbit performance verification. In the event that such testing shows that a satellite is not meeting the satellite performance specifications contained in the Loral Satellite Contract, Loral and the Company have agreed to negotiate an equitable reduction in the final payment to be made by the Company for the affected satellite. Launch Services. The Company entered into the Arianespace Launch Contract for two satellite launches with Arianespace on July 22, 1997. The initial launch period for the first launch extends from August 1, 1999 to January 31, 2000. The initial launch period for the second launch extends from October 1, 1999 to March 31, 2000. These initial launch periods will be reduced to three-month periods at least twelve months prior to the start of the respective initial launch periods. One-month launch slots will be selected for each of the launches at least eight months prior to the start of the respective shortened launch periods. Launch dates will be selected for each of the launches at least four months prior to the start of the respective launch periods. The Company is entitled to accelerate the second launch by shipping the satellite to the launch base and preparing the satellite for launch at the next available launch opportunity. If the Company's satellites are not available for launch during the prescribed periods, the Company will arrange to launch the satellites on the first launch dates available after the satellites are completed. 44 While the Company has been able to reschedule its reserved launch dates with Arianespace in the past, there can be no assurance that it will be able to do so in the future. If the Company postpones a launch for more than 12 months, or postpones a launch within 12 months of a scheduled launch, postponement fees may be charged under the terms of the Arianespace Launch Contract. Satellite launches are subject to significant risks, including satellite destruction or damage during launch or failure to achieve proper orbital placement. Launch failure rates vary depending on the particular launch vehicle and contractor. Arianespace, one of the world's leading commercial satellite launch service companies, has advised the Company that as of November 13, 1997, 87 of 92 Arianespace launches (approximately 94.6%) have been completed successfully since May 1984. See 'Risk Factors -- Dependence upon Satellites,' 'Risk Factors -- Dependence upon Satellite and Launch Contractors' and 'Risk Factors -- Satellite Launch Risks.' However, the Ariane 5, the particular launch vehicle being planned for the launch of the Company's satellites, has had only two launches, one of which was a failure. There is no assurance that Arianespace's launches of the Company's satellites will be successful. If the third qualification flight of the Ariane 5 launch vehicle results in a failure, or if for any reason there have not been at least two successful Ariane 5 launches prior to each of Company's scheduled launches, or if Arianespace postpones one of Company's launches for more than six months due to a delay in the development of the Ariane 5 program, then, under the terms of the Arianespace Launch Contract, the Company has the right to require Arianespace to negotiate in good faith an amendment to the Arianespace Launch Contract to provide for launches using the Ariane 4 launch vehicle, with launch dates on the first available Ariane 4 launch opportunities after the scheduled launch dates, unless the Company agrees to earlier launch dates. Assuming use of an Ariane 5 launch vehicle, if a Company satellite is lost or destroyed during launch, or if, due to an anomaly occurring during launch caused by the launch vehicle or a co-passenger satellite, a Company satellite loses more than 50% of its operational capacity, Arianespace has agreed to perform a replacement launch at no cost. If, under the same circumstances, the Company satellite loses more than 20% but not more than 50% of its operational capacity, Arianespace is required to pay Company an amount based on the percent of lost capacity. If the Company purchases launch insurance on the commercial market, these percentages will be amended to match those contained in the insurance policy. If, following launch, a satellite should fail for any reason, including reasons unrelated to the launch, within 27 months after launch, the Company is entitled to purchase at the then applicable price a replacement launch from Arianespace with a one-month launch slot that falls within ten months of the request for the replacement launch. The Company will rely upon Arianespace for the timely launch of the satellites. Failure of Arianespace to launch the satellites in a timely manner could materially adversely affect the Company's business. The Arianespace Launch Contract entitles Arianespace to postpone either of Company's launches for a variety of reasons, including technical problems, lack of co-passenger(s) for the Company's launch, the need to conduct a replacement launch for another customer, a launch of a scientific satellite whose mission may be degraded by delay, or a launch of another customer's satellite whose launch was postponed. Although the Arianespace Launch Contract provides liquidated damages for delay, depending on the length of the delay, and entitles the Company to terminate the agreement for delay exceeding 12 months, there can be no assurance that these remedies will adequately mitigate any damage to the Company's business caused by launch delays. Under the terms of the Arianespace Launch Contract, the Company and Arianespace each agree to bear any damage to property or bodily injury that it or its associates may sustain caused by a launch or satellite failure. Arianespace is required to take out launch and in-orbit insurance policies to protect itself and the Company against liability for losses that third parties may sustain caused by a launch vehicle or any satellite on the launch vehicle, and to indemnify the Company against any such losses that exceed the limits of the insurance policy. Arianespace has assisted the Company in securing financing for the launch service prices through its subsidiary, AEF. The Company and AEF have entered into the AEF Agreements, which govern the provisions of such financing. See 'Description of Certain Indebtedness -- Vendor Financing.' Risk Management and Insurance. Two custom-designed, fully dedicated satellites are required to broadcast CD Radio. The Company has selected a launch service supplier that has achieved the most 45 reliable launch record in its class in the industry. Each of the Company's two operational satellites will be launched separately. The Arianespace Launch Contract contains a provision entitling the Company to a replacement launch in the event of a launch failure caused by the Arianespace launch vehicle. In such event, the Company would utilize the spare satellite that will be constructed. Thus, the Company does not intend to insure for this contingency. The Company intends to insure against other contingencies, including a failure during launch caused by factors other than the launch vehicle and/or a failure involving the second satellite in a situation in which the spare satellite has been used to replace the first satellite. If the Company is required to launch the spare satellite due to failure of the launch of one of the operational satellites, its operational timetable would be delayed for approximately six months or more. The launch or in-orbit failure of two satellites would require the Company to arrange for additional satellites to be built and could delay the commencement or continuation of the Company's operations for three years or more. See 'Risk Factors -- Dependence upon Satellites,' 'Risk Factors -- Dependence upon Satellite and Launch Contractors' and 'Risk Factors -- Satellite Launch Risks.' Once properly deployed and operational, the historical risk of premature total satellite failure has been less than 1% for U.S. geosynchronous commercial communication satellites. Insurance against in-orbit failure is currently available and typically is purchased after the satellite is tested in orbit and prior to the expiration of launch insurance. In recent years, annual premiums have ranged from 1.3% to 2.5% of coverage. After the Company has launched the satellites and begun to generate revenues, the Company will evaluate the need for business interruption insurance. Satellites are designed to minimize the adverse effects of transmission component failure through the incorporation of redundant components which activate automatically or by ground command upon failure. If multiple component failures occur as the satellite ages, and the supply of redundant components is exhausted, the satellite generally will continue to operate, but at reduced capacity. In that event, signal quality may be preserved by reducing the number of channels broadcast until a replacement satellite can be launched. Alternatively, the number of broadcast channels may be preserved by reducing the signal quality until a replacement satellite can be launched. THE RECEIVERS Subscribers to CD Radio will not need to replace their existing AM/FM car radios. Instead, they will be able to receive CD Radio in their vehicles using a radio card that has been designed to plug easily into the cassette or compact disc slot of their existing radio. Customers also will be able to receive CD Radio using an S-band radio. CD Radio reception with either a radio card or an S-band radio will be via a miniature silver dollar-sized satellite dish antenna mounted on a small base housing a wireless transmitter that will relay the CD Radio signal to the vehicle's radio card or S-band radio. Neither the radio cards, S-band radios nor the miniature satellite dish antennas currently are available and the Company is unaware of any manufacturer currently developing such products. The Company anticipates that radio cards will be easy to install because they will require no wiring or other assembly and will be installed simply by inserting the card into the radio's cassette or compact disc slot. Upon insertion of the card into the radio, listeners will be able to switch between AM, FM and CD Radio. The radio card can be removed by pushing the radio's 'eject' button. Radio cards are portable and will be able to be moved from car to car, if desired. S-band radios will be capable of receiving AM, FM and S-band radio transmissions. The Company anticipates that S-band radios will be similar to conventional AM/FM radios in size and appearance. Like existing conventional radios, a number of these radios may also incorporate cassette or compact disc players. In addition to a radio card or S-band radio, a vehicle must be equipped with a miniature satellite dish antenna in order to receive CD Radio. To satisfy this requirement, the Company has designed a miniature satellite dish antenna. The battery powered satellite dish antenna is approximately the size and shape of a silver dollar, measuring 2 in diameter and 1/8 thick. The base of the satellite dish antenna will have an adhesive backing, so that consumers will be able to easily attach the satellite dish antenna to a car's rear window. Miniature satellite dish antennas will also be sold separately, so that consumers will be able to receive CD Radio in a vehicle that has a satellite dish antenna attached to it 46 simply by moving a radio card. The radio card, the S-band radio and the satellite dish antenna all use proprietary technology developed by the Company. The Company's miniature satellite dish antenna design is substantially 'non-directional,' meaning it does not need to be pointed directly at a satellite in order to receive CD Radio broadcasts. All that is required is that the satellite dish antenna be positioned upward on an unobstructed line-of-sight with one of the Company's satellites or be within range of a terrestrial repeating transmitter. The satellite dish antenna will be mounted on a small base housing a solar recharging battery and wireless transmitter that will relay the CD Radio signal to a vehicle's radio card or S-band radio. The CD Radio system is designed to permit CD Radio to be received by motorists in all outdoor locations where the vehicle has an unobstructed line-of-sight with one of the Company's satellites. In certain areas with high concentrations of tall buildings, such as urban cores, or in tunnels, signals from both satellites will be blocked and reception will be adversely affected. In such cases, the Company plans to install terrestrial repeating transmitters to broadcast CD Radio. A radio card or S-band radio tuned to CD Radio will have a visual display that will indicate the channel and format selected, as well as the title, recording artist and album title of the song being played. In order to reduce fraud, each radio card and S-band radio will contain a security circuit with an electronically encoded identification number. Upon verification of subscriber billing information, the Company will transmit a digital signal to activate the radio's S-band operation. This feature will help the Company to protect against piracy of the CD Radio signal. Through this feature, the Company can directly via satellite discontinue CD Radio and deactivate radio cards or S-band radios of subscribers who are delinquent in paying the monthly subscription fee. The Company expects radio cards, S-band radios and miniature satellite dish antennas to be sold through a variety of retail outlets, including consumer electronics, car audio, department and music stores. The Company currently expects that the radio card together with the satellite dish antenna can be sold at a retail price of approximately $200. Radio card or S-band activation will be accomplished directly via satellite by calling the Company's customer service center at 888-CD-RADIO. The Company currently expects to begin offering CD Radio in late 1999 at an initial subscription price of $10 per month. The Company believes that, when manufactured in quantity, S-band radios will be incrementally more expensive than today's car radios, while radio cards, which will have no installation costs if the customer has a radio with a cassette or compact disc slot, will be substantially less expensive. The Company expects that the satellite dish antenna will be substantially less expensive than the radio card for consumers wishing to purchase additional dish antennas separately. The Company believes that the availability and pricing of plug and play radio cards will be of prime importance to the Company's market penetration for a number of years. Neither the radio cards, S-band radios nor miniature satellite dish antennas currently are available, and the Company is unaware of any manufacturer currently developing such products. The Company has entered into non-binding memoranda of understanding with two major consumer electronics manufacturers, and has commenced discussions with several other such manufacturers, regarding the manufacture of radio cards, S-band radios and miniature satellite dish antennas for retail sale in the United States. The Company currently intends to select one manufacturer to manufacture radio cards, S-band radios and miniature satellite dish antennas for retail sale in the United States on an exclusive basis for the first year of CD Radio broadcasts. There can be no assurance that these discussions will result in a binding commitment on the part of any manufacturer to produce radio cards, S-band radios and miniature satellite dish antennas in a timely manner so as to permit the widespread introduction of CD Radio in accordance with the Company's business plan or that sufficient quantities of these will be available to meet anticipated consumer demand. Failure to have at least one manufacturer develop and widely market radio cards and the associated miniature satellite dish antennas, and to a lesser extent S-band radios, at affordable prices, or to develop and widely market such products upon the launch of CD Radio, would have a material adverse effect on the Company's business. In addition, the IB Order conditions the Company's license on certification by the Company that its final receiver design is interoperable with respect to the final receiver design of the other licensee, which has proposed to use a significantly different transmission technology from that of the Company. The Company believes that it 47 can design an interoperable receiver, but there can be no assurance that this effort will be successful or result in a commercially feasible receiver. THE NATIONAL BROADCAST STUDIO The Company plans to originate its 50 channels of programming from its National Broadcast Studio, to be located in the New York metropolitan region. The National Broadcast Studio will house the Company's music library, facilities for programming origination, programming personnel and program hosts, as well as facilities to uplink programming to the satellites, to activate or deactivate service to subscribers and to perform the tracking, telemetry and control of the orbiting satellites. The Company's music library will be located at the National Broadcast Studio. The Company intends to create an extensive music library which will consist of a deep range of recorded music. In addition to updating its music library with new recordings as they are released, the Company will seek to acquire recordings that in certain cases are no longer commercially available. Programming will be originated at the National Broadcast Studio and transmitted to the Company's two satellites for broadcast to CD Radio subscribers. The Company expects that its broadcast transmissions will be uplinked to its satellites at frequencies in the 7025.0-7075.0 MHz band. The satellites will receive and convert the signal to the 2320.0-2332.5 MHz band. The satellites then will broadcast the signal to the United States, at a power sufficient to enable its receipt directly by the miniature satellite dish antennas to be used by subscribers. Service-related commands also will be relayed from the National Broadcast Studio to the Company's satellites for retransmission to subscribers' radio cards and S-band radios. These service-related commands include those required to (i) initiate and suspend subscriber service, (ii) change the encryption parameters in radio cards and S-band radios to reduce piracy of CD Radio and (iii) activate radio card and S-band radio displays to show program-related information. Tracking, telemetry and control operations for the Company's orbiting satellites also will be performed from the National Broadcast Studio. These activities include controlling the routine station keeping, which involves twice-monthly satellite orbital adjustments and the continuous monitoring of the satellites. The Company expects that the National Broadcast Studio, which will include its executive offices, will be approximately 30,000 square feet in size. The Company currently is searching for appropriate space to lease and has commenced development of plans for its facility with a broadcast studio design firm. DEMONSTRATIONS OF THE CD RADIO SYSTEM In support of the Company's application for the FCC License, the Company conducted a demonstration of its proposed radio service from November 1993 through November 1994. The demonstration involved the transmission of S-band signals to a prototype S-band radio and miniature satellite dish antenna installed in a car to simulate certain transmission techniques the Company intends to employ. Because there currently are no commercial satellites in orbit capable of transmitting S-band frequencies to the United States, the Company constructed a terrestrial simulation of its planned system. For this purpose, the Company selected a test range covering several kilometers near Washington, D.C. which included areas shadowed by buildings, trees and overpasses. The Company placed S-band transmitters on the rooftops of a number of tall buildings in such a way as to simulate the signal power and angle of arrival of satellite transmissions to be used for its proposed service. The Company also modified the standard factory installed sound system of an automobile to create a radio receiving AM, FM and S-band, and integrated the Company's satellite dish antenna into the car roof. The demonstrations included the reception of 30 channels of compact disc quality stereo music by the prototype radio while the car was driven throughout the range. Prior to testing with orbiting satellites, miniature satellite dish antennas and radio cards or S-band radios suitable for commercial production, there can be no assurance that the CD Radio system will function as intended. See 'Risk Factors -- Reliance on Unproven Technology.' 48 COMPETITION The Company expects to face competition from two principal sources: (i) conventional AM/FM radio broadcasting, including, when available, terrestrial digital radio broadcasting; and (ii) AMRC, the other holder of an FCC License. The AM/FM radio broadcasting industry is very competitive. Radio stations compete for listeners and advertising revenues directly with other radio stations within their markets on the basis of a variety of factors, including program content, on-air talent, transmitter power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other radio stations in the market. Many of the Company's radio broadcasting competitors have substantially greater financial, management and technical resources than the Company. Unlike the Company, the radio industry has a well established market for its services and generally offers 'free' broadcast reception paid for by commercial advertising rather than by a subscription fee. In addition, certain AM and FM stations, such as National Public Radio, offer programming without commercial interruption. Many radio stations also offer information programming of a local nature, such as local news or traffic reports, which the Company will be unable to offer. CD Radio will compete with conventional radio stations on the basis of its targeted programming formats, nearly seamless signal coverage, freedom from advertising and compact disc quality sound, features which are largely unavailable on conventional broadcast radio. The Company believes that cassettes and compact discs generally are used in automobiles as supplements to radio rather than as substitutes, and that these media are used primarily as backup when radio reception is unavailable or unsatisfactory, or when desired programming is unavailable or unsatisfactory. Cassettes and compact discs lack the convenience of radio, as well as the spontaneity and freshness that characterize radio programming. According to a 1996 market study, although almost all vehicles contain either a cassette or compact disc player, 87% of automobile commuters listened to the radio an average of 50 minutes a day while commuting. Accordingly, the Company does not view its service as directly competitive with these media. Currently, radio stations broadcast by means of analog signals, as opposed to digital transmission. The Company believes, however, that prior to the commencement of CD Radio, terrestrial broadcasters may be able to place digital audio broadcasts into the bandwidth occupied by current AM and FM stations and simultaneously transmit both analog and digital signals on the AM and FM bands. The limited bandwidth assigned to AM stations will result in lower quality digital signals than can be broadcast by FM stations. As a result, the Company expects that the use of this technology will permit digital AM sound quality to approach monaural FM sound quality and permit digital FM broadcasts to approach compact disc sound quality. In order to receive these digital AM/FM broadcasts, listeners will need to purchase new digital radios which currently are not commercially available. While the development of digital broadcasting would eliminate one of the advantages of CD Radio over FM radio, the Company does not believe it would affect broadcasters' ability to address the other advantages of CD Radio. In addition, the Company views the growth of terrestrial digital broadcasting as a positive force that would be likely to encourage radio replacement and thereby facilitate the introduction of S-band radios. Although certain existing satellite operators currently provide music programming to customers at fixed locations, these operators are incapable of providing CD Radio type service to vehicles as a result of some or all of the following reasons: (i) these operators do not broadcast on radio frequencies suitable for reception in a mobile environment; (ii) CD Radio type service requires fully dedicated satellites; (iii) CD Radio type service requires a custom satellite system design and (iv) CD Radio type service requires regulatory approvals, which existing satellite operators do not have. AMRC, a subsidiary of AMSC, is the other holder of an FCC License. AMRC, in which WorldSpace, Inc. (a company that plans to provide satellite radio service outside of the United States) has a 20 percent interest, and AMSC, which is owned in part by the Hughes Electronics Corporation subsidiary of General Motors Corporation, have financial, management and technical resources that greatly exceed those of the Company. In addition, the FCC could grant new licenses which would enable further competition to broadcast satellite radio. Finally, there are many portions of the electromagnetic spectrum that are currently licensed for other uses and certain other portions for which licenses have been granted by the FCC without restriction as to use, and there can be no assurance that these portions of the spectrum could not be utilized for satellite radio broadcasting in the future. 49 Although any such licensees would face cost and competition barriers, there can be no assurance that there will not be an increase in the number of competitors in the satellite radio industry. See 'Risk Factors -- Competition.' TECHNOLOGY AND PATENTS The Company has been granted certain U.S. patents (U.S. Patent Nos. 5,278,863; 5,319,673; 5,485,485; 5,592,471) on various features of satellite radio technology. There can be no assurance, however, that any U.S. patent issued to the Company will cover the actual commercialized technology of the Company or will not be circumvented or infringed by others, or that if challenged would be held to be valid. The Company has filed patent applications covering CD Radio system technology in Argentina, Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, South Korea, Mexico, the Netherlands, Spain, Switzerland and the United Kingdom, and has been granted patents in a number of these countries. There can be no assurance that additional foreign patents will be awarded to the Company or, if any such patents are granted, that the laws of foreign countries where the Company receives patents will protect the Company's proprietary rights to its technology to the same extent as the laws of the United States. Although the Company believes that obtaining patent protection may provide benefits to the Company, the Company does not believe that its business is dependent on obtaining patent protection or successfully defending any such patents that may be obtained against infringement by others. Certain of the Company's know-how and technology are not the subject of U.S. patents. To protect its rights, the Company requires certain employees, consultants, advisors and collaborators to enter into confidentiality agreements. There can be no assurance, however, that these agreements will provide meaningful protection for the Company's trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. In addition, the Company's business may be adversely affected by competitors who independently develop competing technologies. The Company's proprietary technology was developed by Robert D. Briskman, the Company's co-founder, and was assigned to the Company. The Company believes that Mr. Briskman independently developed the technology covered by the Company's issued patents and that it does not violate the proprietary rights of any person. There can be no assurance, however, that third parties will not bring suit against the Company for patent infringement or for declaratory judgment to have any patents which may be issued to the Company declared invalid. If a dispute arises concerning the Company's technology, litigation might be necessary to enforce the Company's patents, to protect the Company's trade secrets or know-how or litigation may occur to determine the scope of the proprietary rights of others. Any such litigation could result in substantial cost to, and diversion of effort by, the Company, and adverse findings in any proceeding could subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties or otherwise adversely affect the Company's ability to successfully develop and market CD Radio. GOVERNMENT REGULATION COMMUNICATIONS LAWS As an operator of a privately owned satellite system, the Company is subject to the regulatory authority of the FCC under the Communications Act. The FCC is the government agency with primary authority in the United States over satellite radio communications. The Company is currently subject to regulation by the FCC principally with respect to (i) the licensing of its satellite system; (ii) preventing interference with or to other users of radio frequencies; and (iii) compliance with rules that the FCC has established specifically for United States satellites and rules that the FCC has established for providing satellite radio service. On May 18, 1990, the Company proposed that the FCC establish a satellite radio service and applied for an FCC License. On March 3, 1997, the FCC adopted rules for the national satellite radio broadcast service (the 'FCC Licensing Rules'). Pursuant to the FCC Licensing Rules, an auction was held among the applicants on April 1 and 2, 1997. The Company was a winning bidder for one of the two FCC Licenses with a bid of $83 million. AMRC was the other winning bidder for an FCC License with a bid of $89 million. After payment of the full amount by the Company, the FCC's International Bureau issued the FCC License to the Company on October 10, 1997. The FCC License is effective immediately; however, 50 for a period of 30 days following the grant of the FCC License, those parties that had filed comments or petitions to deny in connection with the Company's application for an FCC License could petition the International Bureau to reconsider its decision to grant the FCC License to the Company or request review of the decision by the full FCC. An application for review by the full Commission was filed by one of the low-bidding applicants in the auction. This petition requests, among other things, that the Commission adopt restrictions on foreign ownership, which were not applied in the IB Order, and, on the basis of the Company's ownership, overrule the IB Order. Although the Company believes the FCC will uphold the IB Order, the Company cannot predict the ultimate outcome of any proceedings relating to this petition or any other proceedings that may be filed. If this petition is denied, the complaining party may file an appeal with the U.S. Court of Appeals which must find that the decision of the the FCC was not supported by substantial evidence, or was arbitrary, capricious or unlawful in order to overturn the grant of the Company's FCC License. Pursuant to the FCC Licensing Rules, the Company is required to meet certain progress milestones. Licensees are required to begin satellite construction within one year of the grant of the FCC License; to launch and begin operating their first satellites within four years; and to begin operating their entire system within six years. The IB Order states that failure to meet those milestones will render the FCC License null and void. On May 6, 1997, the Company notified the FCC that it had begun construction on the first of its satellites. On March 27, 1997, a third party requested reconsideration of the FCC Licensing Rules, seeking, among other things, that the time period allotted for these milestones be shortened. The Company cannot predict the outcome of this petition. The term of the FCC License for each satellite is eight years, commencing from the time each satellite is declared operational after having been inserted into orbit. Upon the expiration of the term with respect to each satellite, the Company will be required to apply for a renewal of the relevant FCC License. Although the Company anticipates that, absent significant misconduct on the part of the Company, the FCC Licenses will be renewed in due course to permit operation of the satellites for their useful lives, and that a license would be granted for any replacement satellites, there can be no assurance of such renewal or grant. Satellite orbit locations are registered internationally for each country. International regulations at present allocate the S-Band for satellite broadcasting only in the United States and India. Mexico has proposed in a currently on-going World Radiotelecommunications Conference that the S-Band also be allocated for satellite broadcasting in Mexico. The Company cannot predict the outcome of this action. The Company does not anticipate difficulty in obtaining international registration, or renewing or extending such registrations. There can be no assurance, however, that such registrations will be obtained. The spectrum allocated for satellite radio is used in Canada and Mexico for terrestrial microwave links, mobile telemetry, and other purposes. The United States government must coordinate the United States' use of this spectrum with the Canadian and Mexican governments before any United States satellite may become operational. The Company has performed analyses which show that its proposed use will not cause undue interference to most Canadian stations and can be coordinated with others by various techniques. The FCC Licensing Rules require that the licensees successfully complete detailed frequency coordination with existing operations in Canada and Mexico, and the IB Order conditions The FCC License on such coordination. There can be no assurance that the licensees will be able to coordinate the use of this spectrum with Canadian or Mexican operators or will be able to do so in a timely manner. In order to operate its satellites, the Company also will have to obtain a license from the FCC to operate its uplink facility. Normally, such approval is sought after issuance of the FCC License. Although there can be no assurances that such licenses will be granted, the Company does not expect difficulties in obtaining a feeder link frequency and ground station approval in the ordinary course. In the future any assignments or transfers of control of the FCC License must be approved by the FCC. There can be no assurance that the FCC would approve any such transfer or assignment. The CD Radio system is designed to permit CD Radio to be received by motorists in all outdoor locations where the vehicle has an unobstructed line-of-sight with one of the Company's satellites. In certain areas with high concentrations of tall buildings, such as urban cores, or in tunnels, signals from both satellites will be blocked and reception will be adversely affected. In such cases, the Company plans to install terrestrial repeating transmitters to broadcast CD Radio. The FCC has not yet established rules governing the application procedure for obtaining authorizations to construct and 51 operate terrestrial repeating transmitters. A rulemaking on the subject was initiated by the FCC on March 3, 1997. The deadline for the public to file comments was June 13, 1997 and the deadline for filing reply comments was June 27, 1997. Several comments were received by the FCC that sought to cause the FCC to consider placing restrictions on the Company's ability to deploy its terrestrial repeating transmitters. However, the Company believes that the FCC will neither prohibit it from deploying such transmitters, nor place unreasonable requirements upon such deployment. The Communications Act prohibits the issuance of a license to a foreign government or a representative thereof, and contains limitations on the ownership of common carrier, broadcast and certain other radio licenses by non-U.S. citizens. Pursuant to the FCC Licensing Rules, the Company is regulated as a private carrier. The IB Order determined that, as a private carrier, the Company is not subject to the current provisions of the Communications Act restricting ownership in the Company by non-U.S. private citizens or organizations. The Executive Branch of the U.S. government has expressed interest in changing this policy, which could lead to restrictions of foreign ownership of the Company's shares in the future. The IB Order stated that its finding that the Company is not subject to the foreign ownership restrictions of the Communications Act is subject to being revisited in a future proceeding. The pending application for review of the IB Order brings the question of foreign ownership restrictions before the full FCC. As a private carrier, the Company is free to set its own prices and serve customers according to its own business judgment, without economic regulation. The other holder of an FCC License has proposed to use a significantly different transmission technology from that of the Company. The IB Order conditions the Company's license on certification by the Company that its final receiver design is interoperable with respect to the final receiver design of the other licensee. The Company believes that it can design an interoperable receiver, but there can be no assurance that this effort will be successful or result in a commercially feasible receiver. The foregoing discussion reflects the application of current communications law, FCC regulations and international agreements to the Company's proposed service in the United States. Changes in law, regulations or international agreements relating to communications policy generally or to matters affecting specifically the services proposed by the Company could adversely affect the Company's ability to retain the FCC License and obtain or retain other approvals required to provide CD Radio or the manner in which the Company's proposed service would be regulated. Further, actions of the FCC are subject to judicial review and there can be no assurance that if challenged, such actions would be upheld. OTHER REGULATORY MATTERS The Company's business operations as currently contemplated may require a variety of permits, licenses and authorizations from governmental authorities other than the FCC, but the Company has not identified any such permit, license or authorization that it believes could not be obtained in the ordinary course of business. PERSONNEL As of October 1, 1997, the Company had eleven employees, of whom three were involved in technology development, three in business development and five in administration. In addition, the Company relies upon a number of consultants and other advisors. By commencement of operations, the Company expects to have approximately 100 employees. The extent and timing of the increase in staffing will depend on the availability of qualified personnel and other developments in the Company's business. None of the Company's employees is represented by a labor union, and the Company believes that its relationship with its employees is good. PROPERTY The Company's executive offices are located at Sixth Floor, 1001 22nd Street, N.W., Washington, D.C. 20037, and are leased pursuant to a lease agreement that will expire on October 31, 1998. LEGAL PROCEEDINGS The Company is not a party to any material litigation. 52 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information concerning the directors, executive officers and certain key employees of the Company.
NAME AGE POSITION(S) WITH COMPANY - ------------------------------------- --- --------------------------------------------------------------------- David Margolese...................... 40 Chairman, Chief Executive Officer and Director Robert D. Briskman................... 65 Executive Vice President, Engineering and Operations and Director Andrew J. Greenebaum................. 35 Executive Vice President and Chief Financial Officer Keno V. Thomas....................... 39 Executive Vice President, Marketing Joseph S. Capobianco................. 48 Executive Vice President, Content Paul Sharma.......................... 49 Executive Director, Space Segment Brian Stockwell...................... 61 Executive Director, Launch Services Lawrence F. Gilberti(1)(2)........... 47 Director and Secretary Peter K. Pitsch(1)................... 45 Director Jack Z. Rubinstein(1)................ 48 Director Ralph V. Whitworth(1)(2)............. 41 Director
- ------------ (1) Member of the Audit Committee. (2) Member of the Compensation Committee. ------------------------ All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Officers are elected by and serve at the discretion of the Board of Directors. David Margolese. Mr. Margolese was elected Chief Executive Officer of the Company in November 1992 and Chairman in August 1993 and has served as a director since August 1991. In 1991, Mr. Margolese founded a consortium with AT&T Corp. and Hutchison Telecommunications Ltd., a subsidiary of Hutchison Whampoa Limited, a diversified conglomerate based in Hong Kong, to bid for Israel's national cellular telephone license and served as Chairman of this consortium until June 1993. From 1987 until August 1991, Mr. Margolese was a private investor. In 1982, Mr. Margolese co-founded Cantel Inc., Canada's national cellular telephone company, and served as Vice President, RCC Operations, until 1984. In 1980, Mr. Margolese co-founded Canadian Telecom Inc., a radio paging company, and served as that company's President until its sale in 1987. Robert D. Briskman. Mr. Briskman has served as Executive Vice President, Engineering and Operations and as a director of the Company since October 1991 and as President of Satellite CD Radio, Inc., a subsidiary of the Company, since September 1994. In addition, Mr. Briskman served as Chief Executive Officer of the Company from April to November 1992. From March 1991 to June 1992, Mr. Briskman was President of Telecommunications Engineering Consultants, which provided engineering and consulting services to the Company. From March 1986 to March 1991, Mr. Briskman was Senior Vice President, Engineering and Operations at Geostar Corporation, a satellite company, responsible for the development, design, implementation and operation of a nationwide satellite message communication service. Prior to 1986, Mr. Briskman held senior management positions at Communications Satellite Corporation ('COMSAT'), a satellite operator, where he was employed for over 20 years. Prior to joining COMSAT, Mr. Briskman was a communications specialist with IBM and the National Aeronautics and Space Administration. Mr. Briskman holds a bachelor's degree in engineering from Princeton and a master's degree in electrical engineering from the University of Maryland. He has published over 50 technical papers, holds a number of U.S. patents, and is a Fellow of the Institute of Electrical and Electronics Engineers and the American Institute of Aeronautics and Astronautics. Andrew J. Greenebaum. Mr. Greenebaum has served as Executive Vice President and Chief Financial Officer of the Company since August 1997. From August 1989 to August 1997, he held a 53 variety of senior management positions with The Walt Disney Company. From March 1996 to August 1997, Mr. Greenebaum was Vice President, Corporate Finance in charge of corporate and project finance. From May 1995 to March 1996, he was Corporate Strategic Planning Director, Corporate Development. From October 1992 to May 1995, he was Director, Corporate Finance and from April 1991 to October 1992, he was Manager, Corporate Finance. From August 1989 to April 1991, he was a Senior Treasury Analyst, Foreign Exchange. From October 1984 to June 1987, Mr. Greenebaum was a financial analyst with L.F. Rothschild & Co., Inc., an investment bank. Keno V. Thomas. Mr. Thomas has served as Executive Vice President, Marketing of the Company since April 1997. From July 1995 to April 1997, he was an independent management consultant to the media and entertainment industry. From January 1994 to July 1995, Mr. Thomas was Executive Vice President, Marketing at DMX Inc., a cable radio company. From February 1992 to January 1994, he served as Vice President of Programming at DIRECTV, a satellite television company. From December 1986 to February 1992, he held senior management positions, including Vice President, International at ESPN Enterprises, Inc., a cable television sports network. From May 1982 to December 1986, he held senior management positions, including Vice President, Marketing at Times Mirror Cable, an operator of cable television systems and a subsidiary of the Times Mirror Company. Joseph S. Capobianco. Mr. Capobianco has served as Executive Vice President, Content of the Company since April 1997. From 1981 to April 1997, he was an independent consultant providing programming, production, marketing and strategic planning consulting services to media and entertainment companies, including Home Box Office, a cable television service and a subsidiary of Time Warner Entertainment Company, L.P., and the ABC Radio Networks. From May 1990 to February 1995, he served as Vice President of Programming at Music Choice, which operates a 40-channel music service available to subscribers to DIRECTV, and is partially owned by Warner Music Group Inc., Sony Music Entertainment Inc. and EMI. Paul Sharma. Mr. Sharma has served as Executive Director, Space Segment of the Company since April 1997. From November 1988 to April 1997, he was an independent consultant providing project management services for numerous major satellite programs worldwide. From 1982 to 1988, he served as Deputy Projects Director for the Direct Broadcast Satellite program at COMSAT, a satellite operator. Brian Stockwell. Mr. Stockwell has served as Executive Director, Launch Services of the Company since April 1997. He has provided management consulting services to the space industry since 1992. From June 1981 to January 1992, he served as President of Willis Corroon Inspace, an aerospace insurance company. From January 1979 to May 1981, he was Deputy Head of the Ariane Launch Vehicle Program for the European Space Agency. Prior to that, he was Communications Satellite Systems Manager with the European Space Agency from September 1969. Lawrence F. Gilberti. Mr. Gilberti was elected Secretary of the Company in November 1992 and has served as a director since September 1993. Since December 1992, he has been the Secretary and sole director of, and from December 1992 to September 1994 was the President of, Satellite CD Radio, Inc. Mr. Gilberti has been a partner in the law firm of Fischbein Badillo Wagner Harding since August 1994, and has provided legal services to the Company since 1992. From 1987 to August 1994, Mr. Gilberti was an attorney with the law firm of Goodman Phillips & Vineberg. Peter K. Pitsch. Mr. Pitsch became a director of the Company in January 1995. Since September 1989, Mr. Pitsch has been the principal of Pitsch Communications, a telecommunications law and economic consulting firm that has rendered legal services to the Company since 1991. From April 1987 to August 1989, he served as Chief of Staff at the Federal Communications Commission. From November 1981 to April 1987, he served as Chief of the Office of Plans and Policy at the Federal Communications Commission. He is an adjunct fellow at the Hudson Institute, Inc. Jack Z. Rubinstein. Mr. Rubinstein became a director of the Company in January 1995. Since May 1991, Mr. Rubinstein has been the General Partner of Dica Partners, L.P., a hedge fund based in Hartsdale, New York. From September 1988 to October 1990, Mr. Rubinstein was a consultant to institutional clients at Morgan Stanley & Co. Incorporated, an investment bank. From February 1978 to 54 September 1988, he was an Associate Director at Bear Stearns & Co. Inc., an investment bank, responsible for corporate insider portfolio management. Ralph V. Whitworth. Mr. Whitworth became a director of the Company in March 1994. Since April 1996, he has been a managing member at Relational Investors, LLC, a financial management firm. In January 1997, Mr. Whitworth became a partner of Batchelder & Partners, Inc., a financial advisory firm. From August 1988 to December 1996, he was President of Whitworth and Associates, a Washington, D.C.-based consulting firm. Mr. Whitworth was President of United Shareholders Association, a shareholders' association, from its founding in 1986 to 1993. From 1989 to 1992, he served as President of Development of United Thermal Corporation, the owner of the district heating systems for the cities of Baltimore, Philadelphia, Boston and St. Louis. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS EXECUTIVE OFFICERS The following table sets forth the compensation for services rendered during the three-year period ending December 31, 1996 for the executive officers of the Company whose 1996 salary and bonus exceeded $100,000. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION ------------ ------------------------------------ SECURITIES FISCAL OTHER ANNUAL UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS - -------------------------------------------------- ------ -------- ------- ------------ ------------ David Margolese .................................. 1996 $ 95,833 $ -- $ -- 400,000 Chairman of the Board and Chief Executive 1995 100,000 -- -- -- Officer 1994 122,000(1) -- 26,052(2) 300,000 Robert D. Briskman ............................... 1996 106,249 20,000 190,938 60,000 Executive Vice President, Engineering and 1995 100,000 -- 1,340 -- Operations 1994 122,000 -- -- 192,500
- ------------ (1) In October 1994, Mr. Margolese waived his base salary payable for the three-month period ended December 31, 1994. (2) The Company reimbursed Mr. Margolese for the following expenses incurred in establishing residency in the United States: $18,521 for tax advice, $2,311 for moving expenses and $5,220 for real estate commissions. DIRECTORS Commencing in 1994, directors of the Company who are not full-time employees of the Company were entitled to receive a director's fee of $20,000 per year for serving on the Company's Board of Directors. In June 1994, all directors entitled to receive directors' fees agreed to forgo any payments for their services as directors of the Company. Pursuant to the Company's 1994 Directors' Nonqualified Stock Option Plan (the 'Directors' Plan'), each director who is not a full-time employee of the Company is entitled to an option to purchase 15,000 shares of Common Stock upon becoming a director (or upon the effective date of the plan in the case of non-employee directors who become directors prior to the effective date) and to an automatic annual grant of an option to purchase 10,000 shares of Common Stock. The exercise price for annual grants is fair market value of the Company's Common Stock on the date of grant. Prior to the implementation of the Directors' Plan, the Company from time to time granted options to certain non-employee directors. See ' -- Employee and Director Stock Options.' The Company reimburses each director for reasonable expenses incurred in attending meetings of the Board of Directors. The Company has retained Pitsch Communications to provide legal services to the Company for a monthly retainer of $5,000. The retainer may be terminated by either party at any time. The principal of 55 Pitsch Communications, Peter K. Pitsch, is a director of the Company. The monthly retainer was terminated in May 1997. The Company has retained Jack Z. Rubinstein to provide consulting services to the Company for a monthly retainer of $5,000. The retainer may be terminated by either party at any time. Jack Z. Rubinstein is a director of the Company. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with its executive officers. Effective January 1, 1994, the Company entered into an employment agreement to employ David Margolese as Chairman and Chief Executive Officer of the Company for a term of five years. The agreement provided for an annual base salary of $300,000, subject to increase from time to time by the Board of Directors. An amendment to this agreement, dated as of June 8, 1994, provided for an annual base salary of $100,000, effective June 8, 1994. Subsequently, Mr. Margolese waived his base salary payable for the three-month period ended December 31, 1994. In January 1997, the Board of Directors increased Mr. Margolese's annual base salary to $150,000. In July 1997, the Board of Directors increased Mr. Margolese's annual base salary to $400,000. Under his original employment agreement and pursuant to the Company's 1994 Stock Option Plan, the Company granted to Mr. Margolese an option to purchase 300,000 shares of Common Stock at $5.00 per share, which option is fully vested and exercisable. If Mr. Margolese is terminated without Cause, as defined in the agreement, or if Mr. Margolese resigns for 'Good Reason,' as defined in the agreement, the Company is obligated to pay to Mr. Margolese the sum of $800,000. In January 1994, Mr. Margolese was paid $162,000 for deferred salary earned in 1993 and $216,000 in recognition of his service without pay in 1992. The employment agreement restricts Mr. Margolese from engaging in any business involving the transmission of radio entertainment programming in North America for a period of two years after the termination of his employment. Effective January 1, 1994, the Company entered into an agreement to employ Robert D. Briskman as the Vice President and Chief Technical Officer of the Company. The agreement provided for an annual base salary of $150,000. An amendment to this agreement, dated as of June 8, 1994, provided for an annual base salary of $100,000, effective June 8, 1994. In October 1996, the Board of Directors increased Mr. Briskman's annual base salary to $150,000 and in January 1997, extended the term of the agreement until January 1, 1998. In addition, under his original employment agreement and pursuant to the Company's 1994 Stock Option Plan, the Company granted to Mr. Briskman an option to purchase 80,000 shares of Common Stock at $1.00 per share, which option is fully vested and exercisable. In May 1997, the Board of Directors named Mr. Briskman the Company's Executive Vice President, Engineering and Operations and extended the term of the agreement until December 31, 2000. The Board of Directors also increased Mr. Briskman's annual base salary to $235,000, effective May 1, 1997, with an additional increase to $260,000, effective January 1, 1998. The original employment agreement also provides for the grant to Mr. Briskman of options to purchase 112,500 shares of Common Stock at $1.00 per share upon completion of certain milestones prior to December 31, 1994. Such options were granted to Mr. Briskman on December 23, 1994 and are fully vested and exercisable. In January 1996, Mr. Briskman exercised options to purchase 80,000 shares of the Company's Common Stock. On July 9, 1997, the Board of Directors granted Mr. Briskman further options to purchase up to 57,500 shares of Common Stock at a price per share of $14.50. The options will vest and become exercisable in two stages contingent upon Mr. Briskman's continued employment with the Company and the replenishment of the 1994 Stock Option Plan by the Company. If Mr. Briskman's employment is terminated for any reason other than cause, as defined in the agreement, the Company is obligated to pay to Mr. Briskman a sum equal to 50% of his then annual salary and, at Mr. Briskman's option, to repurchase all of the shares of Common Stock then owned by him at a price of $1.25 per share. The Company also has entered into a proprietary information and non-competition agreement with Mr. Briskman. Under this agreement, Mr. Briskman may not (i) disclose any proprietary information of the Company during or after his employment with the Company or (ii) engage in any business directly competitive with any business of the Company in North America for a period of one year after termination of his employment. 56 Effective August 25, 1997, the Company entered into an employment agreement with Andrew J. Greenebaum which provides for his employment as Executive Vice President and Chief Financial Officer of the Company. The agreement has a term of three years. Pursuant to the agreement with Mr. Greenebaum, the Company will pay Mr. Greenebaum an annualized base salary of $250,000 per year for the period of his employment with the Company through December 31, 1997 and thereafter an annualized base salary of $275,000, subject to any increases approved by the Board of Directors. Upon the commencement of his employment with the Company, the Company paid Mr. Greenebaum an additional sum of $90,000. The Company has also granted Mr. Greenebaum options to purchase up to 175,000 shares of Common Stock at a price per share of $15.125; however, the options relating to 10,500 of such shares are subject to replenishment of the Plan by the Company. The options will vest and be exercisable in three stages contingent upon the continued employment of Mr. Greenebaum with the Company at predetermined dates. The dismissal of Mr. Greenebaum other than for 'cause' (as defined in the agreement) subsequent to the passing of certain milestones, however, will cause the options otherwise exercisable only at the end of that stage to vest immediately notwithstanding the dismissal. If Mr. Greenebaum's employment is terminated for any reason other than by the Company for 'cause,' (as defined in the agreement) or by Mr. Greenebaum voluntarily, Mr. Greenebaum will be entitled to receive, in addition to any other sums then due to him, an amount equal to his annualized base salary then in effect. The Company and Mr. Greenebaum also have entered into a proprietary information and non-competition agreement. Under this agreement, Mr. Greenebaum may not (i) during his employment with the Company and for three years thereafter disclose any proprietary information of the Company or (ii) during his employment with the Company and for one year thereafter engage in any business involving any satellite radio broadcast service or any subscription-based digital audio radio service delivered to cars or other mobile vehicles in North America. The Company has entered into employment and non-competition agreements to employ Joseph S. Capobianco as Executive Vice President, Content, and Keno V. Thomas as Executive Vice President, Marketing, both for terms of three years. The agreement with Mr. Capobianco, effective April 16, 1997, provided for an annual base salary of $200,000, subject to increase from time to time by the Board of Directors. The agreement with Mr. Thomas, effective April 28, 1997, provided for an annualized base salary of $225,000 through December 31, 1997, increasing to an annualized base salary of $250,000 thereafter through the term of the agreement, subject to increase from time to time by the Board of Directors. The Company has granted each of Mr. Capobianco and Mr. Thomas an option to purchase 50,000 shares of Common Stock at $13 and $12.875 per share, respectively, each such option to vest pursuant to the schedule set forth in the applicable option agreement. On July 9, 1997, the Company granted each of Messrs. Capobianco and Thomas further options to purchase up to 25,000 shares of Common Stock at a price per share of $14.50. These options will vest and become exercisable in two stages contingent upon Messrs. Capobianco's and Thomas' respective continued employment with the Company and the replenishment of the number of shares of Common Stock in the 1994 Stock Option Plan by the Company. If either Mr. Capobianco or Mr. Thomas is terminated except by the Company for 'Cause,' as defined in the agreement, or by the applicable executive voluntarily, the Company will be obligated to pay to Mr. Capobianco an amount equal to one-third of his then annual salary if the termination is on or prior to October 16, 1997 and one-half of his then annual salary thereafter, and to pay to Mr. Thomas an amount equal to one-half of his then annual salary. The Company also has entered into a proprietary information and non-competition agreement with each of Mr. Capobianco and Mr. Thomas. Under these agreements each of Mr. Capobianco and Mr. Thomas may not (i) disclose any proprietary information of the Company during his employment with the Company and for three years thereafter or (ii) during their respective employment and for one year thereafter, engage in any business involving any satellite radio broadcast service or any subscription-based digital audio radio service delivered to cars or other mobile vehicles in North America. EMPLOYEE AND DIRECTOR STOCK OPTIONS AND STOCK GRANTS In February 1994, the Company adopted its 1994 Stock Option Plan (the '1994 Plan') and its Director's Plan. The Director's Plan was amended by the Board of Directors in December 1994 and January 1995 and approved at the annual meeting of stockholders on June 27, 1995 to extend the 57 exercise period of the option after termination for reason other than death or disability and to increase the initial option grants and annual option grants to non-employee directors. The 1994 Plan, as amended, provides for options to purchase Common Stock and is administered by the Plan Administrator, which may be either the Company's Board of Directors or a committee designated by the Board of Directors. In accordance with the 1994 Plan, the Plan Administrator determines the employees to whom options are granted, the number of shares subject to each option, the exercise price and the vesting schedule of each option. Options generally vest over a four-year period, but may vest over a different period at the discretion of the Plan Administrator. Under the 1994 Plan, outstanding options vest, unless they are assumed by an acquiring entity, upon the occurrence of certain transactions, including certain mergers and other business combinations involving the Company. Options granted under the 1994 Plan are exercisable for a period of ten years from the date of grant, except that incentive stock options granted to persons who own more than 10% of the Common Stock terminate after five years. Unless otherwise provided at the time of grant, vested options terminate 90 days after the optionee's termination of employment with the Company for any reason other than death or disability, and one year after termination upon death or disability. Unless otherwise determined by the Plan Administrator, the exercise price of options granted under the 1994 Plan must be equal to or greater than the fair market value of the Common Stock on the date of grant. Upon exercise, the aggregate exercise price may be paid to the Company (i) in cash, (ii) upon approval of the Plan Administrator, by delivering to the Company shares of Common Stock previously held by such Optionee, or (iii) by complying with any other payment mechanism approved by the Plan Administrator from time to time. The Directors' Plan provides that current non-employee directors of the Company and persons who become non-employee directors of the Company shall be granted options to purchase 15,000 shares of Common Stock upon becoming directors (or upon the effective date of the Director's Plan in the case of non-employee directors who became directors prior to the effective date), and thereafter shall annually be granted options to purchase 10,000 shares of Common Stock on the first business day following the Company's annual meeting. The exercise price for annual grants is the fair market value of the Company's Common Stock on the date of grant. Options granted under the Directors' Plan vest immediately upon grant and are exercisable for a period of ten years from the date of grant. Options terminate 18 months after a director's termination as a director of the Company for any reason other than death or disability, and one year after termination upon death or disability. Upon exercise, the exercise price may be paid (i) in cash, (ii) in shares of Common Stock, or (iii) by the Company withholding that number of shares of Common Stock with a fair market value on the date of exercise equal to the aggregate exercise price of the option. In June 1995, the Company adopted its 1995 Stock Compensation Plan (the 'Stock Compensation Plan'). Pursuant to the terms of the Stock Compensation Plan, all employees of the Company or a Related Company (as defined in the Stock Compensation Plan) are eligible to receive awards under the Stock Compensation Plan. Bonuses granted pursuant to the Stock Compensation Plan are made by a plan administrator. The plan administrator, in its absolute discretion, determines the employees to whom, and the time or times at which, Common Stock awards are granted, the number of shares within each award and all other terms and conditions of the awards. The terms, conditions and restrictions applicable to the awards made under the Stock Compensation Plan need not be the same for all recipients, nor for all awards. The plan administrator may grant to any officer of the Company the authority to make awards or otherwise administer the Stock Compensation Plan solely with respect to persons who are not subject to the reporting and liability provisions of Section 16 of the Exchange Act. In September 1996, the Stock Compensation Plan was amended to allow the plan to be administered by the entire Board of Directors, and if so authorized by the Board of Directors, a committee of at least two non-employee directors. Prior to this amendment, the plan permitted the administration only by a committee of the Board of Directors. The purpose of the amendment was to comply more readily with the new rules under Section 16 of the Securities Act, which changed the eligibility requirements for these committees. The new rules under Section 16 allow either the entire Board of Directors or a committee composed of two or more 'non-employee' directors to act as Plan 58 Administrator. Amending the Stock Compensation Plan provided more flexibility for the Company in the administration of the Stock Compensation Plan. Awards under the Stock Compensation Plan may not exceed 175,000 shares of Common Stock in the aggregate, subject to certain adjustments. Shares awarded may be from authorized but unissued shares or from Company treasury shares of Common Stock. All shares of Common Stock received by employees pursuant to bonuses under the Stock Compensation Plan (except for shares received by executive officers or other persons who are subject to the reporting and liability provisions of Section 16 of the Exchange Act) are freely transferable. Nevertheless, the shares of Common Stock granted to recipients may be subject to such terms and conditions as the Committee, in its sole discretion, deems appropriate. During 1996, 67,500 shares of the Company's Common Stock were issued pursuant to this Compensation Plan. As of December 31, 1996, 162,500 shares of Common Stock have been issued under the Stock Compensation Plan, and 12,500 shares of Common Stock remain available for issuance thereunder. An aggregate of 1,600,000 shares of Common Stock were available for issuance pursuant to the 1994 Plan and the Directors' Plan. As of July 31, 1997, options to purchase all of the 1,600,000 shares of Common Stock had been granted pursuant to the 1994 Plan and the Directors' Plan and a further 133,000 options have been issued subject to the replenishment of these Plans by the Company prior to any of such options vesting. STOCK OPTION INFORMATION In April 1996, the Company granted to David Margolese pursuant to the 1994 Plan a stock option to purchase 400,000 shares of Common Stock which are now exercisable following the grant of the FCC License. In April 1996, the Company also granted to Robert Briskman pursuant to the 1994 Plan a stock option to purchase 60,000 shares of Common Stock, 30,000 shares of which are exercisable upon the FCC's grant of a license to the Company and the remaining 30,000 shares of which are exercisable on September 18, 1997 if, as of such date, the FCC had granted the FCC License and Mr. Briskman was still employed by the Company. In recognition of Mr. Briskman's services to the Company and in view of the unexpected delay by the FCC in awarding the Company's FCC License, on October 15, 1997, the Compensation Committee of the Board of Directors granted Mr. Briskman options to purchase 30,000 shares of Common Stock at a price of $8.5625 per share under the 1994 Plan. Such options are exercisable immediately. The following table sets forth certain information for the fiscal year ended December 31, 1996, with respect to options granted to the individuals named in the Summary Compensation table above. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ---------------------------------------- VALUE AT ASSUMED ANNUAL PERCENT OF RATES OF STOCK PRICE TOTAL EXERCISE APPRECIATION NUMBER OF OPTIONS GRANTED OR BASE FOR STOCK TERM OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ----------------------- NAME GRANTED FISCAL YEAR SHARE DATE 5% 10% - -------------------------------------- ---------- --------------- --------- ---------- ---------- ---------- David Margolese....................... 400,000 87% $8.5625 4/24/06 $2,398,624 $5,848,148 Robert Briskman....................... 60,000 13% $8.5625 4/24/06 $ 359,794 $ 877,222
The following table sets forth certain information with respect to the number of shares covered by both exercisable and unexercisable stock options held by the individuals named in the Summary Compensation table above as of the fiscal year ended December 31, 1996. Also reported are values for 'in-the-money' stock options that represent the positive spread between the respective exercise prices of outstanding stock options and the fair market value of the Common Stock as of December 31, 1996 ($4.125 per share). 59 AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
VALUE OF NUMBER OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FISCAL SHARES FISCAL YEAR END YEAR END ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE - ------------------------------------------------------- ----------- -------- ---------------- ----------------- David Margolese........................................ 0 $ 0 300,000/400,000 $0/$0 Robert Briskman........................................ 80,000 $202,500 132,500/60,000 $414,063/$0
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY As permitted by the Delaware General Corporation Law, the Company's Amended and Restated Certificate of Incorporation provides that directors of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derives an improper personal benefit. In addition, the Company's Amended and Restated By-Laws provide that the Company shall indemnify all directors and officers and may indemnify employees and certain other persons to the full extent and in the manner permitted by Section 145 of the Delaware General Corporation Law, as amended from time to time. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and, therefore, is unenforceable. The Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws provide that the Company may, to the full extent permitted by law, purchase and maintain insurance on behalf of any director, officer, employee or agent of the Company against any liability which may be asserted against him or her and the Company currently maintains such insurance. 60 PRINCIPAL STOCKHOLDERS The following tables set forth certain information regarding beneficial ownership of the Company's Common Stock and 5% Preferred Stock, as of September 30, 1997, by (i) each stockholder known by the Company to be the beneficial owner of more than 5% of the outstanding Common Stock or 5% Preferred Stock, (ii) in relation to the Common Stock, each director of the Company, (iii) in relation to the Common Stock, each executive officer of the Company and (iv) in relation to each of the Common Stock and the 5% Preferred Stock, all directors and executive officers as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the Common Stock and 5% Preferred Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. The table of beneficial ownership of Common Stock also sets forth information concerning the number of shares of Common Stock issuable upon conversion of shares of the Company's 5% Preferred Stock to holders of the 5% Preferred Stock. BENEFICIAL OWNERS OF COMMON STOCK
NUMBER OF SHARES PERCENT OF TOTAL NAME AND ADDRESS OF OF COMMON STOCK OF COMMON STOCK BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2) - ----------------------------------------------------------------------- ------------------ --------------------- Directors, Executive Officers and 5% Stockholders Darlene Friedland (3) ................................................. 2,834,500 22.5% 110 Wolseley Road Point Piper 2027 Sydney, Australia Loral Space & Communications Ltd. (4) ................................. 1,905,488 15.2 600 Third Avenue New York, New York 10017 David Margolese(5) .................................................... 1,900,000 15.1 c/o CD Radio Inc. Sixth Floor 1001 22nd Street, N.W. Washington, D.C. 20037 Robertson, Stephens & Co., et al.(6) .................................. 1,467,500 11.7 555 California Street, Suite 2600 San Francisco, CA 94104 Robert D. Briskman(7).................................................. 132,500 1.1 Jack Z. Rubinstein(8).................................................. 227,000 1.8 Peter K. Pitsch(9)..................................................... 70,000 * Lawrence F. Gilberti(10)............................................... 35,000 * Ralph V. Whitworth(11)................................................. 35,000 * Joseph Capobianco(12).................................................. 0 * Keno V. Thomas(13)..................................................... 0 * Andrew J. Greenebaum(14)............................................... 59,000 * All Executive Officers and Directors as a Group (9 persons)(l5)........................................... 2,458,500 19.5 Holders of 5% Delayed Convertible Preferred Stock(16) Everest Capital International, Ltd.(17) ............................... 2,194,368 14.9 c/o Morgan Stanley & Co. Incorporated One Pierpont Plaza, 10th Floor Brooklyn, NY 11201 Continental Casualty Company(18) ...................................... 2,150,881 14.6 c/o Chase Manhattan Bank 4 New York Plaza New York, NY 10004-2477 Mackay-Shields Financial Corporation(19) .............................. 1,309,012 9.5 9 West 57th Street New York, NY 10019
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NUMBER OF SHARES PERCENT OF TOTAL NAME AND ADDRESS OF OF COMMON STOCK OF COMMON STOCK BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2) - ----------------------------------------------------------------------- ------------------ --------------------- Jess M. Ravich (20) ................................................... 913,244 6.8 c/o Libra Investments, Inc. 11766 Wilshire Boulevard Suite 870 Los Angeles, CA 90025 Grace Brothers, Ltd.(21) .............................................. 869,399 6.5 Bradford Whitmore 1560 Sherman Avenue, Suite 900 Evanston, IL 60201 Everest Capital Fund, L.P.(22) ........................................ 824,020 6.2 c/o Morgan Stanley & Co. Incorporated One Pierpont Plaza, 10th Floor Brooklyn, NY 11201
- ------------ * Less than 1% (1) This table is based upon information supplied by directors, officers and principal stockholders. Percentage of ownership is based on 12,577,884 shares of Common Stock outstanding on September 30, 1997. Unless otherwise indicated, the address of the beneficial owner is the Company. (2) Determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Under this rule, a person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from September 30, 1997 upon the exercise of options, and each beneficial owner's percentage ownership is determined by assuming that options that are held by such person (but not those held by any other person) and that are exercisable within 60 days from September 30, 1997 have been exercised. Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. (3) Darlene Friedland is the spouse of Robert Friedland. Robert Friedland was a director of the Company from June 1993 until October 1993. From May 1992, Mr. Friedland and Ivanhoe Capital Corporation, a venture capital firm he controls, collectively were the Company's largest shareholder until their shares were transferred to Darlene Friedland in October 1993. (4) Subject to demand registration rights after the Company's two satellites are launched and operational. (5) Includes 300,000 shares issuable pursuant to stock options that are exercisable within 60 days. Does not include 400,000 shares issuable pursuant to stock options that are not exercisable within 60 days. Pursuant to a voting trust agreement entered into by Darlene Friedland, as grantor, David Margolese, as trustee, and the Company, Mr. Margolese will have the power to vote in his discretion all shares of Common Stock owned or hereafter acquired by Darlene Friedland and certain of her affiliates (currently 2,734,500 shares) for a period of five years commencing on the first to occur of the closing dates of the Stock Offerings or Units Offering or the consummation of the Exchange Offer. (6) Shares are owned by a group including the following: The Robertson Stephens Orphan Fund (which has shared voting and shared dispositive power over 1,069,200 shares), The Robertson Stephens Orphan Offshore Fund (with shared voting and shared dispositive power over 226,800 shares), The Robertson Stephens Global Low-Priced Stock Fund (with shared voting and shared dispositive power over 70,000 shares), The Robertson Stephens & Company Investment Management L.P. (with shared voting and shared dispositive power over 1,366,000 shares), Bayview Investors, LTD (with shared voting and shared dispositive power over 1,069,200 shares), Robertson, Stephens & Company, Incorporated ('RS&Co.') (with shared voting and shared dispositive power over 1,366,000 shares), and RS&Co.'s five shareholders, namely Paul H. Stephens (with sole voting and sole dispositive power over 96,880 shares, and shared voting and shared dispositive power over 1,366,000 shares), Sanford R. Robertson (with sole voting and sole dispositive power over 11,620 shares, and shared voting and shared dispositive power over 1,366,000 shares), Michael G. McCaffery, G. Randy Hecht and Kenneth R. Fitzsimmons (the three of whom have shared voting and shared dispositive power over 1,366,000 shares). Messrs. Stephens, Robertson, McCaffery, Hecht and Fitzsimmons disclaim any beneficial ownership with respect to shares of the Company that RS&Co. may be deemed to beneficially own. The source of the information in this footnote is the Schedule 13D dated August 13, 1997 filed by Robertson, Stephens & Company LLC, et al. (7) Includes 132,500 shares of Common Stock issuable pursuant to stock options exercisable within 60 days. Does not include 117,500 shares issuable pursuant to stock options that are not exercisable within 60 days of such date. (8) Includes 195,000 shares of Common Stock issuable pursuant to stock options exercisable within 60 days and 7,700 shares of Common Stock held in trust for his daughters. Excludes 20,000 shares held by DICA Partners, L.P. of which Mr. Rubinstein is the General Partner. (9) Includes 60,000 shares of Common Stock issuable pursuant to stock options exercisable within 60 days. (10) Represents 35,000 shares of Common Stock issuable pursuant to stock options exercisable within 60 days. (11) Represents 35,000 shares of Common Stock issuable pursuant to stock options exercisable within 60 days. (12) Does not include 75,000 shares issuable pursuant to stock options that are not exercisable within 60 days. (footnotes continued on next page) 62 (footnotes continued from previous page) (13) Does not include 75,000 shares issuable pursuant to stock options that are not exercisable within 60 days. (14) Represents 59,000 shares of Common Stock issuable pursuant to stock options exercisable within 60 days. Does not include 116,000 shares of Common Stock issuable pursuant to stock options not exercisable within 60 days. (15) Includes 732,500 shares of Common Stock issuable pursuant to stock options exercisable within 60 days. Does not include 857,500 shares issuable pursuant to options that are not exercisable within 60 days. (16) Estimated solely for the purposes of this table. Such beneficial ownership represents an estimate of the number of shares of Common Stock issuable upon the conversion of shares of 5% Preferred Stock beneficially owned by such person, assuming a conversion date of September 30, 1997 and that all dividends on shares of the 5% Preferred Stock are paid, in lieu of cash, in additional shares of 5% Preferred Stock. The number of shares of Common Stock issuable upon conversion of the shares of the 5% Preferred Stock would equal the liquidation preference of the shares being converted plus any cash payments divided by the then-effective conversion price applicable to the Common Stock (the 'Conversion Price'). The Conversion Price, as of any date up to and including November 15, 1997, is determined in accordance with a formula based on market prices of the Common Stock or actual prices at which the converting holder sold the Common Stock, in either case multiplied by an amount equal to 1 minus an applicable percentage. The actual number of shares of Common Stock upon conversion is subject to adjustment and could be materially less or more than the estimated amount indicated depending upon factors which cannot be predicted by the Company at this time, including, among others, application of the conversion provisions based on market prices prevailing at the actual date of conversion and whether dividends on shares of 5% Preferred Stock are paid in cash or added to the liquidation preference. This presentation is not intended to constitute a prediction as to the future market price of the Common Stock or as to when holders will elect to convert shares of the 5% Preferred Stock into shares of Common Stock. See 'Description of Capital Stock -- 5% Delayed Convertible Preferred Stock.' (17) Includes 1,137,155 shares of 5% Preferred Stock. The following limitations (the 'Standstill Agreement') apply to Everest Capital International, Ltd. and Everest Capital Fund, L.P. (the 'Everest Funds') and their affiliates, and to certain transferees. Until the date one year after the execution of a certain Commitment Term Sheet between such Everest Funds and the Company, the Everest Funds and their affiliates (i) shall not acquire Common Stock, including by means of conversion of their 5% Preferred Stock or exercise any other right, if, upon such acquisition or exercise, the Everest Funds and their affiliates will have or share, directly or indirectly, voting or investment power over ten percent or more of the Common Stock (for purposes of this clause (i), a right to acquire upon exercise or conversion will not be deemed to confer voting or investment power over the underlying security in the absence of an exercise or conversion), and (ii) shall not sell or otherwise dispose of warrants or 5% Preferred Stock to any purchaser, if, following such sale or disposition, the purchaser and its affiliates would be beneficial owners of ten percent or more of the Common Stock, except for a sale or disposition of warrants or 5% Preferred Stock to a purchaser who, for itself and its affiliates, agrees to be bound by the limitations set forth in the Standstill Agreement. (18) Includes 1,114,630 shares of 5% Preferred Stock held on its own behalf and on behalf of its Designated A/C High Yield Fund. (19) Includes 678,350 shares of 5% Preferred Stock held by the Mainstay Funds, on behalf of its High Yield Corporate Bond Fund Series, for which Mackay-Shields Financial Corporation acts as financial advisor. Such Funds and such advisor share investment and voting power with respect to such shares. The Fund has agreed that it will not, following any conversion of its shares, be the beneficial owner of more than 9.99% of the outstanding Common Stock unless it chooses to waive this restriction upon 61 days prior notice to the Company. (20) Represents 64,757 shares of 5% Preferred Stock beneficially owned by Mr. Ravich, 146,800 shares of 5% Preferred Stock that are issuable pursuant to warrants to be issued to Libra Investments, Inc. ('Libra') and 261,700 shares of 5% Preferred Stock that are issuable pursuant to warrants to be issued to The Ravich Revocable Trust of 1989 (the 'Ravich Trust'). Jess M. Ravich is the Chairman, Chief Executive Officer and the controlling shareholder of Libra and a trustee of the Ravich Trust. Mr. Ravich disclaims beneficial ownership in the shares issuable to Libra except to the extent of his ownership interest in Libra. Libra and the Ravich Trust have agreed that they will not, following any conversion of their shares of 5% Preferred Stock, be the beneficial owner of more than 4.99% of the outstanding Common Stock unless they choose to waive this restriction upon 61 days prior notice to the Company. Amount does not include warrants to purchase 60,000 shares of Common Stock to be issued to the Ravich Trust at a purchase price of $50.00 per share. The warrants are exercisable from June 15, 1998 through and including June 15, 2005. (21) Includes 450,536 shares of 5% Preferred Stock. Grace Brothers, Ltd. has agreed that it will not, following any conversion of its shares, be the beneficial owner of more than 9.99% of the outstanding Common Stock unless it chooses to waive this restriction upon 61 days prior notice to the Company. (22) Includes 427,020 shares of 5% Preferred. Does not include shares of Common Stock issuable pursuant to warrants to be issued to Everest Capital Fund, L.P. or an affiliate thereof to purchase 1,740,000 shares of Common Stock at a purchase price of $50.00 per share. The warrants are exercisable from June 15, 1998 through and including June 15, 2005. See footnote (17) above for further commentary. 63 BENEFICIAL OWNERS OF 5% PREFERRED STOCK
NUMBER OF SHARES PERCENT OF TOTAL NAME AND ADDRESS OF OF 5% PREFERRED STOCK OF 5% PREFERRED STOCK BENEFICIAL OWNER OF 5% PREFERRED STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2) - ----------------------------------------------------------- ------------------------ --------------------------- Directors, Executive Officers and 5% Stockholders Everest Capital International, Ltd. ....................... 1,137,155 21.8% c/o Morgan Stanley & Co. Incorporated One Pierpont Plaza, 10th Floor Brooklyn, NY 11201 Continental Casualty Company .............................. 1,114,630 21.3 c/o Chase Manhattan Bank 4 New York Plaza New York, NY 10004-2477 Mackay-Shields Financial Corporation ...................... 678,350 13.0 9 West 57th Street New York, NY 10019 Jess M. Ravich ............................................ 473,257 9.1 c/o Libra Investments, Inc. 11766 Wilshire Boulevard Suite 870 Los Angeles, CA 90025 Grace Brothers, Ltd ....................................... 450,536 8.6 Bradford Whitmore 1560 Sherman Avenue, Suite 900 Evanston, IL 60201 Everest Capital Fund, L.P. ................................ 427,020 8.2 c/o Morgan Stanley & Co. Incorporated One Pierpont Plaza, 10th Floor Brooklyn, NY 11201 All Executive Officers and Directors as a Group (9 -- * persons)(3) .............................................
- ------------ * Less than 1% (1) This table is based upon information supplied by principal stockholders. Percentage of ownership is based on 5,222,608 shares of 5% Preferred Stock outstanding on September 30, 1997. Unless otherwise indicated, the address of the Beneficial Owner is the Company. (2) Determined in accordance with Rule 13D-3 under the Securities Exchange Act of 1934, as amended. Under this rule, a person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from September 30, 1997 upon the exercise of options, and each beneficial owner's percentage ownership is determined by assuming that options that are held by such person (but not those held by any other person) and that are exercisable within 60 days from September 30, 1997 have been exercised. Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of 5% Preferred Stock beneficially owned by them. (3) No executive officer or director of the Company beneficially owns any shares of 5% Preferred Stock. VOTING TRUST AGREEMENT The Company is a party to a voting trust agreement dated August 26, 1997 (the 'Voting Trust Agreement') by and among Darlene Friedland, as grantor, David Margolese, as the voting trustee thereunder, and the Company. The following summary description of the Voting Trust Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text thereof, a copy of which has been filed with the SEC as an exhibit to the Issuer Tender Offer Statement on Schedule 13E-4 and incorporated herein by reference. The Voting Trust Agreement provides for the establishment of a trust (the 'Trust') into which (i) there have been deposited all of the shares of Common Stock owned by Mrs. Friedland on August 26, 1997 and (ii) there shall be deposited any shares of Common Stock acquired by Mrs. Friedland, her spouse Mr. Robert Friedland, any member of either of their immediate families or any entity directly or indirectly controlled by Mrs. Friedland, her spouse or any member of either of their immediate families (the 'Friedland Affiliates') between the date shares are initially deposited and the termination of the 64 Trust. The voting trust will terminate on the fifth anniversary of the initial deposit of shares into the Trust. The Voting Trust Agreement does not restrict the ability of Mrs. Friedland or any of the Friedland Affiliates to sell, assign, transfer or pledge any of the shares deposited into the Trust, nor does it prohibit Mrs. Friedland or the Friedland Affiliates from purchasing additional shares of Common Stock, provided those shares become subject to the Trust, as described above. Under the Voting Trust Agreement, the trustee has the power to vote shares held in the Trust in relation to any matter upon which the holders of such stock would have a right to vote, including without limitation the election of directors. For so long as David Margolese remains trustee of the Trust, he may exercise such voting rights in his discretion. Any successor trustee or trustees of the Trust must vote as follows: (i) on the election of directors, the trustee(s) must vote the entire number of shares held by the Trust, with the number of shares voted for each director (or nominee for director) determined by multiplying the total number of votes held by the Trust by a fraction, the numerator of which is the number of votes cast for such person by other stockholders of the Company and the denominator of which is the sum of the total number of votes represented by all shares casting any votes in the election of directors; (ii) if the matter under Delaware law or the Certificate of Incorporation or the Bylaws of the Company requires at least an absolute majority of all outstanding shares of Common Stock of the Company in order to be approved, the trustee(s) must vote all of the shares in the Trust in the same manner as the majority of all votes that are cast for or against the matter by all other stockholders of the Company; and (iii) on all other matters, including without limitation any amendment of the Voting Trust Agreement for which a stockholder vote is required, the trustee(s) must vote all of the shares in the Trust for or against the matter in the same manner as all votes that are cast for or against the matter by all other stockholders of the Company. The Voting Trust Agreement may not be amended without the prior written consent of the Company, acting by unanimous vote of the Board of Directors, and approval of the Company's stockholders, acting by the affirmative vote of two-thirds of the total voting power of the Company, except in certain limited circumstances where amendments to the Voting Trust Agreement are required to comply with applicable law. DESCRIPTION OF CERTAIN INDEBTEDNESS VENDOR FINANCING On July 22, 1997, the Company entered into the AEF Agreements with AEF to finance approximately $105 million of the estimated $176 million price of the launch services to be provided by Arianespace for the Company's two satellites. Under the AEF Agreements, the Company is able to borrow funds to meet the progress payments due to Arianespace for the construction of each launch vehicle and other launch costs (the 'Tranche A Loans'). The obligation of AEF to make the Tranche A Loans is subject to the Company's satisfaction of certain conditions precedent, and the Company has confirmed with AEF that its issuance of the Notes will not violate such conditions. Interest on the Tranche A Loans will be capitalized and will accrue at a rate of 3% per annum above the rate at which dollar deposits are offered in the London interbank market for three months or, during a certain time period following the Conversion Commitment Date (defined below), one month (the 'Interest Basis'). Unless the Company satisfies the conditions for conversion of the Tranche A Loans to long-term loans, the Company will be required to repay the Tranche A Loans in full, together with accrued interest and all fees and other amounts due, approximately three months before the applicable launch date, which will be prior to the time CD Radio commences commercial operations. There can be no assurance that the Company will have sufficient funds to make such repayment. If the Company satisfies certain conditions set forth in the AEF Agreements and otherwise meets the requirements of AEF by a specified date prior to the applicable launch (the 'Conversion Commitment Date'), Tranche A Loans representing up to 60% of the launch costs may be converted ('Conversion') on the launch date into term loans (the 'Tranche B Loans') which will amortize over a period not to exceed seven years. However, not more than $80 million of the Tranche A Loans may be converted in the aggregate under the AEF Agreements. 65 Prior to Conversion, based on documents and materials to be submitted by the Company, including its business plan, AEF will place the Company into one of three pre-established borrower categories for the purpose of determining the conditions to Conversion that the Company must satisfy. It is anticipated that the Company will be placed in the category for which the conditions to Conversion are the most restrictive ('Category 3'). If the Company is placed in Category 3, AEF, at its discretion, may impose conditions to Conversion and require covenants in addition to those initially set forth in AEF Agreements. There can be no assurance that the Company will be able to satisfy the conditions to Conversion. Interest on the Tranche B Loans will accrue at a rate of 3.5% per annum above the Interest Basis and will be payable quarterly (or, in certain time periods, monthly) in arrears. Any amounts due and payable by the Company which are not paid on their due date will accrue interest at a default rate of 2% above the interest rate otherwise applicable at such time. The Company may, at any time, prepay the Tranche A Loans or the Tranche B Loans by providing prior irrevocable written notice to AEF. The Company will be required to prepay the loans in full, together with accrued interest and all fees and other amounts due, if certain events occur, including the following: (i) any of the applicable AEF Agreements, the Launch Services Agreement or the related Multiparty Agreement among the Company, AEF and Arianespace is terminated; (ii) following a launch failure, the Company does not request a replacement launch within 180 days after the original launch date or a replacement launch is not accomplished within 2 years following the original launch date; (iii) an initial launch has not occurred by April 12, 2002; (iv) a replacement launch results in a launch failure; or (v) the satellite fails to enter commercial service within 8 months following launch. The Company also will be required to make a prepayment of the loans in proportion to any prepayment (whether voluntary or mandatory) made by the Company under any other financing agreement relating to the construction, launch and operation of the satellites. Following Conversion, the Company will be required to apply a percentage of its excess cash flow (cash flow not needed to service debt, pay taxes or fund capital expenditures) to prepay the Tranche B Loans on certain specified dates, with the percentage so applied decreasing as the outstanding principal amount of the Tranche B loan decreases. If Conversion occurs, the Company will not be permitted to pay any dividends on any shares of its stock or purchase any capital stock or other equity interest in, or make any loan to or investment in, any of its affiliates unless the aggregate amount of all such payments for the applicable time period is less than or equal to the amount of the Company's excess cash flow for such period minus the amounts needed to make required prepayments of the Tranche B loans and not used during such period to make loans, investments, capital expenditures, scheduled payments on subordinated indebtedness or other purposes. If Conversion occurs, it is anticipated that the Tranche B Loans will be amortized as set forth in the following schedule, with the final payment of principal to be made no later than April 14, 2009 (the 'maturity date'):
PERCENTAGE OF PRINCIPAL AMOUNT OF TRANCHE B LOANS QUARTERLY PERIOD TO BE REPAID FOLLOWING LAUNCH DATE PER QUARTER - ------------------------------------------------------------------------- ------------------ 1 and 2.................................................................. No Repayment 3 and 4.................................................................. 1.0% 5 through 8.............................................................. 2.0% 9 through 12............................................................. 2.5% 13 through maturity date................................................. 5.0%
However, based on the business plan and other documents to be submitted by the Company during the review process required for Conversion, AEF may impose a shorter amortization schedule for the Tranche B Loans. If AEF determines that the Tranche A Loans are eligible for Conversion, the Company also will be prohibited from changing its capital structure (including the terms of its outstanding stock or other equity interests), permitting any change in the composition of its ownership, or changing its 66 organizational documents, if such change could reasonably be expected to have a material adverse effect on the Company, its business, assets or financial condition or its ability to perform its obligations under any agreements relating to the financing or the value of the Collateral (as defined below) or the license granted under the Collateral Documents (as defined below). The Company will also be prohibited from merging, consolidating or combining with any other entity. As a condition to Conversion, the Company will be required to create, in favor of a security agent (the 'Security Agent') (and on behalf of AEF, a bank group providing funding to AEF to on-lend to the Company and any other lender to the project), liens on specified assets of the Company, including the satellites, the Company's interests in gateway, ground reception and similar facilities and the FCC License (the 'Collateral'). In addition, if, as expected, the Company is determined to be in Category 3, it will be required to provide a lien on the common stock of Satellite CD Radio, Inc. In connection with such liens, the Company must execute certain agreements (the 'Collateral Documents'), including an assignment and security agreement granting the liens to the security agent, a mortgage on any tracking, telemetry, control and monitoring equipment owned by the Company and an intercreditor agreement (the 'Intercreditor Agreement'). All obligations of the Company under the AEF Agreements will be secured by such liens from and following the date of execution of the Collateral Documents, subject to the condition that neither AEF nor any member of the bank group providing funds to AEF may direct the security agent to exercise rights with respect to the Collateral prior to Conversion. If AEF does not approve the Stock Pledge, the Company may be precluded from converting the Tranche A Loans. From and following the date of execution of any Collateral Document, the Company will be prohibited from creating or incurring any lien on the Collateral other than liens in favor of AEF (or the other parties to the Intercreditor Agreement) and certain specified permitted liens. From such date, the Company will be prohibited from selling or transferring any Collateral having an aggregate fair market value in excess of $1.0 million. In addition, the Indenture permits indebtedness under the AEF Agreements to be secured on a pari passu basis with the Notes by a first priority security interest in the Pledged Stock. Following the Conversion Commitment Date, neither the Company nor its subsidiaries may sell or transfer any assets (other than permitted dispositions of the Collateral), except for (i) sales of inventory in the ordinary course of business, (ii) the trade-in of machinery or equipment in connection with the acquisition of similar machinery or equipment, (iii) the sale of obsolete or worn-out property having a value not exceeding $1.5 million in the aggregate in any fiscal year and (iv) sales or transfers of assets that (x) do not exceed in the aggregate 2% of the Company's total assets in any fiscal year, (y) together with all prior permitted sales or transfers do not exceed in the aggregate 5% of the Company's total assets at the time of such action or (z) do not have a fair market value in excess of $1.0 million per item. Commencing on the Conversion Commitment Date, prior to incurring additional indebtedness in an aggregate principal amount of $10.0 million or more, the Company will be required to deliver to AEF a certificate stating that no default will occur as a result of the incurrence of such indebtedness. From and after Conversion, the Company also will be required to maintain certain financial ratios relating to its ability to service debt. If the Company is placed in Category 3 (as anticipated), it will be in breach of the AEF Agreements if its ratio of earnings before interest, tax, depreciation and amortization ('EBITDA') to total interest accrued or payable for any period of four fiscal quarters ending on the relevant date of calculation is less than: (i) at any time after the first anniversary and on or prior to the second anniversary of Conversion, 1.0 to 1, (ii) thereafter, through and including the third anniversary of Conversion, 1.5 to 1, (iii) thereafter, through and including the fourth anniversary of Conversion, 2.0 to 1, (iv) thereafter, through and including the fifth anniversary of Conversion, 2.5 to 1, and (v) any time thereafter, 3.0 to 1. The Company will also be prohibited from permitting its ratio of EBITDA to the sum of (a) total interest accrued or payable and (b) scheduled principal payments for any period of four fiscal quarters ending on the relevant date of calculation to be less than: (i) at any time after the first anniversary and on or prior to the third anniversary of Conversion, 1.0 to 1, (ii) thereafter, through and including the fourth anniversary of Conversion, 1.5 to 1, (iii) thereafter, through and including the fifth anniversary of Conversion, 2.0 to 1, and (iv) at any time thereafter, 2.5 to 1. In addition, the Company may not permit its ratio of indebtedness to EBITDA for the four fiscal quarters ending on the relevant calculation date to exceed: (i) at any time after the first anniversary and 67 on or prior to the second anniversary of Conversion, 6.0 to 1, (ii) thereafter, through and including the third anniversary of Conversion, 5.5 to 1, (iii) thereafter, through and including the fourth anniversary of Conversion, 5.0 to 1, (iv) thereafter, through and including the fifth anniversary of Conversion, 4.0 to 1, and (v) at any time thereafter, 3.0 to 1. From and following the Conversion Commitment Date, the Company may not make any advances or loans other than (i) extensions of credit for a period not exceeding ninety days in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business, and (ii) if no default exists or would result therefrom, (x) loans or extensions of credit in the ordinary course of business to affiliates, not exceeding $2.5 million in an aggregate principal amount outstanding at any one time and (y) loans or extension of credit to the Company's key management employees, not exceeding $1.25 million in an aggregate principal amount outstanding at any one time. Neither the Company nor any of its subsidiaries may make any payments in respect of any indebtedness subordinated to the prior payment of all amounts payable by the Company under any of the AEF Agreements, except for regularly scheduled payments of principal and interest required by the instruments evidencing such subordinated indebtedness. A default under either of the AEF Agreements, which includes the non-payment of principal and interest and breaches of covenants, will constitute a default under the other AEF Agreement. In addition, the AEF Agreements will be cross-defaulted to a default by the Company under any other financing agreement relating to the project or any other agreement or instrument relating to indebtedness in an aggregate principal amount exceeding five million dollars. If the Company is subject to more restrictive cross-default provisions under any other agreement providing for long-term, asset-based financing, those more restrictive cross-default provisions will be deemed to be set forth in the AEF Agreements. Upon the occurrence of an event of default, AEF may terminate all commitments to make advances to the Company or convert loans, declare all unpaid principal and interest immediately due and payable, and exercise its rights with respect to any security. Pursuant to a Multiparty Agreement to be executed among the Company, AEF and Arianespace in connection with the AEF Agreements, if the Company is unable to obtain sufficient financing to complete the construction and launch of the satellites, and if the Company terminates the Arianespace Launch Contract, the Company will be required to pay Arianespace a termination fee ranging from 5% to 40% of the launch services price, based on the proximity of the date of termination to the scheduled launch date. The termination fee will be payable prior to the time the Company commences commercial operations and there can be no assurance that the Company will have sufficient funds to pay this fee. 68 DESCRIPTION OF THE UNITS Each Unit offered hereby consists of $20,000 principal amount at maturity of Notes and one Warrant entitling the holder thereof to acquire $3,000 principal amount at maturity of Notes. The Notes and Warrants will not be separately transferable until the Separability Date, which shall be the earliest of: (i) the occurrence of an Exercise Event, (ii) the occurrence of an Event of Default, or (iii) such earlier date as determined by Merrill Lynch in its sole discretion. DESCRIPTION OF THE NOTES The Notes offered hereby will be issued under an indenture to be dated as of November 26, 1997 (the 'Indenture') between the Company, as issuer, and IBJ Schroder Bank & Trust Company, as trustee (the 'Trustee'), the form of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Indenture is subject to and governed by the Trust Indenture Act. The following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the Notes and the Indenture, including the definitions of certain terms contained therein and those terms made part of the Indenture by reference to the Trust Indenture Act. For definitions of certain capitalized terms used in the following summary, see ' -- Certain Definitions.' GENERAL The Notes will be senior secured obligations of the Company, secured by a pledge of the stock of Satellite CD Radio Inc., a wholly-owned subsidiary of the Company (the 'Pledged Stock'), and will rank pari passu in right of payment with all existing and future unsubordinated obligations of the Company, and senior in right of payment to all existing and future obligations the Company expressly subordinated in right of payment to the Notes. The Notes will be limited to $296,930,000 aggregate principal amount at maturity and will mature on December 1, 2007. Although for federal income tax purposes a significant amount of original issue discount, taxable as ordinary income, will be recognized by a holder as such discount accrues from the date of the Indenture, no cash interest will be payable on the Notes prior to December 1, 2002. Each Note will bear interest at the rate set forth on the cover page hereof from December 1, 2002 or from the most recent interest payment date to which interest has been paid or duly provided for, payable on June 1, 2003 and semi-annually thereafter on June 1 and December 1 in each year until the principal thereof is paid or duly provided for to the Person in whose name the Note (or any predecessor Note) is registered at the close of business on the May 15 or November 15 next preceding such interest payment date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal of, premium, if any, on, and interest on the Notes will be payable, and the Notes will be exchangeable and transferable, at the office or agency of the Company in The City of New York maintained for such purposes (which initially will be the office of the Trustee); provided, however, that, at the option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as shown on the security register. The Notes will be issued only in fully registered form without coupons. No service charge will be made for any registration of transfer or exchange or redemption of Notes, but the Company may require payment in certain circumstances of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. RANKING The indebtedness of the Company evidenced by the Notes will rank pari passu in right of payment with all existing and future unsubordinated obligations of the Company, and senior in right of payment to all existing and future obligations of the Company expressly subordinated in right of payment to the Notes. Under the Indenture, the Company and its subsidiaries may incur additional indebtedness, including indebtedness secured on a pari passu basis with the holders of Notes with respect to the Pledged Stock. Such secured indebtedness includes vendor financing from AEF and Loral Space. See 69 'Description of Certain Indebtedness.' The Company currently has no subordinated obligations outstanding. Notwithstanding anything to the contrary contained in the Indenture, for so long as any shares of 5% Preferred Stock remain outstanding, the Notes shall rank pari passu to such shares of 5% Preferred Stock in seniority and right of payment, structure and maturity. Accordingly, because the 5% Preferred Stock has no maturity or mandatory redemption date, no payments of principal upon maturity of the Notes may be paid until the date on which no shares of 5% Preferred Stock remain outstanding. It is a condition to the consummation of the Notes Offering that all outstanding shares of 5% Preferred Stock be exchanged for shares of Series C Preferred Stock in the Exchange Offer or redeemed by the Company. SECURITY The Notes will be secured by a first priority perfected security interest in all of the issued and outstanding common stock of Satellite CD Radio Inc., a wholly-owned subsidiary of the Company (the 'Pledged Stock'). The Indenture will permit the Company to incur additional secured financing including (i) up to $145 million under the AEF Agreements and the Loral Satellite Contract and (ii) certain other financing. Any secured financing incurred by the Company under either (i) or (ii) above may be secured on a pari passu basis with the holders of Notes with respect to the Pledged Stock. So long as no Event of Default has occurred and is continuing, the Company is entitled to exercise all voting rights with respect to the Pledged Stock, provided that no vote is cast that is inconsistent with the provisions of the Indenture. Upon the occurrence of an Event of Default, the Trustee may vote the Pledged Stock and, subject to the satisfaction of any regulatory requirements, realize upon and sell or otherwise dispose of all or any part of the Pledged Stock and will apply the proceeds of any sale or disposition, first to the payment of costs and expenses of sale, second to amounts due the Trustee, third to the payment of all amounts due and unpaid on the Notes and, finally, any surplus to the Company. The Notes are not secured by any lien on, or other security interest in, any other properties or assets of the Company or Satellite CD Radio, Inc. Regulatory considerations may affect the ability of the Trustee to exercise certain rights with respect to the Pledged Stock upon the occurrence of an Event of Default. In particular, the Trustee under the Indenture may not exercise any rights with respect to the Pledged Stock upon the occurrence of an Event of Default if such action would constitute or result in any assignment of the FCC License or any change of control (whether de jure or de facto) of the Company unless the prior approval of the FCC is first obtained. There can be no assurance that any such required FCC approval can be obtained on a timely basis, or at all. SINKING FUND The Notes will not be entitled to the benefit of any sinking fund. REDEMPTION The Notes will be redeemable, at the option of the Company, in whole or in part, at any time on or after December 1, 2002, on not less than 30 nor more than 60 days' prior notice at the redemption prices (expressed as percentages of principal amount at maturity) set forth below, together with accrued interest, if any, to the redemption date, if redeemed during the 12-month period beginning on 70 December 1 of the years indicated below (subject to the right of holders of record on relevant record dates to receive interest due on a relevant interest payment date):
REDEMPTION YEAR PRICE - --------------------------------------------------------------------------------- ---------- 2002............................................................................. 112.5% 2003............................................................................. 110.0% 2004............................................................................. 107.5% 2005............................................................................. 105.0% 2006............................................................................. 102.5%
In addition, (i) upon the occurrence of a Change of Control, the Company is obligated to make an offer to purchase all outstanding Notes at a price of 101% of the Accreted Value thereof on the applicable date of purchase, together with accrued interest, if any, to the date of purchase (subject to the right of holders of record on relevant record dates to receive interest due on relevant interest payment dates), and (ii) upon the occurrence of an Asset Sale, the Company may be obligated to make an offer to purchase all or a portion of the outstanding Notes at a price of 100% of the Accreted Value thereof on the applicable date of purchase, together with accrued interest, if any, to the date of purchase (subject to the right of holders of record on relevant record dates to receive interest due on relevant interest payment dates). See ' -- Certain Covenants -- Purchase of Notes upon a Change of Control' and ' -- Limitation on Sale of Assets,' respectively. If less than all the Notes are to be redeemed, the particular Notes to be redeemed will be selected not more than 60 days prior to the redemption date by the Trustee by such method as the Trustee shall deem fair and appropriate; provided, however, that no such partial redemption will reduce the principal amount at maturity of a Note not redeemed to less than $1,000. Notice of redemption will be mailed, first-class postage prepaid, at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note will state the portion of the principal amount at maturity thereof to be redeemed. A new Note in a principal amount at maturity equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. On and after the redemption date, interest and original issue discount will cease to accrue on Notes or portions thereof called for redemption and accepted for payment. CERTAIN COVENANTS The Indenture will contain, among others, the following covenants: Limitation on Indebtedness. The Company will not, and will not permit any Restricted Subsidiary to, create, assume, issue, guarantee or in any manner become directly or indirectly liable for or with respect to the payment of, or otherwise incur (collectively, to 'incur'), any Indebtedness, except for Permitted Indebtedness; provided that (i) the Company will be permitted to incur Indebtedness and (ii) a Restricted Subsidiary will be permitted to incur Acquired Indebtedness, if, in either case, after giving pro forma effect to such incurrence (including the application of the net proceeds therefrom), the ratio of (x) Total Consolidated Indebtedness to (y) Adjusted Consolidated Operating Cash Flow for the latest four fiscal quarters for which consolidated financial statements of the Company are available preceding the date of such incurrence, taken as a whole, would be greater than zero and less than or equal to 4.0 to 1.0. Limitation on Restricted Payments. The Company will not make, and will not permit any Restricted Subsidiary to make, directly or indirectly, any of the following: (i) the declaration or payment of any dividend or any other distribution on Capital Stock of the Company or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company (other than dividends or distributions payable solely in Qualified Capital Stock of the Company or in options, warrants or other rights to purchase Qualified Capital Stock of the Company); (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company (other than any such Capital Stock owned by the Company or a Restricted Subsidiary) or any affiliate of the Company (other than any Restricted Subsidiary); (iii) the making of any principal payment on, or the repurchase, 71 redemption, defeasance or other acquisition or retirement for value of, prior to any scheduled principal payment, sinking fund payment or maturity, any Pari Passu Indebtedness or Subordinated Indebtedness (other than any Subordinated Indebtedness held by a Restricted Subsidiary); or (iv) the making of any Investment (other than a Permitted Investment) in any Person (such payments or other actions described in (but not excluded from) clauses (i) through (iv) are collectively referred to as 'Restricted Payments'), unless, in each case: (A) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Restricted Payment; (B) immediately after giving effect to such Restricted Payment, the Company would be able to incur at least $1.00 of Indebtedness (other than Permitted Indebtedness) under the proviso of the covenant 'Limitation on Indebtedness'; and (C) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments declared or made on or after the date of the Indenture would not exceed an amount equal to the sum of (a) the difference between (x) the Cumulative Available Cash Flow determined at the time of such Restricted Payment and (y) 150% of the cumulative Consolidated Interest Expense of the Company determined for the period commencing on the date of the Indenture and ending on the last day of the latest fiscal quarter for which consolidated financial statements of the Company are available preceding the date of such Restricted Payment plus (b) the aggregate Net Cash Proceeds received by the Company from the issue or sale (other than to any Restricted Subsidiary) of Qualified Capital Stock of the Company after January 1, 1998, plus (c) the aggregate Net Cash Proceeds received after the date of the Indenture by the Company from the issuance or sale (other than to any Restricted Subsidiary) of debt securities or Redeemable Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company, together with the aggregate Net Cash Proceeds received by the Company at the time of such conversion or exchange, plus (d) to the extent not otherwise included in the Consolidated Operating Cash Flow of the Company, an amount equal to the sum of (1) the net reduction in Investments in any Person (other than the Permitted Investments) resulting from the payment in cash of dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary after the date of the Indenture from such Person and (2) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that in the case of (1) or (2) above the foregoing sum shall not exceed the aggregate amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary, minus (e) the sum of 80% of the outstanding principal amount of all Indebtedness incurred pursuant to clause (i)(x) or (i)(y)(1) of the definition of Permitted Indebtedness and 100% of the outstanding principal amount of all Indebtedness incurred pursuant to clause (i)(y)(2) of the definition of Permitted Indebtedness. For purposes of determining the amount expended for Restricted Payments, property other than cash shall be valued at its Fair Market Value. The provisions of this covenant shall not prohibit, so long as, with respect to clauses (ii) through (ix) below, no Default or Event of Default shall have occurred and be continuing, (i) the payment of any dividend or other distribution within 60 days after the date of declaration thereof if at such date of declaration such payment complied with the provisions of the Indenture, and such payment will be deemed to have been paid on the date of declaration for purposes of the calculation in the foregoing paragraph; (ii) the purchase, redemption, retirement or other acquisition of any shares of Capital Stock of the Company in exchange for, or out of the Net Cash Proceeds of a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of, shares of Qualified Capital Stock of the Company; (iii) the purchase, redemption, retirement, defeasance or other acquisition or retirement for value of Subordinated Indebtedness made by exchange for, or out of the Net Cash Proceeds of a substantially concurrent issue or sale (other than to a Restricted Subsidiary) of, Qualified Capital Stock of the Company; (iv) (A) the purchase of any Subordinated Indebtedness at a purchase price not greater than 101% of the principal amount or accreted value thereof, as the case may be, together with accrued 72 interest, if any, in the event of a Change of Control in accordance with provisions similar to the 'Purchase of Notes upon a Change of Control' covenant or (B) the purchase of any Preferred Stock at a purchase price not greater than 101% of the liquidation preference thereof, together with accrued dividends, if any, in the event of a Change of Control in accordance with provisions similar to the 'Purchase of Notes upon a Change of Control' covenant; provided that, in each case, prior to such purchase the Company has made the Change of Control Offer as provided in such covenant with respect to the Notes and has purchased all Notes validly tendered for payment in connection with such Change of Control Offer; (v) the purchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Indebtedness in exchange for, or out of the Net Cash Proceeds of a substantially concurrent incurrence (other than to a Restricted Subsidiary) of, new Subordinated Indebtedness so long as (A) the principal amount of such new Indebtedness does not exceed the principal amount (or, if such Subordinated Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) of the Subordinated Indebtedness being so purchased, redeemed, defeased, acquired or retired, plus the lesser of the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Subordinated Indebtedness being refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing, plus, in either case, the amount of expenses of the Company incurred in connection with such refinancing, (B) such new Subordinated Indebtedness is subordinated to the Notes to the same extent as such Subordinated Indebtedness so purchased, redeemed, defeased, acquired or retired and (C) such new Subordinated Indebtedness has an Average Life longer than the Average Life of the Notes and a final Stated Maturity of principal later than the Stated Maturity of principal of the Notes; (vi) the purchase of any Subordinated Indebtedness at a purchase price not greater than 100% of the principal amount or accreted value thereof, as the case may be, together with accrued interest, if any, following an Asset Sale in accordance with provisions similar to the 'Limitation on Sale of Assets' covenant, provided that prior to making any such purchase the Company has made the Excess Proceeds Offer as provided in such covenant with respect to the Notes and has purchased all Notes validly tendered for payment in connection with such Excess Proceeds Offer; (vii) the optional redemption or retirement of any Pari Passu Indebtedness if a pro rata principal amount at maturity of Notes is redeemed or retired by the Company at the same time; (viii) the payment of cash dividends on outstanding shares of Series C Preferred Stock of the Company out of the Net Cash Proceeds of a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of Common Stock of the Company; and (ix) any other Restricted Payments in an aggregate amount not to exceed $15.0 million. In determining the amount of Restricted Payments permissible under this covenant, amounts expended pursuant to clauses (i), (ii), (iii), (iv), (vi), (vii), (viii) and (ix) above shall be included as Restricted Payments. Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries. The Company (a) will not permit any Restricted Subsidiary to issue any Capital Stock (other than to the Company or a Restricted Subsidiary) and (b) will not permit any Person (other than the Company or a Restricted Subsidiary) to own any Capital Stock of any Restricted Subsidiary; provided, however, that this covenant shall not prohibit (i) the issuance and sale of all, but not less than all, of the issued and outstanding Capital Stock of any Restricted Subsidiary owned by the Company or any Restricted Subsidiary in compliance with the other provisions of the Indenture or (ii) the ownership by directors of directors' qualifying shares or the ownership by foreign nationals of Capital Stock of any Restricted Subsidiary, to the extent mandated by applicable law. Limitation on Transactions with Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any Affiliate of the Company (other than the Company or a Restricted Subsidiary) unless (i) such transaction or series of related transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution, than those that could have been obtained in an arm's-length transaction with 73 unrelated third parties who are not Affiliates, (ii) with respect to any transaction or series of related transactions involving aggregate consideration equal to or greater than $2,500,000, the Company shall have delivered an officers' certificate to the Trustee certifying that such transaction or series of related transactions complies with clause (i) above and such transaction or series of related transactions has been approved by a majority of the Disinterested Directors of the Board of Directors of the Company, or the Company has obtained a written opinion from a nationally recognized investment banking firm to the effect that such transaction or series of related transactions is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view and (iii) with respect to any transaction or series of related transactions including aggregate consideration in excess of $10,000,000, or in the event no members of the Board of Directors of the Company are Disinterested Directors with respect to any transaction or series of transactions included in clause (ii), the Company shall obtain an opinion from a nationally recognized investment banking firm as described above; provided, however, that this provision will not restrict (1) any transaction by the Company or any Restricted Subsidiary with an Affiliate directly related to the purchase, sale or distribution of products in the ordinary course of business consistent with industry practice, (2) the Company from paying reasonable and customary regular compensation and fees to directors of the Company or any Restricted Subsidiary who are not employees of the Company or any Restricted Subsidiary, (3) the payment of compensation (including stock options and other incentive compensation) to officers and other employees the terms of which are approved by the Board of Directors, (4) the Company or any Restricted Subsidiary from making any Restricted Payment in compliance with the 'Limitation on Restricted Payments' covenant (including pursuant to the second paragraph thereof), (5) transactions between the Company and Batchelder & Partners Inc. pursuant to agreements in effect on the date of the Indenture and listed on a schedule to the Indenture; provided that the Company will not, and will not permit any Restricted Subsidiary to amend, modify or in any way alter, other than an extension of the termination thereof, the terms of any such agreement in a manner materially adverse to the holders of the Notes, (6) transactions among the Company and its Restricted Subsidiaries, (7) the payment of fees to Robertson, Stephens & Company, Incorporated for investment banking services rendered to the Company or (8) amendments to the Loral Satellite Purchase Contract; provided that the Company will not amend, modify or in any way alter the terms of such agreement in a manner materially adverse to the holders of the Notes. Under Delaware law, the Disinterested Directors' fiduciary obligations require that they act in good faith in a manner which they reasonably believe to be in the best interests of the Company and its stockholders, which may not necessarily be the same as those of holders of the Notes. Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind, other than Permitted Liens, on or with respect to any of its property or assets, including any shares of stock or indebtedness of any Restricted Subsidiary, whether owned at the date of the Indenture or thereafter acquired, or any income, profits or proceeds therefrom, or assign or otherwise convey any right to receive income thereon, unless (x) in the case of any Lien securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Lien and (y) in the case of any other Lien, the Notes are equally and ratably secured; provided that in no event may the Company or any Restricted Subsidiary grant any Lien (other than Permitted Liens) on the Bond Collateral. Purchase of Notes upon a Change of Control. If a Change of Control shall occur at any time, then each holder of Notes shall have the right to require that the Company purchase such holder's Notes, in whole or in part in integral multiples of $1,000 principal amount at maturity, at a purchase price (the 'Change of Control Purchase Price') in cash in an amount equal to 101% of the Accreted Value of such Notes as of the date of purchase, plus accrued and unpaid interest, if any, to the date of purchase (the 'Change of Control Purchase Date'), pursuant to the offer described below (the 'Change of Control Offer') and the other procedures set forth in the Indenture. Within 15 days following any Change of Control, the Company shall notify the Trustee thereof and give written notice of such Change of Control to each holder of Notes by first-class mail, postage prepaid, at the address of such holder appearing in the security register, stating, among other things, (i) the purchase price and the purchase date, which shall be a Business Day no earlier than 30 days nor 74 later than 60 days from the date such notice is mailed, or such later date as is necessary to comply with requirements under the Exchange Act or any applicable securities laws or regulations; (ii) that any Note not tendered will continue to accrue interest or original issue discount; (iii) that, unless the Company defaults in the payment of the purchase price, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest and original issue discount after the Change of Control Purchase Date; and (iv) certain other procedures that a holder of Notes must follow to accept a Change of Control Offer or to withdraw such acceptance. The Company shall have no obligation to purchase any Notes in a Change of Control Offer if no Notes are tendered by the holders thereof. If a Change of Control Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the Change of Control Purchase Price for all of the Notes that might be delivered by holders of the Notes seeking to accept the Change of Control Offer. The failure of the Company to make or consummate the Change of Control Offer or pay the Change of Control Purchase Price when due would result in an Event of Default and would give the Trustee and the holders of the Notes the rights described under 'Events of Default.' One of the events which constitutes a Change of Control under the Indenture is the disposition of 'all or substantially all' of the Company's assets. This term has not been interpreted under New York law (which is the governing law of the Indenture) to represent a specific quantitative test. As a consequence, in the event holders of the Notes elect to require the Company to purchase the Notes and the Company elects to contest such election, there can be no assurance as to how a court interpreting New York law would interpret the phrase. The existence of a holder's right to require the Company to purchase such holder's Notes upon a Change of Control may deter a third party from acquiring the Company in a transaction which constitutes a Change of Control. The definition of 'Change of Control' in the Indenture is limited in scope. The provisions of the Indenture may not afford holders of Notes the right to require the Company to purchase such Notes in the event of a highly leveraged transaction or certain transactions with the Company's management or its affiliates, including a reorganization, restructuring, merger or similar transaction involving the Company (including, in certain circumstances, an acquisition of the Company by management or its affiliates) that may adversely affect holders of the Notes, if such transaction is not a transaction defined as a Change of Control. See ' -- Certain Definitions' for the definition of 'Change of Control.' A transaction involving the Company's management or its affiliates, or a transaction involving a recapitalization of the Company, would result in a Change of Control if it is the type of transaction specified by such definition. The Company will comply to the extent applicable with the requirements of the tender offer rules, including Rule 14e-1 under the Exchange Act, and any other applicable securities laws and regulations in connection with a Change of Control Offer. Limitation on Sale-Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into any sale-leaseback transaction involving any of its assets or properties whether now owned or hereafter acquired, whereby the Company or a Restricted Subsidiary sells or transfers such assets or properties and then or thereafter leases such assets or properties or any part thereof or any other assets or properties which the Company or such Restricted Subsidiary, as the case may be, intends to use for substantially the same purpose or purposes as the assets or properties sold or transferred. The foregoing restriction does not apply to any sale-leaseback transaction if (i) the lease is for a period, including renewal rights, of not in excess of three years; (ii) the transaction is solely between the Company and any Restricted Subsidiary or solely between Restricted Subsidiaries; or (iii) the Company or such Restricted Subsidiary, within 12 months after the sale or transfer of any assets or properties is completed, applies an amount not less than the net proceeds received from such sale in accordance with paragraph (b) of the 'Limitation on Sale of Assets' covenant described below. Limitation on Sale of Assets. (a) The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, engage in any Asset Sale unless (i) the consideration received by the Company or such Restricted Subsidiary for such Asset Sale is not less than the Fair Market Value of the 75 shares or assets sold (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) the consideration received by the Company or the relevant Restricted Subsidiary in respect of such Asset Sale consists of at least 80% cash or Cash Equivalents. (b) If the Company or any Restricted Subsidiary engages in an Asset Sale, the Company may use the Net Cash Proceeds thereof within 12 months after the later of such Asset Sale or the receipt of such Net Cash Proceeds (i) to permanently repay or prepay any then outstanding Pari Passu Indebtedness, (ii) to invest in any one or more businesses, capital expenditures or other tangible assets of the Company or any Restricted Subsidiary, in each case, engaged, used or useful in the CD Radio Business (or enter into a legally binding agreement to do so within 6 months); or (iii) to invest in properties or assets that replace the properties and assets that are the subject to such Asset Sale (or enter into a legally binding agreement to do so within 6 months). If any such legally binding agreement to invest such Net Cash Proceeds is terminated, then the Company may, within 90 days of such termination or within 12 months of such Asset Sale, whichever is later, apply or invest such Net Cash Proceeds as provided in clause (i), (ii) or (iii) (without regard to the parenthetical contained in clause (i) or (ii)) above. The amount of such Net Cash Proceeds not so used as set forth above in this paragraph (b) constitutes 'Excess Proceeds.' (c) When the aggregate amount of Excess Proceeds exceeds $10,000,000 the Company shall, within 30 business days, make an offer to purchase (an 'Excess Proceeds Offer') from all holders of Notes, on a pro rata basis, in accordance with the procedures set forth below, the maximum Accreted Value as of the date of purchase (expressed as a multiple of $1,000) of Notes that may be purchased with the Excess Proceeds. The offer price as to each Note shall be payable in cash in an amount equal to 100% of the Accreted Value of such Note as of the date of purchase plus accrued interest, if any (the 'Offered Price'), to the date such Excess Proceeds Offer is consummated (the 'Offer Date'). To the extent that the aggregate Accreted Value of Notes tendered pursuant to an Excess Proceeds Offer is less than the Excess Proceeds relating thereto, the Company may use such additional Excess Proceeds for general corporate purposes or to fund an offer to redeem any outstanding Subordinated Indebtedness or Pari Passu Indebtedness in accordance with provisions similar to this 'Limitation on Sale of Assets' covenant. If the aggregate Accreted Value of Notes validly tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset to zero. (d) If the Company becomes obligated to make an Offer pursuant to clause (c) above, the Notes shall be purchased by the Company, at the option of the holder thereof, in whole or in part in integral multiples of $1,000, on a date that is not earlier than 30 days and not later than 60 days from the date the notice is given to holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act or any other applicable securities laws or regulations, subject to proration in the event the amount of Excess Proceeds is less than the aggregate Offered Price of all Notes tendered. (e) The Company will comply to the extent applicable with the requirements of the tender offer rules, including Rule 14e-1 under the Exchange Act, and any other applicable securities laws and regulations in connection with an Excess Proceeds Offer. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make Investments in the Company or any other Restricted Subsidiary, (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary or (e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) any agreement in effect on the date of the Indenture and listed on Schedule A attached to the Indenture, (ii) applicable law or judicial or regulatory action, (iii) customary non-assignment provisions of any lease governing a leasehold interest of the Company or any Restricted Subsidiary, (iv) any agreement or other instrument 76 of a Person acquired by the Company or any Restricted Subsidiary in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired and the Subsidiaries of such Person, (v) any mortgage or other Lien on real property acquired or improved by the Company or any Restricted Subsidiary after the date of the Indenture that prohibit transfers of the type described in (d) above with respect to such real property, (vi) any encumbrance or restriction contained in contracts for sales of assets permitted by the 'Limitation on Sale of Assets' covenant with respect to the assets to be sold pursuant to such contract; (vii) any such customary encumbrance or restriction contained in a security document creating a Permitted Lien (other than a Lien securing Indebtedness under a Bank Credit Agreement or a Vendor Credit Facility) to the extent relating to the property or asset subject to such Permitted Lien; (viii) any agreement or other instrument governing any Indebtedness under any Bank Credit Agreement or Vendor Credit Facility if such encumbrance or restriction applies only (x) to amounts which at any point in time (other than during such periods as are described in clause (y)) (1) exceed amounts due and payable (or which are to become due and payable within 30 days) in respect of the Notes or the Indenture for interest, premium and principal (after giving effect to any realization by the Company under any applicable Currency Agreement), or (2) if paid, would result in an event described in the following clause (y) of this sentence, or (y) during the pendency of any event that causes, permits or, after notice or lapse of time, would cause or permit the holder(s) of the Indebtedness governed by such agreement or instrument to declare any such Indebtedness to be immediately due and payable or require cash collateralization or cash cover for such Indebtedness for so long as such cash collateralization or cash cover has not been provided; or (ix) the refinancing of Indebtedness incurred under the agreements listed on Schedule A attached to the Indenture or described in clause (v) above, so long as such encumbrances or restrictions are no less favorable in any material respect to the Company or any Restricted Subsidiary than those contained in the respective agreement as in effect on the date of the Indenture. Insurance. (a) The Company will maintain launch insurance covering the period from the launch to 180 days following the launch of such satellite in an amount equal to or greater than the sum of (i) the cost to replace such satellite with a satellite of comparable or superior technological capability (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and having at least as much transmission capacity as the satellite to be replaced, (ii) the cost to launch a replacement satellite pursuant to the contract whereby a replacement satellite will be launched and (iii) the cost of launch insurance for such replacement or, in the event that the Company has reason to believe that the cost of obtaining comparable insurance for a replacement would be materially higher, the Company's best estimate of the cost of such comparable insurance. Notwithstanding the foregoing, the Company shall not be obligated to maintain insurance pursuant to this paragraph (a) with respect to (i) the launch of its first satellite and (ii) any subsequent launch not preceded by a launch failure or failure of any satellite within 180 days from the date of its launch; provided that the Company's spare satellite shall be under construction in accordance with the terms of the Loral Satellite Contract or the Company shall have otherwise obtained a spare satellite. (b) The Company will maintain full in-orbit insurance with respect to each satellite it owns and launches in an amount at least equal to (i) the cost to replace such satellite with a satellite of comparable or superior technological capability (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and having at least as much transmission capacity as such owned satellites, (ii) the cost to launch each such satellite pursuant to the contract pursuant to which a replacement satellite will be launched and (iii) the cost of launch insurance for such replacement or, in the event that the Company has reason to believe that the cost of obtaining comparable insurance for a replacement would be materially higher, the Company's best estimate of the cost of such comparable insurance. The in-orbit insurance required by this paragraph will provide that if 50% or more of a satellite's capacity is lost, the full amount of insurance will become due and payable, and that if a satellite is able to maintain more than 50% but less than 100% of its capacity, a portion of such insurance will become due and payable. (c) In the event that the Company receives proceeds from insurance relating to any satellite, the Company may use all or a portion of such proceeds to repay any vendor or third-party purchase money 77 financing pertaining to such satellite that is required to be repaid by reason of the loss giving rise to such insurance proceeds. The Company shall use the remainder of such proceeds to develop and construct a replacement satellite; provided that (i) such replacement satellite is of comparable or superior technological capability as compared with the satellite being replaced and has at least as much transmission capacity as the satellite being replaced (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution); (ii) the Company will have sufficient funds (together with the proceeds of any business interruption insurance) to service the Company's projected debt service requirements until the scheduled launch of the Company's spare satellite and for one year thereafter and to develop and construct such replacement satellite and (iii) that the Company's spare satellite is scheduled to be launched within 12 months of the receipt of such proceeds. Any such proceeds not used as permitted by this paragraph shall constitute 'Excess Proceeds' for purposes of the 'Limitation on Sale of Assets' covenant. Provision of Financial Statements and Reports. The Company will file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15 of the Exchange Act. The Company will also be required (a) to file with the Trustee, and provide to each holder of Notes, without cost to such holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company would be required to file such reports and documents if the Company were so required, and (b) if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to supply at the Company's cost copies of such reports and documents to any prospective holder of Notes promptly upon written request. CONSOLIDATION, MERGER AND SALE OF ASSETS The Company will not in a single transaction or a series of related transactions consolidate with or merge with or into any other Person or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to any Person or Persons, and the Company will not permit any Restricted Subsidiary to enter into any such transaction, or series of transactions, if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries on a consolidated basis to any Person or Persons, unless: (i) either (a) the Company shall be the surviving corporation or (b) the Person (if other than the Company) formed by such consolidation or into which the Company or the Company and its Restricted Subsidiaries is merged or the Person which acquires by sale, conveyance, transfer, lease or other disposition, all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, as the case may be, (the 'Surviving Entity') (1) shall be a corporation organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and (2) shall expressly assume, by an indenture supplemental to the Indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, the Company's obligations for the due and punctual payment of the principal of (or premium, if any, on) and interest on all the Notes and the performance and observance of every covenant of the Indenture on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any obligation of the Company or any Restricted Subsidiary in connection with or as a result of such transaction as having been incurred of the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction or series of transactions on a pro forma basis (on the assumption that the transaction or series of transactions occurred on the first day of the latest four fiscal quarters for which consolidated financial statements of the Company are available prior to the consummation of such transaction or series of transactions with the appropriate adjustments with respect to the transaction or series of transactions, including the incurrence and repayment of any Indebtedness incident to such transaction, being included in such pro forma calculation), the Company (or the Surviving Entity if the Company is not the continuing obligor under the Indenture) could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the proviso to the 78 'Limitation on Indebtedness' covenant; (iv) if any of the property or assets of the Company or any of its Restricted Subsidiaries would thereupon become subject to any Lien, the provisions of the 'Limitation on Liens' covenant are complied with; and (v) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition and such supplemental indenture comply with the terms of the Indenture. Upon any consolidation or merger, or any sale, assignment, conveyance, transfer, lease or other disposition of all of substantially all of the properties and assets of the Company in accordance with the immediately preceding paragraph in which the Company is not the continuing obligor under the Indenture, the Surviving Entity shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, with the same effect as if such successor had been named as the Company therein. When a successor assumes all the obligations of its predecessor under the Indenture and the Notes, the predecessor shall be released from those obligations; provided that in the case of a transfer by lease, the predecessor shall not be released from the payment of principal and interest on the Notes. EVENTS OF DEFAULT The following will be 'Events of Default' under the Indenture: (i) default in the payment of any interest on any Note when it becomes due and payable and continuance of such default for a period of 30 days; (ii) default in the payment of the principal of or premium, if any, on any Note at its Maturity; (iii) default in the performance, or breach, of the provisions described in 'Consolidation, Merger and Sale of Assets', the failure to make or consummate a Change of Control Offer in accordance with the provisions of the 'Purchase of Notes upon a Change of Control' covenant or the failure to make or consummate an Excess Proceeds Offer in accordance with the provisions of the 'Limitation on Sale of Assets' covenant; (iv) default in the performance, or breach, of any covenant or agreement of the Company contained in the Indenture (other than a default in the performance, or breach, of a covenant or warranty which is specifically dealt with elsewhere in the Indenture) and continuance of such default or breach for a period of 30 days after written notice shall have been given to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount at maturity of the Notes then outstanding; (v) (A) one or more defaults in the payment of principal of or premium, if any, on Indebtedness of the Company or any Subsidiary aggregating $5.0 million or more, when the same becomes due and payable at the Stated Maturity thereof, and such default or defaults shall have continued after any applicable grace period and shall not have been cured or waived or (B) Indebtedness of the Company or any Subsidiary aggregating $5.0 million or more shall have been accelerated or otherwise declared due and payable, or required to be prepaid or repurchased (other than by regularly scheduled required prepayment) prior to the Stated Maturity thereof; (vi) one or more final judgments, orders or decrees of any court or regulatory agency shall be rendered against the Company or any Subsidiary or their respective properties for the payment of money, either individually or in an aggregate amount, in excess of $5.0 million and either (A) an enforcement proceeding shall have been commenced by any creditor upon such judgment or order or (B) there shall have been a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, was not in effect; or (vii) the occurrence of certain events of bankruptcy, insolvency or reorganization with respect to the Company or any Subsidiary. If an Event of Default (other than an Event of Default specified in clause (vii) above) shall occur and be continuing, the Trustee or the holders of not less than 25% in aggregate principal amount at maturity of the Notes then outstanding, by written notice to the Company (and to the Trustee if such notice is given by the holders), may, and the Trustee upon the written request of such holders, shall 79 declare the Accreted Value of, premium, if any, and accrued interest on all of the outstanding Notes immediately due and payable, and upon any such declaration all such amounts payable in respect of the Notes shall become immediately due and payable. If an Event of Default specified in clause (viii) above occurs and is continuing, then the Accreted Value of, premium, if any, and accrued interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of Notes. At any time after a declaration of acceleration under the Indenture, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders of a majority in aggregate principal amount at maturity of the outstanding Notes, by written notice to the Company and the Trustee, may rescind such declaration and its consequences if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all overdue interest on all outstanding Notes, (ii) all unpaid Accreted Value of and premium, if any, on any outstanding Notes that have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, (iii) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate borne by the Notes, (iv) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (b) all Events of Default, other than the non-payment of amounts of principal of, premium, if any, or interest on the Notes that has become due solely by such declaration of acceleration, have been cured or waived. No such rescission shall affect any subsequent default or impair any right consequent thereon. The holders of not less than a majority in aggregate principal amount at maturity of the outstanding Notes may, on behalf of the holders of all the Notes, waive any past defaults under the Indenture, except a default in the payment of the principal of, premium, if any, or interest on any Note, or in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each Note outstanding. If a Default or an Event of Default occurs and is continuing and is known to the Trustee, the Trustee will mail to each holder of the Notes notice of the Default or Event of Default within 30 days after the occurrence thereof. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on any Notes, the Trustee may withhold the notice to the holders of such Notes if a committee of its trust officers in good faith determines that withholding the notice is in the interests of the holders of the Notes. The Company is required to furnish to the Trustee annual and quarterly statements as to the performance by the Company of its obligations under the Indenture and as to any default in such performance. The Company is also required to notify the Trustee within five business days of the occurrence of any Default. DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURE The Company may, at its option and at any time, elect to have the obligations of the Company upon the Notes discharged with respect to the outstanding Notes ('defeasance'). Such defeasance means that the Company will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes and to have satisfied all its other obligations under such Notes and the Indenture insofar as such Notes are concerned, except for (i) the rights of holders of outstanding Notes to receive payments in respect of the principal of (and premium, if any, on) and interest on such Notes when such payments are due, (ii) the Company's obligations to issue temporary Notes, register the transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office or agency for payments in respect of the Notes and segregate and hold such payments in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants set forth in the Indenture, and any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes ('covenant defeasance'). In order to exercise either defeasance or covenant defeasance, (i) the Company must irrevocably deposit or cause to be deposited with the Trustee, as trust funds in trust, specifically pledged as security 80 for, and dedicated solely to, the benefit of the holders of the Notes, cash in United States dollars, or U.S. Government Obligations (as defined in the Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, or a nationally recognized investment banking firm, to pay and discharge the Accreted Value of (and premium, if any, on) and interest on the outstanding Notes at Stated Maturity (or upon redemption, if applicable) of such principal, premium, if any, or installment of interest; (ii) no Default or Event of Default with respect to the Notes will have occurred and be continuing on the date of such deposit or, insofar as an event of bankruptcy under clause (viii) of ' -- Events of Default' above is concerned, at any time during the period ending on the 91st day after the date of such deposit; (iii) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) to which the Company is a party or by which it is bound; (iv) in the case of defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States stating that the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or since the effective date of the Registration Statement of which this Prospectus forms a part, there has been a change in applicable federal income tax law, in either case to the effect, and based thereon such opinion shall confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (v) in the case of covenant defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States to the effect that the holders of the Notes outstanding will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (vi) in the case of defeasance or covenant defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States to the effect that after the 91st day following the deposit or after the date such opinion is delivered, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the Notes over the other creditors of the Company with the intent of hindering, delaying or defrauding creditors of the Company; and (viii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance or the covenant defeasance, as the case may be, have been complied with. SATISFACTION AND DISCHARGE The Indenture will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) and the Trustee, at the expense of the Company, will execute proper instruments acknowledging satisfaction and discharge of the Indenture when (i) either (a) all the Notes theretofore authenticated and delivered (other than destroyed, lost or stolen Notes which have been replaced or paid and Notes for whose payment money has been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided for in the Indenture) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable, (y) will become due and payable at their Stated Maturity within one year or (z) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount sufficient to pay and discharge the entire Indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for Accreted Value of, premium, if any, and interest on the Notes to the date of such deposit (in the case of Notes which have become due and payable) or to the Stated Maturity or redemption date, as the case may be; (ii) the Company has paid or caused to be paid all sums payable under the Indenture by the Company; and (iii) the Company has delivered to the Trustee an Officers' 81 Certificate and an Opinion of Counsel, each stating that all conditions precedent provided in the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. AMENDMENTS AND WAIVERS With certain exceptions, modifications and amendments of the Indenture may be made by a supplemental indenture entered into by the Company and the Trustee with the consent of the holders of a majority in aggregate outstanding principal amount at maturity of the Notes; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Note affected thereby, (i) change the Stated Maturity of the principal of, or any installment of interest on, any Note, or reduce the Accreted Value thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change the coin or currency in which any Note or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment after the Stated Maturity thereof (or, in the case of redemption, on or after the redemption date); (ii) reduce the percentage in principal amount at maturity of outstanding Notes, the consent of whose holders is required for any such supplemental indenture or the consent of whose holders is required for any waiver of compliance with certain provisions of, or certain defaults and their consequences provided for under, the Indenture; (iii) modify any provisions described under ' -- Amendments and Waivers' or ' -- Events of Default,' except to increase the percentage of outstanding Notes required for such actions or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the holder of each outstanding Note; or (iv) amend, change or modify the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or an Excess Proceeds Offer in connection with any Asset Sale or modify any of the provisions or definitions with respect thereto. Notwithstanding the foregoing, without the consent of any holder of Notes, the Company and the Trustee may modify or amend the Indenture: (a) to evidence the succession of another Person to the Company or any other obligor on the Notes, and the assumption by any such successor of the covenants of the Company or such obligor in the Indenture and in the Notes in accordance with ' -- Consolidation, Merger and Sale of Assets'; (b) to add to the covenants of the Company or any other obligor upon the Notes for the benefit of the holders of the Notes or to surrender any right or power conferred upon the Company or any other obligor upon the Notes, as applicable, in the Indenture or in the Notes; (c) to cure any ambiguity, or to correct or supplement any provision in the Indenture or the Notes which may be defective or inconsistent with any other provision in the Indenture or the Notes or make any other provisions with respect to matters or questions arising under the Indenture or the Notes; provided that, in each case, such provisions shall not adversely affect the interest of the holders of such Notes; (d) to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act; (e) to add a guarantor of the Notes under the Indenture; (f) to evidence and provide the acceptance of the appointment of a successor Trustee under the Indenture; or (g) to mortgage, pledge, hypothecate or grant a security interest in favor of the Trustee for the benefit of the holders of the Notes as additional security for the payment and performance of the Company's obligations under the Indenture, in any property, or assets, including any of which are required to be mortgaged, pledged or hypothecated, or in which a security interest is required to be granted to the Trustee pursuant to the Indenture or otherwise. The holders of a majority in aggregate principal amount at maturity of the Notes outstanding may waive compliance with certain restrictive covenants and provisions of the Indenture. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent Person would exercise under the circumstances in the conduct of such Person's own affairs. The Indenture and provisions of the Trust Indenture Act, incorporated by reference therein contain limitations on the rights of the Trustee thereunder, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of 82 any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest (as defined) it must eliminate such conflict or resign. GOVERNING LAW The Indenture and the Notes will be governed by, and construed in accordance with, the laws of the State of New York. CERTAIN DEFINITIONS 'Accreted Value' is defined to mean, for any Specified Date, the amount calculated pursuant to clause (i), (ii), (iii) or (iv) below for each $1,000 principal amount at maturity of Notes: (i) if the Specified Date occurs on one or more of the following dates (each a 'Semi-Annual Accrual Date'), the Accreted Value will equal the amount set forth below for such Semi-Annual Accrual Date:
SEMI-ANNUAL ACCRETED ACCRUAL DATE VALUE - ----------------------------------------------------------------------------------- -------- June 1, 1998....................................................................... $ 521.58 December 1, 1998................................................................... $ 560.07 June 1, 1999....................................................................... $ 602.75 December 1, 1999................................................................... $ 647.96 June 1, 2000....................................................................... $ 696.56 December 1, 2000................................................................... $ 748.80 June 1, 2001....................................................................... $ 804.96 December 1, 2001................................................................... $ 865.33 June 1, 2002....................................................................... $ 930.23 December 1, 2002................................................................... $ 1,000
(ii) if the Specified Date occurs before the first Semi-Annual Accrual Date, the Accreted Value will equal the sum of (a) the original issue price and (b) an amount equal to the product of (1) the Accreted Value for the first Semi-Annual Accrual Date less the original issue price multiplied by (2) a fraction, the numerator of which is the number of days from the date of the Indenture to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is the number of days elapsed from the date of the Indenture to the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day months; (iii) if the Specified Date occurs between two Semi-Annual Accrual Dates, the Accreted Value will equal the sum of (a) the Accreted Value for the Semi-Annual Accrual Date immediately preceding such Specified Date and (b) an amount equal to the product of (1) the Accreted Value for the immediately following Semi-Annual Accrual Date less the Accreted Value for the immediately preceding Semi-Annual Accrual Date multiplied by (2) a fraction the numerator of which is the number of days from the immediately preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is 180; or (iv) if the Specified Date occurs after the last Semi-Annual Accrual Date, the Accreted Value will equal $1,000. 'Acquired Indebtedness' means Indebtedness of a Person (a) existing at the time such Person becomes a Restricted Subsidiary or (b) assumed in connection with the acquisition of assets from such Person, in each case, other than Indebtedness incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary or such acquisition; provided that, for purposes of the 'Limitation on Indebtedness' covenant, such Indebtedness shall be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Restricted Subsidiary. 'Adjusted Consolidated Operating Cash Flow' means Consolidated Operating Cash Flow for the latest four fiscal quarters for which consolidated financial statements of Company are available, taken as a whole. For purposes of calculating 'Consolidated Operating Cash Flow' for any four fiscal quarter 83 period for purposes of this definition, (i) all Restricted Subsidiaries of the Company on the date of the transaction giving rise to the need to calculate 'Adjusted Consolidated Operating Cash Flow' (the 'Transaction Date') shall be deemed to have been Restricted Subsidiaries at all times during such four fiscal quarter period and (ii) any Unrestricted Subsidiary on the Transaction Date shall be deemed to have been an Unrestricted Subsidiary at all times during such four fiscal quarter period. In addition to and without limitation of the foregoing, for purposes of this definition, 'Consolidated Operating Cash Flow' shall be calculated after giving effect on a pro forma basis for the applicable four fiscal quarter period to, without duplication, (i) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the Company or a Restricted Subsidiary (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the period commencing on the first day of such four fiscal quarter period to and including the Transaction Date (the 'Reference Period'), as if such Asset Sale or Asset Acquisition occurred on the first day of the Reference Period and (ii) any incurrence or repayment, retirement or permanent reduction of any Indebtedness of the Company or any Restricted Subsidiary during the Reference Period, as if such incurrence, repayment, retirement or reduction occurred on the first day of the Reference Period. 'Affiliate' means, with respect to any specified Person, (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person or (ii) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Voting Stock or any executive officer or director of any such specified Person or other Person or, with respect to any natural Person, any Person having a relationship with such Person by blood, marriage or adoption not more remote than first cousin. For the purposes of this definition, 'control,' when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms 'controlling' and 'controlled' have meanings correlative to the foregoing. 'Arianespace Agreement' means, collectively, the two Customer Loan Agreements, each dated July 22, 1997, between the Company and Arianespace S.A., as either such agreement is from time to time amended or supplemented in accordance with its terms. 'Asset Acquisition' means (i) any capital contribution (by means of transfers of cash or other property to others or payments for property or services for the account or use of others, or otherwise) by the Company or any Restricted Subsidiary in any other Person, or any acquisition or purchase of Capital Stock of any other Person by the Company or any Restricted Subsidiary, in either case pursuant to which such Person shall become a Restricted Subsidiary or shall be merged with or into the Company or any Restricted Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary of the assets of any Person which constitute substantially all of an operating unit or line of business of such person or which is otherwise outside of the ordinary course of business. 'Asset Sale' means any direct or indirect sale, conveyance, transfer or lease (that has the effect of a disposition and is not for security purposes) or other disposition (that is not for security purposes) to any Person other than the Company or a Restricted Subsidiary in one transaction or a series of related transactions, of (i) any Capital Stock of any Restricted Subsidiary, (ii) any material license or other authorization of the Company or any Restricted Subsidiary, (iii) any assets of the Company or any Restricted Subsidiary which constitute substantially all of an operating unit or line of business of the Company and the Restricted Subsidiaries or (iv) any other property or asset of the Company or any Restricted Subsidiary outside of the ordinary course of business. For the purposes of this definition, the term 'Asset Sale' shall not include (i) any disposition of properties and assets of the Company that is governed by the provisions of the Indenture described under ' -- Consolidation, Merger and Sale of Assets' above, (ii) sales of property or equipment that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any Restricted Subsidiary, as the case may be, (iii) sales of accounts receivable by the Company for cash in an amount at least equal to the fair market value of such accounts receivable, (iv) for purposes of the covenant 'Limitation on Sale of Assets,' any sale, conveyance, transfer, lease or other disposition of any property or asset, whether in one transaction or a series of related transactions, involving assets with a Fair Market Value not in excess of $250,000 in any twelve-month period and (v) sales of rights to the 84 Company's transmissions outside the continental United States and outside the ordinary course of the Company's business if (a) after giving effect to such sale and for a six month period thereafter, the Company and the Restricted Subsidiaries shall have no Indebtedness outstanding under any Bank Credit Agreement, (b) the consideration received by the Company for such sale is at least 80% cash or Cash Equivalent and (c) the proceeds of such sale are used by the Company for working capital or as provided in clause (i) or (ii) of paragraph (b) of the 'Limitation on Sale of Assets' covenant. 'Attributable Indebtedness' means with respect to an operating lease included in any Sale and Leaseback Transaction at the time of determination, the present value (discounted at the interest rate implicit in the lease or, if not known, at the Company's incremental borrowing rate) of the obligations of the lessee of the property subject to such lease for rental payments during the remaining term of the lease included in such transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended, or until the earliest date on which the lessee may terminate such lease without penalty or upon payment of penalty (in which case the rental payments shall include such penalty), after excluding from such rental payments all amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water, utilities and similar charges. 'Average Life' means, as of the date of determination with respect to any Indebtedness, the quotient obtained by dividing (a) the sum of the products of (i) the number of years from the date of determination to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of each such principal payment by (b) the sum of all such principal payments. 'Bank Credit Agreement' means any one or more credit agreements (which may include or consist of revolving credit agreements or similar arrangements) between the Company or any Restricted Subsidiary and one or more banks or other financial institutions providing financing for the business of the Company and its Restricted Subsidiaries. 'Bankruptcy Law' means Title 11 of the United States Code, as amended, or any similar United States federal or state law, or any similar law of any other jurisdiction, relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. 'Board of Directors' means the Board of Directors of the Company or any duly authorized committee thereof. 'Bond Collateral' has the meaning specified in the definition of Permitted Liens. 'Capital Stock' of any Person means any and all shares, interests, rights to purchase, warrants, options, participations, rights in or other equivalents (however designated) of such Person's capital stock or other equity participations, including partnership interests, whether general or limited, in such Person, including any Preferred Stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock, whether now outstanding or issued after the date of the Indenture. 'Capitalized Lease Obligation' of any Person means any obligation of such Person and its subsidiaries on a consolidated basis under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of the Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. 'Cash Equivalents' means (i) any evidence of Indebtedness with a maturity of 180 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System, in each case having combined capital and surplus and undivided profits of not less than $500,000,000; and (iii) commercial paper with a maturity of 180 days or less issued by a corporation that is not an Affiliate of the Company and is organized under the laws of any state of the United States or the District of Columbia and rated at least A-1 by S&P or at least P-l by Moody's and (iv) any money market mutual fund organized under 85 the laws of the United States or any state thereof whose assets consist solely of cash or the foregoing instruments. 'CD Radio Assets' means all assets, rights, services and properties, whether tangible or intangible, used or intended for use in connection with a CD Radio Business, including, without limitation, satellites, terrestrial repeating stations, uplink facilities, musical libraries and other recorded programming, furniture, fixtures and equipment and telemetry, tracking, monitoring and control equipment. 'CD Radio Business' means the business of transmitting digital radio programming throughout the United States by satellite to be received by paying subscribers, including, without limitation, any business in which the Company is engaged on the date of the Indenture, and any business reasonably related thereto. 'Change of Control' means the occurrence of any of the following events: (a) any 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, is or becomes the 'beneficial owner' (as defined in Rules 13d-3 and l3d-5 under the Exchange Act, except that a Person shall be deemed to have 'beneficial ownership' of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total outstanding Voting Stock of the Company; (b) the Company consolidates with, or merges with or into another Person or conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with or merges with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding Voting Stock of the Company is not converted or exchanged at all (except to the extent necessary to reflect a change in the jurisdiction of incorporation of the Company) or is converted into or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation or (B) Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation and cash, securities and other property (other than Capital Stock of the Surviving Entity) in an amount that could be paid by the Company as a Restricted Payment as described under the 'Limitation on Restricted Payments' covenant and (ii) immediately after such transaction, no 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have 'beneficial ownership' of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total outstanding Voting Stock of the surviving or transferee corporation; (c) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election to such Board of Directors, or whose nomination for election by the stockholders of the Company, was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or a special resolution is passed by the shareholders of the Company approving the plan of liquidation or dissolution other than in a transaction which complies with the provisions described under 'Consolidation, Merger and Sales of Assets.' 'Closing Price' on any Trading Day with respect to the per share price of any shares of Capital Stock means the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange or, if such shares of Capital Stock are not listed or admitted to trading on such exchange, on the principal national securities exchange on which such shares are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System or, if such shares are not listed or admitted to trading on any national securities exchange or quoted on such automated quotation system but the issuer is a Foreign Issuer (as defined in Rule 3b-4(b) of the Exchange Act) and the principal securities exchange on which such shares are listed or admitted to trading is a Designated Offshore Securities Market (as defined in Rule 902(a) of the Securities Act of 1933, as amended), the 86 average of the reported closing bid and asked prices regular way on such principal exchange, or, if such shares are not listed or admitted to trading on any national securities exchange or quoted on such automated quotation system and the issuer of such shares and/or principal securities exchange or quoted on such automated quotation system and the issuer of such shares and/or principal securities exchange do not meet such requirements, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm that is selected from time to time by the Company for that purpose. 'Common Stock' means, with respect to any Person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of such Person's common stock or ordinary shares, whether outstanding at the date of the Indenture, and includes, without limitation, all series and classes of such common stock or ordinary shares. 'Consolidated Income Tax Expense' means, with respect to any period, the provision for United States corporation, local, foreign and other income taxes of the Company and the Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. 'Consolidated Interest Expense' means, for any period, without duplication, the sum of (a) the interest expense of the Company and the Restricted Subsidiaries for such period, including, without limitation, (i) amortization of original issue discount, (ii) the net cost of Interest Rate Agreements (including amortization of discounts), (iii) the interest portion of any deferred payment obligation, (iv) accrued interest, (v) the consolidated amount of any interest capitalized by the Company, and (vi) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, plus (b) the interest component of Capitalized Lease Obligations of the Company and the Restricted Subsidiaries paid, accrued and/or scheduled to be paid or accrued during such period, in each case as determined on a consolidated basis in accordance with GAAP, plus (c) cash and non-cash dividends paid on Redeemable Capital Stock by the Company and any Restricted Subsidiary (to any Person other than the Company and any Restricted Subsidiary), in each case as determined on a consolidated basis in accordance with GAAP minus (d) to the extent included in the calculation of interest expense, the amortization of underwriting discounts and commissions and fees related to the issuance of the Notes; provided that the Consolidated Interest Expense attributable to interest on any Indebtedness computed on a pro forma basis and (A) bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period and (B) which was not outstanding during the period for which the computation is being made but which bears, at the option of the Company, a fixed or floating rate of interest, shall be computed by applying, at the option of the Company, either the fixed or the floating rate. 'Consolidated Net Income' means, for any period, the consolidated net income (or loss) of the Company and all Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted by excluding, without duplication, (a) any net after-tax extraordinary gains or losses (less all fees and expenses relating thereto), (b) any net after-tax gains or losses (less all fees and expenses relating thereto) attributable to asset dispositions other than in the ordinary course of business, (c) the portion of net income (or loss) of any Person (other than the Company or a Restricted Subsidiary), including Unrestricted Subsidiaries, in which the Company or any Restricted Subsidiary has an ownership interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any Restricted Subsidiary in cash dividends or distributions during such period, (d) net income (or loss) of any Person combined with the Company or any Restricted Subsidiary on a 'pooling of interests' basis attributable to any period prior to the date of combination, (e) the net income of any Restricted Subsidiary, to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary is not at the date of determination permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary or its stockholders and (f) any non-cash items of the Company and any Restricted Subsidiary (including monetary corrections) increasing or decreasing Consolidated Net Income for such period (other than items that will result in the receipt or payment of cash). 'Consolidated Operating Cash Flow' means, with respect to any period, the Consolidated Net Income of the Company and its Restricted Subsidiaries for such period increased by (in each case to the extent included in computing consolidated Net Income) the sum of (i) the Consolidated Income Tax 87 Expense of the Company and its Restricted Subsidiaries accrued according to GAAP for such period (other than taxes attributable to extraordinary, unusual or non-recurring gains or losses); (ii) Consolidated Interest Expense for such period; (iii) depreciation of the Company and its Restricted Subsidiaries for such period; and (iv) amortization of the Company and its Restricted Subsidiaries for such period, including, without limitation, amortization of capitalized debt issuance costs for such period, all determined on a consolidated basis in accordance with GAAP. 'Cumulative Available Cash Flow' means, as at any date of determination, the positive cumulative Consolidated Operating Cash Flow realized during the period commencing on the first day of the first month following the date of the Indenture and ending on the last day of the most recent fiscal quarter immediately preceding the date of determination for which consolidated financial information of the Company is available or, if such cumulative Consolidated Operating Cash Flow for such period is negative, the negative amount by which cumulative Consolidated Operating Cash Flow is less than zero. 'Currency Agreement' means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement entered into by a Person that is designed to protect such Person against fluctuations in currency values. 'Default' means any event that after notice or passage of time or both would be an Event of Default. 'Disinterested Director' means, with respect to any transaction or series of transactions in respect of which the Board of Directors is required to deliver a resolution of the Board of Directors under the Indenture, a member of the Board of Directors who does not have any material direct or indirect financial interest in or with respect to such transaction or series of transactions. 'Exchange Act' means the Securities Exchange Act of 1934, as amended. 'Fair Market Value' means, with respect to any asset or property, the sale value that would be obtained in an arm's length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. 'Generally Accepted Accounting Principles' or 'GAAP' means generally accepted accounting principles in the United States, consistently applied, that are in effect on the date of the Indenture. 'guarantee' means, as applied to any obligation, (a) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (b) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. 'Indebtedness' means, with respect to any Person, without duplication, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (a) all liabilities of such Person for borrowed money (including overdrafts) or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities (including outstanding disbursements) incurred in the ordinary course of business (whether or not evidenced by a note), but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit and acceptances issued under letter of credit facilities, acceptance facilities or other similar facilities, (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (c) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (d) all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred to in (but not excluded from) the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or with respect to property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (f) all guarantees by such Person of Indebtedness referred to in this definition of any other 88 Person, (g) all Redeemable Capital Stock of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends, (h) all obligations of such Person under or in respect of Interest Rate Agreements or Currency Agreements and (i) all Attributable Indebtedness of such Person. For purposes hereof, the 'maximum fixed repurchase price' of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Redeemable Capital Stock, such fair market value shall be determined in good faith by the board of directors of the issuer of such Redeemable Capital Stock. For purposes of the 'Limitation on Indebtedness' and 'Limitation on Restricted Payments' covenants and the definition of 'Events of Default,' in determining the principal amount of any Indebtedness to be incurred by the Company or a Restricted Subsidiary or which is outstanding at any date, (x) the principal amount of any Indebtedness which provides that an amount less than the principal amount at maturity thereof shall be due upon any declaration of acceleration thereof shall be the Accreted Value thereof at the date of determination and (y) effect shall be given to the impact of any Currency Agreement with respect to such Indebtedness. 'Interest Rate Agreements' means any interest rate protection agreement and other types of interest rate hedging agreements or arrangements (including, without limitation, interest rate swaps, caps, floors, collars and similar agreements) designed to protect against or manage exposure to fluctuations in interest rates in respect of Indebtedness. 'Investment' means, with respect to any Person, any direct or indirect advance, loan or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase, acquisition or ownership by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued or owned by any other Person and all other items that would be classified as investments on a balance sheet prepared in accordance with GAAP. In addition, the Fair Market Value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be an 'Investment' made by the Company in such Unrestricted Subsidiary at such time. 'Investments' shall exclude extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. 'Lien' means any mortgage, charge, pledge, lien (statutory or otherwise), privilege, security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind, real or personal, movable or immovable, now owned or hereafter acquired. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. 'Loral Satellite Purchase Contract' means the Contract No. SS/L-TP93002-01, dated March 2, 1993, among the Company and Loral Space Systems, Inc., as amended, modified or supplemented from time to time. 'Maturity' means, with respect to any Note, the date on which any principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity with respect to such principal or by declaration of acceleration, call for redemption or purchase or otherwise. 'Moody's' means Moody's Investors Service, Inc. and its successors. 'Net Cash Proceeds' means, (a) with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations or escrowed funds, but only when received in the form of, or stock or other assets when disposed for, cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage commissions and other fees and expenses (including fees and expenses of legal counsel, accountants, consultants and investment banks) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) payments made to retire Indebtedness where payment of such Indebtedness is secured by the assets or properties the subject of such Asset Sale or becomes due and payable as a result thereof, (iv) amounts required to be paid to any Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale and (v) appropriate amounts to be provided by the Company or 89 any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an Officers' Certificate delivered to the Trustee and (b) with respect to any capital contribution or issuance or sale of Capital Stock as referred to under the 'Limitation on Restricted Payments' covenant, the proceeds of such capital contribution, issuance or sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations when received in the form of, or stock or other assets when disposed for, cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary), net of attorney's fees, accountant's fees and brokerage, consultation, financial, advisory, underwriting and other fees and expenses actually incurred in connection with such capital contribution, issuance or sale and net of taxes paid or payable as a result thereof. 'Pari Passu Indebtedness' means Indebtedness of the Company that is pari passu in right of payment to the Notes. 'Permitted Holder' means Loral Space & Communications Ltd. and Arianespace S.A. 'Permitted Indebtedness' means any of the following: (a) Indebtedness of the Company or any Restricted Subsidiary incurred under any one or more Bank Credit Agreements or Vendor Credit Facilities, in an aggregate principal amount not to exceed $50 million at any one time outstanding; (b) Indebtedness of the Company incurred under the Arianespace Agreement and Loral Satellite Purchase Contract, in an aggregate principal amount not to exceed $145 million at any one time outstanding; (c) Indebtedness of the Company pursuant to the Notes or the Warrants or of any Restricted Subsidiary pursuant to a guarantee of the Notes; (d) Indebtedness of the Company or any Restricted Subsidiary outstanding on the date of the Indenture and listed on a schedule thereto; (e) Indebtedness of the Company owing to any Restricted Subsidiary; provided that any Indebtedness of the Company owing to any such Restricted Subsidiary is subordinated in right of payment to the Notes from and after such time as the Notes shall become due and payable (whether at Stated Maturity, acceleration or otherwise) to the payment and performance of the Company's obligations under the Notes; provided further that any disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to the Company or another Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the Company not permitted by this clause (e); (f) Indebtedness of a Restricted Subsidiary owing to the Company or to a Restricted Subsidiary, provided that any disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to the Company or a Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness by such Restricted Subsidiary not permitted by this clause (f); (g) obligations of the Company entered into in the ordinary course of business (i) pursuant to bona fide Interest Rate Agreements designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates in respect of Indebtedness of the Company or any Restricted Subsidiary, which obligations do not exceed the aggregate principal amount of such Indebtedness, and (ii) pursuant to bona fide Currency Agreements entered into by the Company or any of its Restricted Subsidiaries and designed to protect such Person against fluctuation in currency values in respect of its (x) assets or (y) obligations; (h) Capitalized Lease Obligations and Purchase Money Obligations of the Company, the aggregate value (in the case of Capitalized Lease Obligations) or principal amount (in the case of Purchase Money Obligations) of which (including any refinancings (as defined in clause (m) below) thereof) does not exceed $20 million at any one time outstanding, less the amount of any 90 Capitalized Lease Obligations and Purchase Money Obligations outstanding which are included in the amount of Indebtedness permitted under clause (d) above; (i)(x) Indebtedness of the Company incurred on or prior to December 31, 2000 (such that, after giving effect to the incurrence thereof, the total aggregate principal amount of Indebtedness incurred under this clause (i)(x) and any refinancings thereof pursuant to clause (m) below would not exceed 125% of Total Incremental Equity; and (y) Indebtedness incurred by the Company after December 31, 2000 such that, after giving effect to the incurrence thereof, the total aggregate principal amount of Indebtedness incurred under this clause (i)(y) and any refinancings thereof pursuant to clause (m) below would not exceed the sum of (1) 125% of the Total Incremental Equity on December 31, 2000 plus the total aggregate principal amount of Indebtedness incurred under clause (i)(x) and any refinancings thereof pursuant to clause (m) below, and (2) 100% of the difference between the Total Incremental Equity on the date of incurrence and the Total Incremental Equity on December 31, 2000; (j) Indebtedness incurred (i) by the Company in an aggregate principal amount not to exceed $60 million at any one time outstanding to finance the operation of CD Radio Assets or the construction, expansion, development or acquisition of music libraries and other recorded programming, furniture, fixtures and equipment, provided that immediately prior to incurring such Indebtedness, the Total Incremental Equity shall equal or exceed $40 million and (ii) by the Company or any Restricted Subsidiary to finance the purchase, construction, launch, insurance and other costs with respect to Satellite Assets for use in the CD Radio Business; provided that the net cash proceeds from the issuance of such Indebtedness does not exceed, as of the date of incurrence of such Indebtedness, 100% of the cost of such Satellite Assets less the aggregate principal amount of other Indebtedness that was incurred to finance such Satellite Assets; (k) unsecured Indebtedness of the Company incurred to finance the operation of CD Radio Assets or the construction, expansion, development or acquisition or music libraries and other recorded music programming, furniture, fixtures and equipment if such Indebtedness has an Average Life longer than the Average Life of the Notes and has a final Stated Maturity of Principal later than the Stated Maturity of principal of the Notes; (l) in addition to the items referred to in clauses (a) through (k) above, Indebtedness of the Company having an aggregate principal amount not to exceed $15 million at any time outstanding; and (m) Indebtedness of the Company or any Restricted Subsidiary to the extent it represents a replacement, renewal, refinancing, refunding or extension of outstanding Indebtedness of the Company or any Restricted Subsidiary incurred or outstanding pursuant to clauses (b), (c), (d), (i), (j) (ii) and (k) of this definition or the proviso of the covenant 'Limitation on Indebtedness'; provided that (i) Indebtedness of the Company may not be replaced, renewed, refinanced, refunded or extended to such extent under this clause (m) with Indebtedness of any Restricted Subsidiary and (ii) any such replacement, renewal, refinancing, refunding or extension (x) shall not result in a lower Average Life of such Indebtedness as compared with the Indebtedness being replaced, renewed, refinanced, refunded or extended, (y) shall not exceed the sum of the principal amount (or, if such Indebtedness provides for a lesser amount to be due and payable upon a declaration of acceleration thereof, an amount no greater than such lesser amount) of the Indebtedness being replaced, renewed, refinanced, refunded or extended plus the amount of accrued interest thereon and the amount of any reasonably determined prepayment premium necessary to accomplish such replacement, renewal, refinancing, refunding or extension and the reasonable fees and expenses incurred in connection therewith, and (z) in the case of any replacement, renewal, refinancing, refunding or extension by the Company of Pari Passu Indebtedness or Subordinated Indebtedness, such new Indebtedness is made pari passu with or subordinate to the Notes, at least to the same extent as the Indebtedness being replaced, renewed, refinanced or extended. 'Permitted Investments' means (a) Cash Equivalents; (b) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers' compensation, performance and other similar deposits; (c) loans and advances to employees made in the ordinary course of business; (d) Interest Rate Agreements and Currency Agreements; (e) bonds, notes, debentures or other securities received as a result of Asset Sales permitted under the 'Limitation on Sale of Assets' covenant, provided that the Company and/or the Restricted Subsidiaries, as the 91 case may be, have received at least 80% of the aggregate consideration therefrom in cash or Cash Equivalents; (f) Investments by the Company or any Restricted Subsidiary in another Person, if as a result of such Investment (i) such other Person becomes a Restricted Subsidiary or (ii) such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to, the Company or a Restricted Subsidiary; (g) Investments in the Company or in any Restricted Subsidiary and (h) investments not otherwise permitted by the foregoing clauses (a) through (g) in an amount not to exceed $5.0 million at any one time outstanding. 'Permitted Liens' means the following types of Liens: (a) Liens existing on the date of the Indenture; (b) Liens securing Indebtedness under any Vendor Credit Facility or Bank Credit Agreement incurred pursuant to clause (a) of the definition of Permitted Indebtedness so long as such Liens do not extend to (i) shares of Satellite CD Radio, Inc. or (ii) any License owned by Satellite CD Radio, Inc. that is required to operate a CD Radio business ('Bond Collateral'); (c) Liens securing Indebtedness under the Arianespace Agreement and the Loral Satellite Purchase Contract; (d) Liens on any property or assets of a Restricted Subsidiary granted in favor of the Company or any other Restricted Subsidiary; (e) Liens securing the Notes; (f) Liens securing Acquired Indebtedness created prior to (and not in connection with or in contemplation of) the incurrence of such Indebtedness by the Company or any Restricted Subsidiary; provided that such Lien does not extend to any property or assets of the Company or any Restricted Subsidiary other than the assets acquired in connection with the incurrence of such Acquired Indebtedness; (g) any interest or title of a lessor under any Capitalized Lease Obligation or any Purchase Money Obligation, in each case as permitted under clause (h) of the definition of 'Permitted Indebtedness', and Liens securing Indebtedness (other than Indebtedness attributable to Cost Overruns) incurred pursuant to clause (j)(ii) of the definition of Permitted Indebtedness so long as such Lien does not extend to any property or assets of the Company or any Restricted Subsidiary other than (x) satellites and (y) other Satellite Assets securing Indebtedness incurred to ArianeSpace S.A., Space Systems/Loral, Inc. or any of their Affiliates (other than Bond Collateral); (h) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business of the Company or any Restricted Subsidiary and with respect to amounts not yet delinquent or being contested in good faith by appropriate proceeding promptly instituted and diligently proceeding and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (i) Liens for taxes, assessments, government charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (j) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance bonds and other obligations of a like nature incurred in the ordinary course of business (other than contracts for the payment of money); (k) easements, rights-of-way, encroachments and survey defects restrictions and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any Restricted Subsidiary incurred in the ordinary course of business; (l) Liens arising by reason of any judgment, decree or order of any court or arbitration proceeding so long as such Lien is adequately bonded and any appropriate legal proceedings that may have been duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; 92 (m) Liens securing obligations of the Company under Interest Rate Agreements or Currency Agreements or any collateral (other than Bond Collateral) for the Indebtedness to which such Interest Rate Agreements or Currency Agreements relate; (n) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (o) Liens securing reimbursement obligations of the Company or any Restricted Subsidiary with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof so long as such Liens do not extend to Bond Collateral; (p) any extension, renewal or replacement, in whole or in part, of any Lien described in the foregoing clauses (a), (b), (c) (with respect to extensions, renewals or replacements, (i) securing Indebtedness incurred to Arianespace S.A., Space Systems/Loral, Inc. or any of their Affiliates or (ii) on assets that are not Bond Collateral) or (d) through (o); provided that any such extension, renewal or replacement shall be no more restrictive in any material respect than the Lien so extended, renewed or replaced and shall not extend to any additional property or assets; (q) Liens on Bond Collateral securing Indebtedness of the Company incurred pursuant to clause (i), (j)(i) or (l) of the definition of Permitted Indebtedness; provided that each such Lien shall be equal and ratable in priority to the Lien on the Bond Collateral securing the Notes; and (r) Liens incurred in the ordinary course of business of the Company or any shareholder Restricted Subsidiary with respect to obligations that do not exceed $5 million at any one time outstanding. 'Person' means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. 'Preferred Stock' means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's preferred or preference stock whether now outstanding, or issued after the Closing Date, and including, without limitation, all classes and series of preferred or preference stock of such Person. 'Purchase Money Obligations' means Indebtedness of the Company or any Restricted Subsidiary (i) issued to finance or refinance the purchase or construction of any assets of the Company or any Restricted Subsidiary, (ii) issued to finance the construction of satellite dish antennas or radio adapters to receive the Company's services or (iii) secured by a Lien on any assets of the Company or any Restricted Subsidiary where the lender's sole recourse is to the assets so encumbered, (a) in the case of clauses (i) or (iii) above, to the extent the purchase or construction prices for such assets are or should be included in 'addition to property, plant or equipment' in accordance with GAAP and (b) in each case, if the purchase or construction of such assets is not part of any acquisition of a Person or business unit. 'Qualified Capital Stock' of any person means any and all Capital Stock of such person other than Redeemable Capital Stock. 'Redeemable Capital Stock' means any class or series of Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is, or upon the happening of an event or passage of time would be, required to be redeemed prior to the final Stated Maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to such final Stated Maturity, or is convertible into or exchangeable for debt securities at any time prior to such final Stated Maturity; provided, however, that Redeemable Capital Stock shall not include any Common Stock the holder of which has a right to put to the Company upon certain terminations of employment and provided further that any class or series of Capital Stock that would not constitute Redeemable Capital Stock but for provisions thereof giving holders thereof the right to require the issuer of such Capital Stock to repurchase or redeem such Capital Stock upon the occurrence of an 'asset sale' or 'change of control' occurring prior to the final Stated Maturity of the Notes shall not constitute Redeemable Capital Stock if the 'asset sale' or 'change of control' provisions applicable to such class or series of Capital Stock are no more favorable to the holders of such Capital Stock in any material respect than the provisions of the 'Purchase of Notes Upon a Change of Control' and 'Limitation on Sale of Assets' covenants and such class or series of Capital Stock specifically provides 93 that the issuer of such Capital Stock will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Notes as are required to be purchased pursuant to the 'Purchase of Notes Upon a Change of Control' or 'Limitation on Sale of Assets' covenant, as applicable. 'Restricted Subsidiary' means a Subsidiary other than an Unrestricted Subsidiary. 'S&P' means Standard and Poor's Ratings Services, a division of McGraw-Hill, Inc. and its successors. 'Sale and Leaseback Transaction' means an arrangement by the Company or a Restricted Subsidiary with any lender or investor or to which such lender or investor is a party providing for the leasing by the Company or such Restricted Subsidiary of any property or asset of the Company or such Restricted Subsidiary which has been or is being sold or transferred by the Company or such Restricted Subsidiary not more than 270 days after the acquisition thereof to such lender or investor or any Affiliate thereof or to any Person to whom funds have been or are to be advanced by such lender or investor or any Affiliate thereof on the security of such property or asset. 'Satellite Assets' means satellites, terrestial repeating stations, uplink facilities and telemetry, tracking, monitoring and control equipment. 'Series C Preferred Stock' means the 10 1/2% Series C Convertible Preferred Stock of the Company. 'Stated Maturity' means, when used with respect to any Note or any installment of interest thereon, the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable, and, when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. 'Stock Offerings' means (i) the offering of 2,800,000 shares of Common Stock in the United States and Canada and (ii) the offering of 700,000 shares of Common Stock outside the United States and Canada, both of which offerings are registered under the Securities Act on a Form S-3 Registration Statement (No. 333-34767). 'Subordinated Indebtedness' means Indebtedness of the Company that is expressly subordinated in right of payment to the Notes. 'Subsidiary' means any Person a majority of the equity ownership or Voting Stock of which is at the time owned, directly or indirectly, by the Company or by one or more other Subsidiaries or by the Company and one or more other Subsidiaries. 'Total Consolidated Indebtedness' means, at any date of determination, an amount equal to the aggregate amount of all Indebtedness of the Company and the Restricted Subsidiaries outstanding as of the date of determination. 'Total Incremental Equity' means, at any date of determination, the sum of, without duplication (i) the aggregate cash proceeds received by the Company after January 1, 1998 from the issuance or sale of Qualified Capital Stock of the Company (including Capital Stock issued upon the conversion of convertible Indebtedness or from the exercise of options, warrants or rights to purchase Qualified Capital Stock of the Company) to any Person other than a Subsidiary; plus (ii) an amount equal to the sum of (1) the net reduction in Investments in any Person (other than Permitted Investments) resulting from the payment in cash of dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary after the date of the Indenture from such Person and (2) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that in the case of (1) or (2) above the foregoing sum shall not exceed the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary and that constitutes a Restricted Payment that has been deducted from Total Incremental Equity pursuant to clause (iii) below, minus (iii) the aggregate amount of all Restricted Payments declared or made on or after the date of the Indenture and minus (iv) the aggregate amount paid pursuant to clauses (i), (ii), (iii), (iv), (vi) and (viii) of the second paragraph of the 'Limitation on Restricted Payments' covenant. 'Trading Day' with respect to a securities exchange or automated quotation system means a day on which such exchange or system is open for a full day of trading. 'Trust Indenture Act' means the Trust Indenture Act of 1939, as amended. 94 'Unrestricted Subsidiary' means (a) any Subsidiary that at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors, as provided below) and (b) any subsidiary of an Unrestricted Subsidiary; provided, however, that in no event shall any Person that is a Restricted Subsidiary on the date of the Indenture become an Unrestricted Subsidiary. The Board of Directors may designate any newly acquired or newly formed Subsidiary to be an Unrestricted Subsidiary so long as (i) neither the Company nor any Restricted Subsidiary is directly or indirectly liable for any Indebtedness of such Subsidiary, (ii) no default with respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity, (iii) neither the Company nor any Restricted Subsidiary has a contract, agreement, arrangement, understanding or obligation of any kind, whether written or oral, with such Subsidiary other than those that might be obtained at the time from persons who are not Affiliates of the Company and (iv) neither the Company nor any Restricted Subsidiary has any obligation (1) to subscribe for additional shares of Capital Stock or other equity interest in such Subsidiary or (2) to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing a board resolution with the Trustee giving effect to such designation. The Board of Directors may designate any Unrestricted Subsidiary as a Restricted Subsidiary if immediately after giving effect to such designation, there would be no Default or Event of Default under the Indenture and the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the 'Limitation on Indebtedness' covenant. 'Vendor Credit Facility' means any credit facility (other than the Arianespace Agreement and the Loral Satellite Purchase Contract) entered into with any vendor or supplier (or any financial institution acting on behalf of such a vendor or supplier); provided that the Indebtedness thereunder is incurred solely for the purpose of financing the cost (including the cost of design, development, construction, or integration) of CD Radio Assets. 'Voting Stock' means, with respect to any Person, any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). 95 DESCRIPTION OF THE WARRANTS GENERAL The Warrants will be issued under a Warrant Agreement (the 'Warrant Agreement') between the Company and IBJ Schroder Bank & Trust Company, as Warrant Agent (the 'Warrant Agent'), a form of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following summary of certain provisions of the Warrant Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the Warrants and the Warrant Agreement, including the definitions of certain terms contained therein. Each Warrant will entitle the registered holder thereof, subject to and upon compliance with the provisions thereof and of the Warrant Agreement, at such holder's option, and prior to 5:00 P.M., New York City time, on December 4, 1997 (the 'Expiration Date') to acquire from the Company $3,000 principal amount at maturity of Notes (the 'Warrant Securities'). Each Warrant may be exercised on any business day on or after its date of issuance and on or prior to the Expiration Date. Any Warrant not exercised before the close of business on the Expiration Date shall become void, and all rights of the holder under the Warrant Certificate evidencing such Warrant and under the Warrant Agreement shall cease. EXERCISE Warrants may be exercised by surrendering the Warrant Certificate evidencing such Warrants with the form of election to acquire Notes set forth on the reverse side thereof duly completed and executed by the holder thereof at the office or agency designated for such purpose, which will initially be the corporate trust office or agency of the Warrant Agent in New York, New York. Each Warrant may only be exercised in whole. Subject to the terms of the Warrant Agreement, the Warrant Certificates evidencing the Warrants may be surrendered for exercise or exchange, and the transfer of Warrant Certificates will be registerable, at the office or agency of the Company maintained for such purpose, which initially will be the corporate trust office of the Warrant Agent in New York, New York. The Warrant Certificates will be issued in global form. No service charge will be made for any exercise, exchange or registration of transfer of Warrant Certificates, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. DISTRIBUTION RIGHTS; MERGER OR CONSOLIDATION Holders of Warrants will not be entitled, by virtue of being such holders, to have any rights of holders of Notes. To the extent permitted in the Indenture, the Company may consolidate with or merge into another corporation or other entity, or convey or transfer all or substantially all of its properties and assets to any other corporation or other entity. In case of any such consolidation, merger, conveyance or transfer and upon any assumption of the duties and obligations of the Company by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named in the Warrant Agreement, and the Company shall be relieved of any further obligation under the Warrant Agreement and the Warrants. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Warrant Securities issuable pursuant to the terms of the Warrant Agreement and the Warrants. All the Warrant Securities so issued shall in all respects have the same legal rank and benefit under the Indenture as the Warrant Securities theretofore or thereafter issued in accordance with the terms of the Warrant Agreement and the Indenture. The Warrant Agreement permits, with certain exceptions, the amendment thereof and the modification of rights and obligations of the Company and the rights of the holders of Warrant Certificates under the Warrant Agreement and at any time by the Company and the Warrant Agent with the consent of the holders of Warrant Certificates representing a majority in number of then outstanding Warrants. 96 CERTAIN COVENANTS The Company will file the reports required to be filed by it under the Securities Act and the Exchange Act, and the rules, regulations and policies adopted by the Commission thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act, and if at any time the Company is not required to file such reports, it will, upon the request of any holder or beneficial owner of Warrants, make available such information as necessary to permit sales pursuant to Rule 144A under the Securities Act. The Company will also agree to comply with all applicable laws, including the Securities Act and any applicable state securities laws, in connection with the offer and sale of Notes (and other securities and property deliverable), upon exercise of the Warrants. DESCRIPTION OF CAPITAL STOCK The Company's Amended and Restated Certificate of Incorporation provides for authorized capital of 250,000,000 shares, consisting of 200,000,000 shares of Common Stock, par value $0.001 per share, and 50,000,000 shares of Preferred Stock, par value $0.001 per share. COMMON STOCK As of September 30, 1997, the Company had 12,577,884 shares of Common Stock outstanding held of record by 105 persons, and had reserved for issuance 3,763,000 shares of Common Stock with respect to outstanding options and warrants, including 1,800,000 shares pursuant to warrants exercisable at $50.00 per share and expiring in 2005. Holders of the Company's Common Stock are entitled to cast one vote for each share held of record on all matters acted upon at any stockholders' meeting and to dividends if, as and when declared by the Board of Directors out of funds legally available therefor. There are no cumulative voting rights. In the event of any liquidation, dissolution or winding up of the Company, each holder of the Company's Common Stock will be entitled to participate, subject to the rights of any outstanding Preferred Stock, ratably in all assets of the Company remaining after payment of liabilities. Holders of the Company's Common Stock have no preemptive or conversion rights. All outstanding shares of Common Stock are, and the shares of Common Stock offered hereby will be when issued against the consideration set forth in this prospectus, fully paid and non-assessable. The Company's Common Stock is quoted on the Nasdaq National Market under the symbol 'CDRD.' PREFERRED STOCK The Board of Directors has the authority to issue shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof including dividend rights, conversion rights, voting rights, redemption rights, liquidation preferences and the number of shares constituting any series, without any further vote or action by the stockholders. The issuance of Preferred Stock with voting and conversion rights may adversely affect the voting power of the holders of Common Stock. In addition, because the terms of such Preferred Stock may be fixed by the Board of Directors without stockholder action, the Preferred Stock could be designated and issued quickly in the event the Company determines to issue preferred stock to raise additional equity capital. The Preferred Stock could also be designated and issued with terms calculated to deter, delay or defeat a proposed takeover of the Company, or with terms making the removal of management more difficult. Under certain circumstances, this could have the effect of decreasing the market price of the Common Stock. Otherwise, the Company currently has no plans to issue Preferred Stock. 5% DELAYED CONVERTIBLE PREFERRED STOCK On March 19, 1997, the Board of Directors authorized the issuance of up to 8,000,000 shares of the 5% Preferred Stock. As of September 30, 1997, there were 5,222,608 shares of the 5% Preferred Stock outstanding held of record by 37 entities. The Company has agreed to grant a warrant to purchase an additional 486,000 shares of 5% Preferred Stock at a price of $25.00 per share to Libra Investments, Inc. 97 ('Libra'), the original placement agent for the 5% Preferred Stock. If the Exchange Offer is consummated, the Company will instead grant Libra a warrant to purchase 121,500 shares of Series C Preferred Stock at a price of $100.00 per share. 10 1/2% SERIES C CONVERTIBLE PREFERRED STOCK On October 13, 1997, the Board of Directors authorized the issuance of up to 7,000,000 shares of the 10 1/2% Series C Convertible Preferred Stock (the 'Series C Preferred Stock'). On October 16, 1997, the Company offered to exchange up to 1,932,073 shares of its Series C Preferred Stock for up to all of the outstanding shares of its 5% Preferred Stock upon the terms and subject to the conditions of the Exchange Offer. Dividends. The annual dividend rate per share of the Series C Preferred Stock will be an amount equal to 10.5% of the sum of (x) the Liquidation Preference (as defined herein) of the Series C Preferred Stock and (y) all accrued and unpaid dividends, if any, whether or not declared, from the date of issuance of the shares of Series C Preferred Stock to the applicable dividend payment date. Dividends on the shares of Series C Preferred Stock will be cumulative, accruing quarterly and, when and as declared by the Board of Directors of the Company, will be payable quarterly initially on November 15, 2002 (the 'First Scheduled Dividend Payment Date') and on February 15, May 15, August 15 and November 15 of each year (each, a 'Dividend Payment Date') in each year thereafter. In addition, accrued dividends on the shares of Series C Preferred Stock will be paid on the redemption date of any share of Series C Preferred Stock redeemed by the Company, on the purchase date of any share of Series C Preferred Stock purchased by the Company pursuant to an Offer to Purchase (as defined herein) or on the conversion date of any share of Series C Preferred Stock converted into shares of Common Stock on or after the First Scheduled Dividend Payment Date. No accrued dividends will be paid on any shares of Series C Preferred Stock that are converted by the holders thereof prior to the First Scheduled Dividend Payment Date, unless such shares of Series C Preferred Stock are converted on or prior to a redemption date by holders thereof electing to convert such shares after having received a notice of redemption for such shares. Dividends may be paid in cash, shares of Common Stock or any combination thereof, at the option of the Company. Common Stock issued to pay dividends will be valued at the average closing price of the Common Stock as reported in The Wall Street Journal for the 20 consecutive trading days immediately preceding the date of such payment. Dividends with respect to any share of Series C Preferred Stock will accumulate from November 15, 1997. If and so long as any full cumulative dividends payable on the shares of Series C Preferred Stock in respect of all prior dividend periods will not have been paid or set apart for payment, the Company will not pay any dividends or make any distributions of assets on or redeem, purchase or otherwise acquire for consideration shares of capital stock of the Company ranking junior to or on a par with the Series C Preferred Stock in payment of dividends. Redemption. Except as described below, the shares of Series C Preferred Stock may not be redeemed by the Company at its option prior to November 15, 2002. From and after November 15, 1999 and prior to November 15, 2002, the Company may redeem shares of Series C Preferred Stock, in whole or in part, at any time at a redemption price of 100% of the Liquidation Preference of the shares of Series C Preferred Stock redeemed, plus accrued and unpaid dividends, if any, whether or not declared, to the redemption date, if the average closing price of the Common Stock as reported in The Wall Street Journal for the 20 consecutive trading days prior to the notice of redemption thereof equals or exceeds $31.50 per share (subject to adjustments). From and after November 15, 2002, the Company may redeem shares of Series C Preferred Stock, in whole or in part, at the following redemption prices per 98 share, expressed as percentages of the Liquidation Preference thereof, if redeemed during the 12-month period beginning November 15 in the year indicated below:
YEAR PERCENTAGE - ----------------------------------------------------------------------- ---------- 2002................................................................... 105.25% 2003................................................................... 103.50 2004................................................................... 101.75 2005 and thereafter.................................................... 100.00
plus, in each case, accrued and unpaid dividends, if any, to the redemption date. Following the issuance of the Series C Preferred Stock, within 30 days of the closing date of the first offering by the Company of debt securities in excess of $50,000,000 pursuant to a registration statement filed with the Commission under the Securities Act or pursuant to Rule 144A under the Securities Act, the Company may redeem up to 50% of the outstanding shares of Series C Preferred Stock at a redemption price of 100% of the Liquidation Preference of the shares of Series C Preferred Stock redeemed, plus accrued and unpaid dividends, if any, whether or not declared, to the redemption date. On November 15, 2012 (the 'Mandatory Redemption Date'), the Company is required to redeem all outstanding shares of Series C Preferred Stock at a redemption price of 100% of the Liquidation Preference of the shares of Series C Preferred Stock, plus accrued and unpaid dividends, if any, whether or not declared, to the Mandatory Redemption Date. The amount paid to the holders of shares of Series C Preferred Stock upon redemption which is allocable to the Liquidation Preference of the shares of Series C Preferred Stock shall be paid in cash and the amount of any accrued and unpaid dividends to be paid on the shares of Series C Preferred Stock redeemed shall be paid in cash, shares of Common Stock or any combination thereof at the option of the Company. Change in Control. Upon the occurrence of a Change in Control, the Company must make an offer to purchase (an 'Offer to Purchase') all then outstanding shares of Series C Preferred Stock at a purchase price (the 'Change in Control Purchase Price') in cash equal to 101% of their Liquidation Preference, plus all accrued and unpaid dividends (paid in cash), if any, whether or not declared, to the date such shares are purchased (the 'Change in Control Purchase Date'). A 'Change in Control' is defined as the occurrence of any of the following events: (a) any 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than Loral Space, Arianespace or David Margolese is or becomes the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have 'beneficial ownership' of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total outstanding voting stock of the Company; (b) the Company consolidates with, or merges with or into another person or conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person, or any person consolidates with or merges with or into the Company, in any such event, pursuant to a transaction in which the outstanding voting stock of the Company is converted into or exchanged for cash, securities or other property, other than, at all times when the Notes are outstanding, those transactions that are not deemed a 'Change of Control' under the terms of the Indenture; (c) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election to such Board of Directors, or whose nomination for election by the stockholders of the Company, was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or a special resolution is passed by the shareholders of the Company approving the plan of liquidation or dissolution, other than, at all times when the Notes are outstanding, those transactions that are not deemed a 'Change of Control' under the terms of the Indenture. Conversion. Each share of Series C Preferred Stock may be converted at any time, at the option of the holder, unless previously redeemed, into a number of shares of Common Stock calculated by dividing the Liquidation Preference of the Series C Preferred Stock (without accrued and unpaid 99 dividends) by a conversion price (the 'Conversion Price') equal to (x) prior to the date of the first underwritten public offering of the Company's Common Stock following the initial issuance of the Series C Preferred Stock, $21.00 and (y) thereafter, the lower of $21.00 per share or the issue price per share of the Common Stock in such underwritten public offering. The Conversion Price will not be adjusted at any time for accrued and unpaid dividends on the shares of Series C Preferred Stock, but will be subject to adjustment for the occurrence of certain corporate events affecting the Common Stock. Upon conversion, at any time after the First Scheduled Dividend Payment Date, holders of the Series C Preferred Stock will be entitled to receive all accrued and unpaid dividends upon the shares of Series C Preferred Stock converted payable in cash or shares of Common Stock, or a combination thereof, at the option of the Company. No accrued dividends will be paid on any shares of Series C Preferred Stock that are converted by the holders thereof prior to the First Scheduled Dividend Payment Date, unless such shares of Series C Preferred Stock are converted prior to a redemption date by holders thereof electing to convert such shares after having received a notice of redemption for such shares. Common Stock issued to pay dividends will be valued at the average closing price of the Common Stock as reported in The Wall Street Journal for the 20 consecutive trading days immediately preceding the date of such payment. The Conversion Price for shares of Series C Preferred Stock is subject to adjustment in certain events, including (i) dividends and other distributions payable in Common Stock on any class of capital stock of the Company, (ii) the issuance to all holders of Common Stock of rights or warrants entitling them to subscribe for or purchase Common Stock at less than fair market value, (iii) subdivisions, combinations and reclassifications of the Common Stock, (iv) distributions to all holders of Common Stock of evidences of indebtedness of the Company or assets and (v) a consolidation or merger to which the Company is a party or the sale or transfer of all or substantially all of the assets of the Company. Automatic Exchange. If the Company has not consummated one or more Qualifying Offerings yielding gross proceeds in an aggregate cash amount of at least $100 million by May 15, 1998 (the 'Automatic Exchange Date'), all outstanding shares of Series C Preferred Stock shall be exchanged automatically (the 'Automatic Exchange') for shares of the Series D Preferred Stock, with an initial liquidation preference of $102.50 on the Automatic Exchange Date, at an exchange rate of one share of Series D Preferred Stock for each $100 of Automatic Exchange Rate Liquidation Preference represented by the shares of Series C Preferred Stock held by any holder. The 'Automatic Exchange Rate Liquidation Preference' for the shares of Series C Preferred Stock shall be $69.6145 per share (the amount determined by multiplying (x) the Liquidation Preference for the Series C Preferred Stock (without accrued and unpaid dividends thereon), by (y) 0.696145.) The Company will pay cash to holders of Series C Preferred Stock in lieu of issuing fractional shares of Series D Preferred Stock in the Automatic Exchange. Although holders of Series C Preferred Stock will not be entitled to receive accrued dividends thereon on or after the Automatic Exchange Date, shares of Series D Preferred Stock will be issued with an initial liquidation preference equal to $102.50. For a description of the terms, preferences and rights of the Series D Preferred Stock, see ' -- Series D Preferred Stock.' In the event of an Automatic Exchange, the Company will give written notice to the holders of record on the Automatic Exchange Date of shares of Series C Preferred Stock at their addresses appearing on the books of the Company that the shares of Series C Preferred Stock have been automatically exchanged into shares of Series D Preferred Stock. The notice of exchange will specify the number of shares of Series D Preferred Stock into which the shares of Series C Preferred Stock have been automatically exchanged and the place where the holders are to deliver the certificates evidencing shares of Series C Preferred Stock in exchange for certificates evidencing shares of Series D Preferred Stock. Thereafter, the holders will surrender their certificates evidencing shares of Series C Preferred Stock at the place designated in the notice of exchange. As promptly as practicable after receipt of such certificates, the Company will issue and deliver to each holder a certificate or certificates for the number of shares of Series D Preferred Stock to which such holder is entitled. Shares of Series D Preferred Stock will be deemed to have been exchanged immediately prior to the close of business on the Automatic Exchange Date and the holders of the Series C Preferred Stock of record on such date shall be treated for all purposes as the record holders of the Series D Preferred Stock at such time. 100 Voting Rights. Other than the consent rights described below with respect to certain corporate actions, and except as otherwise provided by applicable law, holders of shares of Series C Preferred Stock will have no voting rights. Consent of the holders of a majority of the outstanding shares of Series C Preferred Stock will be required before the Company may take certain corporate actions, including (i) any amendment, alteration or repeal of any of the provisions of the Company's Certificate of Incorporation or Bylaws which affects adversely the voting powers, rights or preferences of the holders of the shares of Series C Preferred Stock, (ii) the authorization or creation of, or the increase in authorized amount of, any shares of any class or series of equity securities that ranks senior to or on a parity with the Series C Preferred Stock with respect to dividend rights and rights upon liquidation, winding up or dissolution and (iii) the merger or consolidation of the Company with or into any other entity, unless the resulting corporation will thereafter have no class or series of shares and no other securities either authorized or outstanding ranking prior to, or on a parity with, the Series C Preferred Stock in the payment of dividends or the distribution of its assets on liquidation, dissolution or winding up. In addition, in the event that (i) after the First Scheduled Dividend Payment Date, dividends payable on the shares of Series C Preferred Stock shall be in arrears in an aggregate amount equal to at least six quarterly dividend payments, (ii) the Company fails to redeem all of the outstanding shares of Series C Preferred Stock on the Mandatory Redemption Date, or (iii) the Company fails to make an Offer to Purchase upon a Change in Control, the holders of a majority of the outstanding shares of Series C Preferred Stock, voting as a class, will be entitled to elect (i) one director in the event that there are seven or fewer directors on the Board of Directors at such time or (ii) two directors in the event that there are eight or more directors on the Board of Directors at such time. In exercising the voting rights set forth herein or when otherwise granted voting rights by operation of law, each share of Series C Preferred Stock will be entitled to one vote per share. No consent of the holders of the Series C Preferred Stock will be required for (i) the creation of any indebtedness of any kind of the Company or (ii) the authorization or issuance of any class of capital stock of the Company ranking junior to the Series C Preferred Stock in payment of dividends or upon liquidation, dissolution or winding up of the Company. Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, before any distribution of the assets of the Company to the holders of shares of Common Stock or any other capital stock of the Company ranking junior to the Series C Preferred Stock upon liquidation, dissolution or winding up of the Company, the holders of shares of Series C Preferred Stock will be entitled to receive out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, an amount per share of Series C Preferred Stock equal to $100.00 (the 'Liquidation Preference'), plus accrued and unpaid dividends on such share of Series C Preferred Stock, if any, to the date of final distribution. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, before any distribution of assets of the Company to the holders of shares of Series C Preferred Stock or any capital stock of the Company ranking on a par with the shares of Series C Preferred Stock, the holders of any shares of capital stock of the Company ranking senior to the Series C Preferred Stock and such parity stock (including the shares of 5% Preferred Stock in the event not all shares of 5% Preferred Stock are exchanged or otherwise redeemed in the Exchange Offer) shall be entitled to receive out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, an amount per share of such senior stock equal to the liquidation preference thereof, plus accrued and unpaid dividends thereon, if any, to the date of final distribution. If, upon any liquidation, dissolution or winding up of the Company, the amounts payable with respect to the shares of Series C Preferred Stock or any capital stock ranking on a par with the shares of Series C Preferred Stock are not paid in full, then such holders will share ratably in any such distribution of assets, or proceeds thereof, in proportion to the full respective preferential amounts to which they are entitled. Neither a consolidation nor a merger of the Company with one or more other corporations, nor a sale or a transfer of all or substantially all of the assets of the Company, will be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Company. 101 SERIES D PREFERRED STOCK On October 13, 1997, the Board of Directors approved the issuance of up to 7,000,000 shares of Series D Preferred Stock. Shares of Series D Preferred Stock will be issued in the event of an Automatic Exchange with respect to the New Preferred Stock. See ' -- 10 1/2% Series C Convertible Preferred Stock -- Automatic Exchange.' NEW CONVERTIBLE PREFERRED STOCK Pursuant to a binding Summary Term Sheet/Commitment (the 'Commitment') dated June 15, 1997 among Everest Capital International, Ltd., Everest Capital Fund, L.P., The Ravich Revocable Trust of 1989 (together 'Everest') and the Company, Everest committed to purchase from the Company, and the Company committed to sell to Everest in a private placement, up to $58 million of a new series of convertible preferred stock (the 'New Convertible Preferred Stock') in conjunction with a financing by the Company to yield gross proceeds of $150 million or more in 'new money,' subject to certain conditions. Everest can satisfy its obligation to purchase the New Convertible Preferred Stock by either exchanging some or all of the 5% Preferred Stock it currently holds or by paying cash. The terms of the New Convertible Preferred Stock differ substantially from the terms of the New Preferred Stock. If Everest pursues its right to purchase the New Convertible Preferred Stock pursuant to the Commitment and seeks to enforce the Company's obligations thereunder, the Company may be required to issue the New Convertible Preferred Stock. Everest has not made known to the Company its intentions with respect to the Commitment and its current holding of 5% Preferred Stock. PREFERRED STOCK PURCHASE RIGHTS On October 22, 1997, the Board of Directors adopted a stockholders rights plan and, in connection with the adoption of such plan, declared a dividend distribution of one 'Right' for each outstanding share of Common Stock (a 'Common Share') of the Company to stockholders of record at the close of business on November 3, 1997 (the 'Rights Record Date'). Except as set forth below, each Right will entitle the registered holder thereof to purchase from the Company one one-hundredth of a share of Series B Preferred Stock, par value $0.001 per share (the 'Series B Shares'), at a purchase price of $115.00 (the 'Purchase Price'), subject to adjustment. The Purchase Price shall be paid in cash. The description and terms of the Rights will be set forth in a Rights Agreement (the 'Rights Agreement') to be entered into by the Company and Continental Stock Transfer & Trust Company, as Rights Agent. Initially, no separate Right Certificates will be distributed and the Rights will be evidenced, with respect to any Common Shares outstanding on the Rights Record Date, by the certificates representing such Common Shares. Until the Separation Date (as defined below), the Rights will be transferred with, and only with, Common Share certificates. Until the earlier of the Separation Date and the redemption or expiration of the Rights, new Common Share certificates issued after the Rights Record Date will contain a notation incorporating the Rights Agreement by reference. The Rights are not exercisable until the earlier to occur of (a) 10 business days following a public announcement that a person or group of affiliated or associated persons (an 'Acquiring Person') has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding Common Shares (except by reason of (i) exercise by such person of stock options granted to such person by the Company pursuant to any stock option or similar plan of the Company (ii) the exercise of conversion rights contained in specified classes of Preferred Stock, or (iii) the exercise of Warrants owned on the date of the Rights Agreement to acquire Common Shares deemed to be benefically owned by such person on such date, which will include warrants to acquire 1,740,000 Common Shares to be issued to an affiliate of Everest Capital Fund, Ltd.) or (b) 15 business days following the commencement of a tender offer or exchange offer by any person (other than the Company, any subsidiary of the Company or any employee benefit plan thereof) if, upon consummation hereof, such person or group would be the beneficial owner of 15% or more of such outstanding Common Shares (the earlier of such dates being called the 'Separation Date'), and will expire on October 22, 2002, unless earlier redeemed by the Company as described below. As soon as practicable following the Separation Date, separate certificates evidencing the Rights ('Right Certificates') will be mailed to holders of record of the Common Shares as of the close of business on the Separation Date and, thereafter, such separate Right Certificates alone will evidence the 102 Rights. A holder of 15% or more of the Common Stock as of the date of the Rights Agreement will be excluded from the definition of 'Acquiring Person' unless such holder increases the aggregate percentage of its and its affiliates' beneficial ownership interest in the Company by an additional 1%. In the event that, at any time following the Separation Date, (a) the Company is the surviving corporation in a merger with an Acquiring Person and the Company's Common Shares are not changed or exchanged, (b) a person (other than the Company, any subsidiary of the Company or any employee benefit plan thereof), together with its Affiliates and Associates (as defined in the Rights Agreement), becomes an Acquiring Person (in any manner, except pursuant to (i) the exercise of stock options granted pursuant to the Company's existing and future stock option plans, (ii) the exercise of conversion rights contained in specified Preferred Stock issues of the Company, (iii) the exercise of certain warrants specified in the Rights Agreement and (iv) a tender offer for any and all outstanding Common Shares made in accordance with applicable laws, which remains open for at least 40 Business Days and into which holders of 80% or more of the Company's outstanding Common Shares tender their shares), (c) an Acquiring Person engages in one or more 'self-dealing' transactions as set forth in the Rights Agreement or (d) during such time as there is an Acquiring Person, an event occurs (e.g., a reverse stock split), that results in such Acquiring Person's ownership interest being increased by more than one percent, the Rights Agreement provides that proper provision shall be made so that each holder of a Right will thereafter be entitled to receive, upon the exercise thereof at the then current exercise price of the Right, Common Shares (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. In the event that, at any time following the first date of public announcement by the Company or an Acquiring Person indicating that an Acquiring Person has become such (the 'Shares Acquisition Date'), (a) the Company consolidates or merges with another person and the Company is not the surviving corporation, (b) the Company consolidates or merges with another person and is the surviving corporation, but in such transaction its Common Shares are changed or exchanged or (c) 50% or more of the Company's assets or earning power is sold or transferred, the Rights Agreement provides that proper provision shall be made so that each holder of a Right shall thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, common shares of the acquiring company having a value equal to two times the exercise price of the Right. The Board may, at its option, at any time after the right of the Board to redeem the Rights has expired or terminated (with certain exceptions), exchange all or part of the then outstanding and exercisable Rights (other than those held by the Acquiring Person and Affiliates and Associates of the Acquiring Person) for Common Shares at a ratio of one Common Share per Right, as adjusted; provided, however, that such Right cannot be exercised once a Person, together with such Person's Affiliates and Associates, becomes the beneficiary owner of 50% or more of the Common Shares then outstanding. If the Board authorizes such an exchange, the Rights will immediately cease to be exercisable. Notwithstanding any of the foregoing, following the occurrence of any of the events set forth in the fourth and fifth paragraphs of this section, any Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person or Affiliate or Associate thereof shall immediately become null and void. The Rights Agreement contains provisions intended to prevent the utilization of voting trusts or similar arrangements (except for the voting arrangement between two of the Company's principal stockholders and the Company) that could have the effect of rendering ineffective or circumventing the beneficial ownership rules set forth in the Rights Agreement. The Purchase Price payable, and the number of Series B Shares or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (a) in the event of a dividend of Series B Shares on, or a subdivision, combination or reclassification of, the Series B Shares, (b) upon the grant to holders of the Series B Shares of certain rights or warrants to subscribe for Series B Shares or securities convertible into Series B Shares at less than the current market price of the Series B Shares or (c) upon the distribution to holders of the Series B Shares of debt securities or assets (excluding regular quarterly cash dividends and dividends payable in Series B Shares) or of subscription rights or warrants (other than those referred to above). 103 At any time after the date of the Rights Agreement until ten Business Days (as defined in the Rights Agreement) (a period that can be extended) following the Shares Acquisition Date, the Board of Directors, with the concurrence of a majority of the Independent Directors (those members of the Board who are not officers or employees of the Company or of any Subsidiary of the Company and who are not Acquiring Persons or their Affiliates, Associates, nominees or representatives, and who either (a) were members of the Board prior to the adoption of the Rights Plan or (b) were subsequently elected to the Board and were recommended for election or approved by a majority of the Independent Directors then on the Board), may redeem the Rights, in whole but not in part, at a price of $0.01 per Right, subject to adjustment (the 'Redemption Price'). Thereafter, the Board may only redeem the Rights in certain specified circumstances including in connection with certain events not involving an Acquiring Person or an Affiliate or Associate of an Acquiring Person. In addition, the Company's right of redemption may be reinstated if (a) an Acquiring Person reduces its beneficial ownership to 10% or less of the outstanding Common Shares in a transaction or series of transactions not involving the Company and (b) there is at such time no other Acquiring Person. The Rights Agreement may also be amended, as described below, to extend the period of redemption. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to shareholders or to the Company, shareholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Common Shares (or other consideration) of the Company or for common shares of the Acquiring Person as set forth above. Other than those provisions relating to the principal economic terms of the Rights or imposing limitations on the right to amend the Agreement, any of the provisions of the Rights Agreement may be amended by the Board with the concurrence of a majority of the Independent Directors or by special approval of the stockholders of the Company prior to the Separation Date. Thereafter, the period during which the Rights may be redeemed may be extended (by action of the Board, with the concurrence of a majority of the Independent Directors or by special approval of the stockholders of the Company), and other provisions of the Rights Agreement may be amended by action of the Board with the concurrence of a majority of the Independent Directors or by special approval of the shareholders of the Company; provided, however, that (a) such amendment will not adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person) and (b) no amendment shall be made at such time as the Rights are no longer redeemable (except for the possibility of the right of redemption being reinstated as described above). DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS Section 203 of the Delaware General Corporation Law ('Section 203') generally provides that a stockholder acquiring more than 15% of the outstanding voting stock of a corporation subject to the statute (an 'Interested Stockholder') but less than 85% of such stock may not engage in certain Business Combinations (as defined in Section 203) with the corporation for a period of three years after the time the stockholder became an Interested Stockholder unless (i) prior to such time, the corporation's board of directors approved either the Business Combination or the transaction in which the stockholder became an Interested Stockholder or (ii) the Business Combination is approved by the corporation's board of directors and authorized at a stockholders' meeting by a vote of at least two-thirds of the corporation's outstanding voting stock not owned by the Interested Stockholder. Under Section 203, these restrictions will not apply to certain Business Combinations proposed by an Interested Stockholder following the earlier of the announcement or notification of one of certain extraordinary transactions involving the corporation and a person who was not an Interested Stockholder during the previous three years, who became an Interested Stockholder with the approval of the corporation's board of directors or who became an Interested Stockholder at a time when the restrictions contained in Section 203 did not apply for reasons specified in Section 203, if such extraordinary transaction is approved or not opposed by a majority of the directors who were directors prior to such person becoming an Interested Stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors. 104 Section 203 defines the term 'Business Combination' to encompass a wide variety of transactions with or caused by an Interested Stockholder, including transactions in which the Interested Stockholder receives or could receive a benefit on other than a pro rata basis with other stockholders, transactions with the corporation which increase the proportionate interest in the corporation directly or indirectly owned by the Interested Stockholder or transactions in which the Interested Stockholder receives certain other benefits. The provisions of Section 203, coupled with the Board's authority to issue preferred stock without further stockholder action, could delay or frustrate the removal of incumbent directors or a change in control of the Company. The provisions also could discourage, impede or prevent a merger, tender offer or proxy contest, even if such event would be favorable to the interests of stockholders. The Company's stockholders, by adopting an amendment to the Company's Amended and Restated Certificate of Incorporation (the 'Certificate'), may elect not to be governed by Section 203 effective 12 months after such adoption. Neither the Certificate nor the Company's Amended and Restated Bylaws exclude the Company from the restrictions imposed by Section 203. TRANSFER AGENT The transfer agent and registrar for the Common Stock, the 5% Preferred Stock and the Series C Preferred Stock is Continental Stock Transfer & Trust Company, New York, New York. CERTAIN UNITED STATES TAX CONSIDERATIONS The federal income tax discussion set forth below summarizes certain United States federal income tax consequences that may be relevant to holders of the Units, Warrants and Notes who are United States Persons (as defined below) and hold their Units, Warrants and Notes as capital assets ('Holders'). The discussion is intended only as a summary and does not purport to be a complete analysis or listing of all potential tax considerations that may be relevant to such Holders of the Units, Warrants and Notes. The discussion does not include special rules that may apply to certain holders (including insurance companies, tax-exempt organizations, financial institutions or broker-dealers, and persons holding the Units, Notes and Warrants as part of a 'straddle,' 'hedge' or 'conversion transaction,' and investors who are not United States Persons), and does not address the tax consequences of the law of any state, locality or foreign jurisdiction. The discussion is based upon currently existing provisions of the Internal Revenue Code of 1986, as amended (the 'Code'), existing and proposed Treasury regulations promulgated thereunder and current administrative rulings and court decisions. All of the foregoing are subject to change and any such change could affect the continuing validity of this discussion. There is currently no authority regarding the tax treatment of an instrument such as the Unit. Therefore, the correct treatment of such instrument is not clear. As used herein, 'United States Person' means a beneficial owner of the Units, Notes or Warrants who or that (i) is a citizen or resident of the United States, (ii) is a corporation, partnership or other entity created or organized in or under the laws of the United States or political subdivision thereof, (iii) is an estate the income of which is subject to U.S federal income taxation regardless of its source, (iv) is a trust if (A) a U.S. court is able to exercise primary supervision over the administration of the trust and (B) one or more U.S. fiduciaries have authority to control all substantial decisions of the trust, or (v) is otherwise subject to U.S. federal income tax on a net income basis in respect of the Units, Notes or Warrants, as the case may be. THE UNITS There is no authority under applicable Treasury regulations regarding the treatment of instruments such as the Warrants. However, because each Warrant entitles the holder thereof to acquire $150 face amount of Senior Discount Notes for no additional consideration, the Company intends to take the position, based upon general principles of federal income tax law, that the Warrants are properly characterized as issued and outstanding debt instruments from the date of issuance of the warrants. Furthermore, for purposes of computing the amount of original issue discount with respect to the Units, 105 the Company intends, in accordance with the Treasury regulations to treat the Note and the Warrant together as a single debt instrument with a single issue price, maturity date, yield and 'stated redemption price at maturity'. Although the provisions of the regulations providing for the aggregation of debt instruments are ambiguous in certain respects and subject to varying interpretations, the Company intends to take the position that the issue price, stated redemption price at maturity and resulting original issue discount of a Unit should be allocated to the Warrant and Note portion ofl such Unit 15/115ths and 100/115ths, respectively. Further, in accordance with the foregoing interpretation of the Regulations, the sale of the Warrant or Note portion of a Unit should be treated as a sale of 15/115ths or 100/115ths, respectively, of the Unit. There can be no assurance that the Service or a court interpreting the Treasury regulations will not take a different position concerning the characterization of the Warrants or the allocation between the Warrant and Note portion of the Unit, including, but not limited to, the position that such allocations of issue price, stated redemption price at maturity, resulting original issue discount and portions sold should be based on the relative fair market values of the Warrant and Note portion of a Unit. See 'Discount of Units, Warrants or Notes' below. Original Issue Discount. The Units will have original issue discount for federal income tax purposes. The amount of original issue discount ('OID') on a Unit is the excess of its 'stated redemption price at maturity' (the sum of all payments to be made on the Note, whether denominated as interest or principal) over its 'issue price.' The 'issue price' of each Unit will be the first price at which a substantial amount of Units are sold to the public (excluding sales to bond houses, brokers or similar persons acting as underwriters, placement agents or wholesalers). Each Unit Holder (whether a cash or accrual method taxpayer) will be required to include in income such OID as it accrues, in advance of the receipt of some or all of the related cash payments. The amount of OID includable in income by the initial Holder of a Unit is the sum of the 'daily portions' of OID with respect to the Unit for each day during the taxable year or portion of the taxable year on which such Holder held such Unit ('accrued OID'). The daily portion is determined by allocating to each day in any 'accrual period' a pro rata portion of the OID allocable to that accrual period. The accrual periods for a Unit will be periods that are each selected by the Unit Holder that are no longer than one year, provided that each scheduled payment occurs either on the final day of an accrual period or on the first day of an accrual period. The amount of OID allocable to any accrual period other than the initial short accrual period (if any) and the final accrual period is an amount equal to the product of the Unit's 'adjusted issue price' at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period). The amount of OID allocable to the final accrual period is the difference between the amount payable at maturity and the adjusted issue price of the Unit at the beginning of the final accrual period. The amount of OID allocable to any initial short accrual period may be computed under any reasonable method. The adjusted issue price of the Unit at the start of any accrual period is equal to its issue price increased by the accrued OID for each prior accrual period and reduced by any prior payments with respect to such Unit. The Company is required to report the amount of OID accrued on Units held of record by persons other than corporations and other exempt Unit Holders, which may be based on accrual periods other than those chosen by the Unit Holder. A Unit Holder will not be required to recognize any income upon the receipt of interest payments on the Units. The tax basis of a Unit in the hands of the Holder will be increased by the amount of OID, if any, on the Unit that is included in the Holder's income pursuant to these rules, and will be decreased by the amount of any payments made with respect to the Unit. Applicable High Yield Discount Obligations. If the yield to maturity of the Units (as determined for U.S. federal income tax purposes) exceeds the 'applicable federal rate' ('AFR') plus 500 basis points, the Units will be subject to the applicable high yield discount obligation ('AHYDO') rules of the Code. The AFR for the month of November, 1997 for instruments with a weighted average maturity in excess of nine years providing for semi-annual compounding is 6.32%. Pursuant to the AHYDO rules, the Company's deductions with respect to original issue discount will be suspended until such amounts are actually paid, and the 'disqualified portion' of such original issue discount (defined as the portion that is attributable to the yield on such Unit in excess of the applicable federal rate plus 600 basis points) 106 will be permanently nondeductible. These rules generally do not affect the amount, timing or character of a Holder's income; however, domestic corporate Holders may be eligible for a dividends-received deduction with respect to their inclusion in income of the 'disqualified portion' (as defined above) if such amount, if paid with respect to stock, would have been a dividend (i.e., among other things, would have been out of earnings and profits, which the Company does not believe that it currently has). The availability of the dividend-received deduction is subject to a number of complex limitations. Market Discount. If a Unit (or any portion thereof) is acquired by a subsequent purchaser at a 'market discount,' some or all of any gain realized upon a disposition (including a sale or a taxable exchange) or payment at maturity of such debt instrument may be treated as ordinary income. 'Market discount' with respect to a security is, subject to a de minimis exception, the excess of (1) the issue price of the security increased by all previously accrued original issue discount and probably reduced (although the Code does not expressly so provide) by any cash payments in respect of such security over (2) such Holder's initial tax basis in the security. The amount of market discount treated as having accrued will be determined either on a ratable basis, or, if the Holder so elects, on a constant interest method. Upon any subsequent disposition (including a gift or payment at maturity) of such debt instrument (other than in connection with certain nonrecognition transactions), the lesser of any gain on such disposition (or appreciation, in the case of a gift) or the portion of the market discount that accrued while the debt instrument was held by such Holder will be treated as ordinary interest income at the time of the disposition. In lieu of including accrued market discount in income at the time of disposition, a Holder may elect to include market discount in income currently. Unless a Holder so elects, such Holder may be required to defer a portion of any interest expense that may otherwise be deductible on any indebtedness incurred or maintained to purchase or carry such debt instrument until the Holder disposes of the debt instrument. The election to include market discount in income currently, once made, is irrevocable and applies to all market discount obligations acquired on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS. Acquisition Premium. A subsequent Holder of a Unit (or any portion thereof) is generally subject to rules for accruing OID described above. However, if such Holder's purchase price for the debt instrument exceeds the 'revised issue price' (the sum of the issue price of the debt instrument and the aggregate amount of the OID includible in the gross income of all Holders for periods before the acquisition of the debt instrument by such Holder and probably reduced (although the Code does not expressly so provide) by any cash payment in respect of such security), the excess (referred to as 'acquisition premium') is offset ratably against the amount of OID otherwise includible in such Holder's taxable income (i.e., such Holder may reduce the daily portions of OID by a fraction, the numerator of which is the excess of such Holder's purchase price for the debt instrument over the revised issue price, and the denominator of which is the excess of the sum of all amounts payable on the debt instrument after the purchase date over the debt instrument revised issue price). Disposition of Units Warrants or Notes. Will there is no clear authority directly on point under the Treasury regulations, in accordance with the provisions of the Treasury regulations that generally require debt instruments issued in connection with the same transaction or as part of the same issue to be aggregated and treated as a single debt instrument, the Company believes that a Holder of a Unit who sells the Warrant or Note portion thereof would be treated for federal income tax purposes as having sold 15/115ths or 100/115ths respectively of the Unit and with respect to which 15/115ths or 100/115ths respectively of such purchaser's tax basis should be allocable. Holders of Units are urged to consult their own tax advisors regarding the applicatio of the Treasury regulations with respect to the specific treatment to such holder of a sale of a portion of a Unit. A Holder of a Unit will recognize gain or loss upon the sale, redemption, retirement or other disposition of such Unit (or any oprtion thereof); such gain or loss will generally be equal to the difference between (i) the amount of cash and the fair market value of property received and (ii) the Holder's adjusted tax basis (including any accrued OID or market discount previously included in income by the Holder and reduced by any previous payments with respect to the debt instrument) in such debt instrument. Subject to the market discount rules discussed above, gain or loss recognized will be capital gain or loss, provided such debt instrument is held as a capital asset by the Holder, and will be long term capital gain or loss if the Holder has held such debt instrument (or is treated as having held such debt instrument) for longer than one year. For 107 individuals, such gain will be taxed at rates that vary depending upon whether the debt instrument was held for one year or less, more than one year but not more than 18 months, or more than 18 months. Reporting Requirements. The Company will provide annual information statements to Holders of the Units (or any portion thereof) and to the Internal Revenue Service, setting forth the amount of original issue discount determined to be attributable to the debt instruments for that year. BACKUP WITHHOLDING Under certain circumstances, the failure of a Holder of Units (or any portion thereof) to provide sufficient information to establish that such Holder is exempt from the backup withholding provisions of the Code will subject such Holder to backup withholding at a rate of 31 percent on payments of principal and interest on the debt instruments, and the proceeds from a disposition of the debt instruments. In general, backup withholding applies if a Holder fails to furnish a correct taxpayer identification number, fails to report dividend and interest income in full, or fails to certify that such Holder has provided a correct taxpayer identification number and that the Holder is not subject to withholding. An individual's taxpayer identification number is such person's Social Security number. THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF UNITS, WARRANTS OR NOTES IN LIGHT OF HIS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF UNITS, WARRANTS OR NOTES SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE OWNERSHIP AND DISPOSITION OF THE UNITS, WARRANTS OR NOTES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT VERSIONS THEREOF. 108 UNDERWRITING Subject to the terms and conditions set forth in a purchase agreement (the 'Purchase Agreement'), the Company has agreed to sell to each of the Underwriters named below, and each of the Underwriters has severally agreed to purchase from the Company the number of Units set forth opposite its name below. In the Purchase Agreement, the several Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all the Units offered hereby, if any are purchased. In the event of default by an Underwriter, the Purchase Agreement provides that, in certain circumstances, purchase commitments of the non-defaulting Underwriters may be increased or the Purchase Agreement may be terminated.
NUMBER UNDERWRITERS OF UNITS -------- Merrill Lynch, Pierce, Fenner & Smith Incorporated.......................................................... 9,037 Lehman Brothers Inc................................................................. 2,582 Libra Investments, Inc.............................................................. 1,291 -------- Total................................................................. 12,910 -------- --------
The Underwriters have advised the Company that they propose initially to offer the Units to the public at the initial public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of 1.21% per Unit. The Underwriters may allow, and such dealers may reallow, a discount not in excess of .605% per Unit to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has agreed that it will not for a period of 180 days from the date of this Prospectus, without the consent of Merrill Lynch directly or indirectly offer, sell, grant any option to purchase, or otherwise dispose of, any debt securities of the Company or securities of the Company that are convertible into, or exchangeable for, the Units or such other debt securities. The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. The Underwriters do not intend to confirm sales of Units offered hereby to any accounts over which they exercise discretionary authority. There is currently no public market for the Units. Accordingly, there can be no assurance as to the liquidity of any market that may develop for the Units, the ability of holders of the Units to sell their Units or at what price such holders would be able to sell their Units. If such a market were to develop, the Units could trade at prices that may be lower than the initial offering price thereof, depending on many factors, including prevailing interest rates, the Company's operating results and markets for similar debt securities. The Underwriters have advised the Company that they currently intend to make a market in the Units. However, they are not obligated to do so, and any market making with respect to the Units may be discontinued at any time without notice at the sole discretion of each Underwriter. If an active public market does not develop, the market price and liquidity of the Units may be adversely affected. The Company does not intend to apply for listing of the Units on any national securities exchange or for quotation of the Units through an automated quotation system. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the Units. There can be no assurance that the market for the Units will not be subject to similar disruptions. Until the distribution of the Units is completed, rules of the Securities and Exchange Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase the Units. As an exception to these rules, the Underwriters are permitted to engage in certain transactions that stabilize the price of the Units. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Units. 109 If the Underwriters create a short position in the Units in connection with the Units Offering, i.e., if they sell more Units than are set forth on the cover page of this Prospectus, the Underwriters may reduce that short position by purchasing Units in the open market. The Underwriters may also impose a penalty bid on certain Underwriters and selling group members. This means that if the Underwriters purchase Units in the open market to reduce the Underwriters' short position or to stabilize the price of the Units, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of the offering of Units. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Units. In addition, neither the Company nor any of the Underwriters makes any representation that the Underwriters will engage in such transaction or that such transactions, once commenced, will not be discontinued without notice. Pursuant to an agreement, dated October 21, 1992, Batchelder & Partners, Inc., the Company's financial adviser, will receive fees in the amount of 1% of the proceeds of the Units Offering. LEGAL MATTERS Certain legal matters relating to the securities offered hereby are being passed upon for the Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. Certain regulatory matters arising under the Communications Act are being passed upon by Wiley, Rein & Fielding, Washington, D.C. Certain legal matters are being passed upon for the Underwriters by Shearman & Sterling, New York, New York. INDEPENDENT ACCOUNTANTS The consolidated financial statements of the Company as of December 31, 1995 and 1996, for each of the three years in the period ended December 31, 1996, and for the period from May 17, 1990 (the date of inception) to December 31, 1996, incorporated herein by reference, have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of said firm as experts in accounting and auditing. 110 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] Inside back cover Photograph of car on highway and CD Radio logo Caption: 50 Channels of Programming National Satellite Coverage Commercial-Free Music CD Quality Sound _____________________________ _____________________________ NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------ TABLE OF CONTENTS
PAGE ---- Additional Information...................................................................................................... 5 Incorporation of Certain Documents by Reference............................................................................. 5 Special Note Regarding Forward-Looking Statements........................................................................... 6 Prospectus Summary.......................................................................................................... 7 Risk Factors................................................................................................................ 16 Use of Proceeds............................................................................................................. 27 Price Range of Common Stock................................................................................................. 29 Dividend Policy............................................................................................................. 29 Capitalization.............................................................................................................. 30 Selected Historical Financial Information................................................................................... 31 Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 32 Business.................................................................................................................... 37 Management.................................................................................................................. 53 Principal Stockholders...................................................................................................... 61 Description of Certain Indebtedness......................................................................................... 65 Description of Units........................................................................................................ 69 Description of the Notes.................................................................................................... 69 Description of the Warrants................................................................................................. 96 Description of Capital Stock................................................................................................ 97 Certain United States Tax Considerations.................................................................................... 105 Underwriting................................................................................................................ 109 Legal Matters............................................................................................................... 110 Independent Accountants..................................................................................................... 110
[LOGO] 12,910 UNITS CONSISTING OF $258,200,000 15% SENIOR SECURED DISCOUNT NOTES DUE 2007 AND WARRANTS TO ACQUIRE $38,730,000 15% SENIOR SECURED DISCOUNT NOTES DUE 2007 ------------------ PROSPECTUS ------------------ MERRILL LYNCH & CO. LEHMAN BROTHERS LIBRA INVESTMENTS, INC. NOVEMBER 21, 1997 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The cash expenses in connection with the issuance and distribution of the securities being registered, other than underwriting compensation, are as follows: Securities and Exchange Commission registration fee......................................... $ 45,455 NASD filing fee............................................................................. 15,500 Accounting fees and expenses................................................................ 80,000 Legal fees and expenses..................................................................... 359,045 Printing, engraving and delivery expenses................................................... 0 -------- Total............................................................................. $500,000 -------- --------
- ------------ * To be completed by amendment ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law authorizes a corporation to indemnify its directors, officers, employees and agents against certain liabilities they may incur in such capacities, including liabilities under the Securities Act, provided they act in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation. The Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws require the Company to indemnify its officers and directors to the full extent permitted by Delaware law. Section 102 of the Delaware General Corporation Law authorizes a corporation to limit or eliminate its directors' liability to the corporation or its stockholders for monetary damages for breaches of fiduciary duties, other than for (i) breaches of the duty of loyalty, (ii) acts or omissions involving bad faith, intentional misconduct or knowing violations of the law, (iii) unlawful payments of dividends, stock purchases or redemptions, or (iv) transactions from which a director derives an improper personal benefit. The Company's Amended and Restated Certificate of Incorporation contains provisions limiting the liability of the directors to the Company and to its shareholders to the full extent permitted by Delaware law. Section 145 of the Delaware General Corporation Law authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against him and incurred by him or her in any such capacity, or arising out of his or her status as such. The Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws provide that the Company may, to the full extent permitted by law, purchase and maintain insurance on behalf of any director, officer, employee or agent of the Company against any liability which may be asserted against him or her and the Company currently maintains such insurance. The Purchase Agreement between the Company and the Underwriters with respect to the Units Offering registered hereunder will provide for indemnification of the registrant and its officers and directors by the Underwriters or agents, as the case may be, against certain liabilities including liabilities under the Securities Act. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits.
EXHIBIT DESCRIPTION - ------- ------------------------------------------------------------------------------------------------------------ 1.1 -- Purchase Agreement. 3.1* -- Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the period ended March 31, 1996). 3.2* -- Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the Company's Form 10-Q for the period ended March 31, 1996). 4.1 -- Form of Indenture. 4.2 -- Form of Note (included in Exhibit 4.1). 4.3 -- Form of Warrant Agreement. 4.4 -- Form of Warrant (included in Exhibit 4.3). 5.1 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison. 21.1* -- List of the Company's Subsidiaries (incorporated by reference to Exhibit 21.1 to the Company's Form 10-Q for the period ended March 31, 1997). 23.1* -- Consent of Coopers & Lybrand L.L.P. 23.2 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (to be included in Exhibit 5.1). 24.1* -- Power of Attorney (included on signature page). 25.1* -- Statement of Eligibility of Trustee.
- ------------ * Previously filed. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (a) That, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) (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 shall 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. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 21, 1997. CD RADIO INC. By: /s/ DAVID MARGOLESE ................................. DAVID MARGOLESE CHAIRMAN AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------ -------------------------------------------- ------------------- /S/ DAVID MARGOLESE Chairman and Chief Executive Officer November 21, 1997 ......................................... (Principal Executive Officer) (DAVID MARGOLESE) * Principal Financial and Accounting Officer November 21, 1997 ......................................... (ANDREW J. GREENEBAUM) * Director November 21, 1997 ......................................... (ROBERT D. BRISKMAN) * Director November 21, 1997 ......................................... (LAWRENCE F. GILBERTI) * Director November 21, 1997 ......................................... (PETER K. PITSCH) * Director November 21, 1997 ......................................... (JACK Z. RUBINSTEIN) * Director November 21, 1997 ......................................... (RALPH V. WHITWORTH)
By: /s/ DAVID MARGOLESE ................... DAVID MARGOLESE ATTORNEY-IN-FACT II-3 EXHIBITS
EXHIBIT DESCRIPTION PAGE - ------- ----------------------------------------------------------------------------------------------------- ---- 1.1 -- Purchase Agreement................................................................................ 3.1* -- Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the period ended March 31, 1996)........................................... 3.2* -- Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the Company's Form 10-Q for the period ended March 31, 1996)............................................................... 4.1 -- Form of Indenture................................................................................. 4.2 -- Form of Note (included in Exhibit 4.1)............................................................ 4.3 -- Form of Warrant Agreement......................................................................... 4.4 -- Form of Warrant (included in Exhibit 4.3)......................................................... 4.5 -- Pledge Agreement.................................................................................. 5.1 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison............................................... 21.1* -- List of the Company's Subsidiaries (incorporated by reference to Exhibit 21.1 to the Company's Form 10-Q for the period ended March 31, 1997)..................................................... 23.1* -- Consent of Coopers & Lybrand L.L.P................................................................ 23.2 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (to be included in Exhibit 5.1)............... 24.1* -- Power of Attorney (included on signature page).................................................... 25.1* -- Statement of Eligibility of Trustee...............................................................
- ------------ * Previously filed. STATEMENT OF DIFFERENCES The section symbol shall be expressed as...................................'SS' The degree symbol shall be expressed as.....................................[d] EX-1 2 EXHIBIT 1.1 ================================================================================ CD RADIO INC. (a Delaware corporation) Units Consisting of 15% Senior Secured Discount Notes due 2007 and Warrants to Purchase 15% Senior Secured Discount Notes due 2007 PURCHASE AGREEMENT Dated: November 20, 1997 ================================================================================ Table of Contents PURCHASE AGREEMENT.......................................................................................... 1 SECTION 1. Representations and Warranties*.................................................... 3 (a) Representations and Warranties by the Company...................................... 3 (i) Compliance with Registration Requirements.............................. 3 (ii) Incorporated Documents................................................. 4 (iii) Independent Accountants................................................ 4 (iv) Financial Statements................................................... 4 (v) No Material Adverse Change in Business................................. 5 (vi) Good Standing of the Company........................................... 5 (vii) Good Standing of the Subsidiary........................................ 5 (viii) Capitalization......................................................... 6 (ix) Authorization of Agreement............................................. 6 (x) Authorization of the Indenture......................................... 6 (xi) Authorization of the Notes............................................. 6 (xii) Description of the Indenture and the Warrant Agreement.............................................................. 7 (xiii) Authorization of the Warrant Agreement................................. 7 (xiv) Authorization of the Warrants.......................................... 7 (xv) Authorization of the Warrant Securities................................ 7 (xvi) Description of the Securities. ....................................... 7 (xvii) Authorization of the Pledge Agreement.................................. 8 (xviii) Description of the Pledge Agreement.................................... 8 (xix) Absence of Defaults and Conflicts...................................... 8 (xxxvi) Pledged Collateral........................................................ 13 (b) Officer's Certificates............................................................. 13 SECTION 2. Sale and Delivery to Underwriters; Closing......................................... 13 (a) Securities......................................................................... 13 (b) Payment............................................................................ 13 (c) Denominations; Registration........................................................ 14 SECTION 3. Covenants of the Company........................................................... 14 (a) Compliance with Securities Regulations and Commission Requests........................................................................... 14 (b) Filing of Amendments............................................................... 14 (c) Delivery of Registration Statements................................................ 15 (d) Delivery of Prospectuses........................................................... 15 (e) Continued Compliance with Securities Laws.......................................... 15 (f) Blue Sky Qualifications............................................................ 16 (g) Rule 158........................................................................... 16 (h) Use of Proceeds.................................................................... 16 (i) Listing............................................................................ 16 (j) Restriction on Sale of Securities.................................................. 16 (k) Reporting Requirements............................................................. 17 SECTION 4. Payment of Expenses................................................................ 17 (a) Expenses........................................................................... 17 (b) Termination of Agreement........................................................... 17 SECTION 5. Conditions of Underwriters' Obligations............................................ 17 (a) Effectiveness of Registration Statement............................................ 18 (b) Opinion of Counsel for Company..................................................... 18 (c) Opinion of Regulatory Counsel for Company.......................................... 18 (d) Opinion of Patent Counsel for Company.............................................. 18 (e) Opinion of Intellectual Property Counsel for Company............................... 18
(f) Opinion of Counsel for Underwriters................................................ 19 (g) Officers' Certificate.............................................................. 19 (h) Accountants' Comfort Letter........................................................ 19 (i) Bring-down Comfort Letter.......................................................... 19 (j) Approval of Listing................................................................ 20 (k) No Objection....................................................................... 20 (l) Consummation of the Exchange Offer................................................. 20 (m) Additional Documents............................................................... 20 (n) Termination of Agreement........................................................... 20 SECTION 6. Indemnification.................................................................... 20 (a) Indemnification of Underwriters.................................................... 20 (b) Indemnification of Company, Directors and Officers................................. 22 (c) Actions against Parties; Notification.............................................. 22 (d) Settlement without Consent if Failure to Reimburse................................. 22 SECTION 7. Contribution....................................................................... 23 SECTION 8. Representations, Warranties and Agreements to Survive Delivery........................................................................... 24 SECTION 9. Termination of Agreement........................................................... 24 (a) Termination; General............................................................... 24 (b) Liabilities........................................................................ 25 SECTION 10. Default by One or More of the Underwriters......................................... 25 SECTION 11. Notices............................................................................ 26 SECTION 12. Parties............................................................................ 26 SECTION 13. GOVERNING LAW AND TIME............................................................. 26 SECTION 14. Effect of Headings................................................................. 26 SCHEDULES Schedule A - List of Underwriters............................................................. Sch A-1 Schedule B - Pricing Information.............................................................. Sch B-1 EXHIBITS Exhibit A - Form of Opinion of Company's Counsel.............................................. A-1 Exhibit B - Form of Opinion of Regulatory Counsel for the Company............................. B-1 Exhibit C - Form of Opinion of Patent Counsel for the Company................................. C-1 Exhibit D - Form of Opinion of Intellectual Property Counsel for the Company Counsel........................................................... D-1
ii CD RADIO INC. (a Delaware corporation) 12,910 Units Consisting of $258,200,000 Aggregate Principal Amount at Maturity 15% Senior Secured Discount Notes due 2007 and 12,910 Warrants to Acquire an Aggregate $38,730,000 Principal Amount as Maturity 15% Senior Secured Discount Notes due 2007 PURCHASE AGREEMENT November 20, 1997 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Lehman Brothers Inc. Libra Investments Inc. as Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281 Ladies and Gentlemen: CD Radio Inc., a Delaware corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, Lehman Brothers Inc. and Libra Investments, Inc. are acting as representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective number of the Company's Units (the "Units" or the "Securities"), each Unit consisting of $20,000 aggregate principal amount at maturity of the Company's 15% Senior Secured Discount Notes due 2007 (the "Notes") and one Warrant (the "Warrants"), each Warrant entitling the holder thereof to acquire $3,000 principal amount at maturity of Notes. The Notes are to be issued pursuant to an indenture dated as of the Closing Time (the "Indenture") between the Company and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"), and the Warrants are to be issued pursuant to a warrant agreement dated as of the Closing Time (the "Warrant Agreement") between the Company and IBJ Schroder Bank & Trust Company, as warrant agent (the "Warrant Agent"). The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered and the Indenture has been qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act"). The Company has also made an exchange offer (the "Exchange Offer") for its outstanding 5% Delayed Convertible Preferred Stock ("5% Preferred Stock") pursuant to a registration statement on Form S-4 (No. 333-34761) (the "Exchange Offer Registration Statement") and is undertaking a public offering of Common Stock (the "Stock Offerings"), pursuant to a registration statement on Form S-3 (No. 333-34769). The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333-34769) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus or prospectus. Promptly after execution and delivery of this Agreement, the Company will either (i) prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations, (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b) or (iii) prepare and file, prior to the effective date of such registration statement, an amendment to such registration statement, including a final prospectus. The information included in such prospectus or in such Term Sheet, as the case may be, that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each prospectus used before such registration statement became effective, and any prospectus that omitted, if applicable, the Rule 430A Information or the Rule 434 Information, that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto, schedules thereto, if any, and the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became effective and including the Rule 430A Information and the Rule 434 Information, as applicable, is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term 2 "Registration Statement" shall include the Rule 462(b) Registration Statement. The final prospectus, including the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, included in the Registration Statement at the time it becomes effective is herein called the "Prospectus", except that, if the Company has relied upon Rule 430A, the prospectus in the form first furnished to the Underwriters for use in connection with the offering of the Securities is herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the preliminary prospectus dated October 30, 1997 together with the Term Sheet and all references in this Agreement to the date of the Prospectus shall mean the date of the Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus or the Prospectus (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Registration Statement, any preliminary prospectus or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") which is incorporated by reference in the Registration Statement, such preliminary prospectus or the Prospectus, as the case may be. SECTION 1. Representations and Warranties. (a) Representations and Warranties by the Company. The Company represents and warrants to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(b) hereof, and agrees with each Underwriter, as follows: (i) Compliance with Registration Requirements. Pursuant to an oral waiver granted to the Company by the Commission, the Company is permitted to use Form S-3 under the 1933 Act in connection with the Stock Offerings. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective 3 and at the Closing Time, the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither of the Prospectus nor any amendments or supplements thereto, at the time the Prospectus or any amendments or supplements thereto were issued and at the Closing Time, included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If Rule 434 is used, the Company will comply with the requirements of Rule 434. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or the Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through the Representatives expressly for use in the Registration Statement or the Prospectus. Each preliminary prospectus and the prospectuses filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (ii) Incorporated Documents. The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act, and, when read together with the other information in the Prospectus, at the time the Registration Statement became effective, at the time the Prospectus was issued and at the Closing Time, did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (iii) Independent Accountants. The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the 1933 Act. (iv) Financial Statements. The financial statements and the related notes of the Company included in the Registration Statement and the Prospectus present fairly in accordance with generally accepted accounting principles ("GAAP") the financial position of the Company and its consolidated subsidiary as of the dates indicated and the statement of operations, stockholders' equity and cash flows of the Company and 4 its consolidated subsidiary for the periods specified. Such financial statements have been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved. The selected financial data and the summary financial information included in the Registration Statement and the Prospectus present fairly in accordance with GAAP the information shown therein and have been compiled on a basis consistent with that of the audited financial statements of the Company for each of the years in the five-year period ended December 31, 1996. (v) No Material Adverse Charge in Business. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein or contemplated thereby, there has not been (A) any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiary considered as one enterprise, whether or not arising in the ordinary course of business (a "Material Adverse Effect"), (B) any transaction entered into by the Company or its subsidiary, other than in the ordinary course of business, that is material with respect to the Company and its subsidiary considered as one enterprise, or (C) any dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (vi) Good Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus, to enter into and perform its obligations under this Agreement and to consummate the Stock Offerings; the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which each such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (vii) Good Standing of the Subsidiary. Satellite CD Radio, Inc. has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. All of the issued and outstanding capital stock of Satellite CD Radio, Inc. has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of capital stock of Satellite CD Radio, Inc. was issued in violation of the preemptive 5 or similar rights of any securityholder of Satellite CD Radio, Inc. Satellite CD Radio, Inc. is the only subsidiary of the Company. (viii) Capitalization. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus, pursuant to the Exchange Offer or the Stock Offerings or pursuant to the exercise of convertible securities, warrants or options referred to in the Prospectus). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. (ix) Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Company. (x) Authorization of the Indenture. The Indenture has been duly authorized by the Company and duly qualified under the 1939 Act and, at the Closing Time, will have been duly executed and delivered by the Company and, when duly executed and delivered by the Trustee, will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (xi) Authorization of the Notes. The Notes have been duly authorized and, at the Closing Time, will have been duly executed by the Company and, when authenticated, issued and delivered in the manner provided for in the Indenture and delivered against payment of the purchase price therefor as provided in this Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the form contemplated by, and entitled to the benefits of, the Indenture. (xii) Description of the Indenture and the Warrant Agreement. The Indenture and the Warrant Agreement will conform in all material respects to the respective statements relating thereto contained in the Prospectus and will be in 6 substantially the respective forms filed or incorporated by reference, as the case may be, as exhibits to the Registration Statement. (xiii) Authorization of the Warrant Agreement. The Warrant Agreement has been duly authorized by the Company and, at the Closing Time, will have been duly executed and delivered by the Company and, when duly executed and delivered by the Warrant Agent, will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (xiv) Authorization of the Warrants. The Warrants have been duly authorized and, at the Closing Time, will have been duly executed by the Company and, when executed, issued and delivered in the manner provided for in the Warrant Agreement and delivered against payment of the purchase price therefor as provided in this Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the form contemplated by, and entitled to the benefits of, the Warrant Agreement. (xv) Authorization of the Warrant Securities. The Notes issuable upon exercise of the Warrants (the "Warrant Securities") have been duly authorized and reserved by the Company and, when issued and delivered upon exercise of the Warrants in accordance with the terms of the Warrants and the Warrant Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the form contemplated by, and entitled to the benefits of, the Indenture. (xvi) Description of the Securities. The Units, the Notes and the Warrants conform to all statements relating thereto contained in the Prospectus and such description conforms to the rights set forth in the instruments defining the same. 7 (xvii) Authorization of the Pledge Agreement. The Pledge Agreement has been duly authorized by the Company and, at the Closing Time, will have been duly executed and delivered by the Company and will constitute a valid and binding agreement of the Issuer, enforceable against the Company in accordance with its terms, except as enforceability thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (xviii) Description of the Pledge Agreement. The Pledge Agreement conforms in all material respects to all statements relating thereto contained in the Prospectus and will be in substantially the respective forms filed or incorporated by reference, as the case may be, as exhibits to the Registration Statement. (xix) Absence of Defaults and Conflicts. Neither the Company nor its subsidiary is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or its subsidiary is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or its subsidiary is subject (collectively, "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated in this Agreement and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Company with its obligations under this Agreement have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or its subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or its subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or its subsidiary or any of their assets, properties or operations. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or its subsidiary. 8 (xx) Absence of Labor Dispute. No labor dispute with the employees of the Company or its subsidiary exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or its subsidiary's principal suppliers, manufacturers or contractors, which, in either case, may reasonably be expected to result in a Material Adverse Effect. (xxi) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or its subsidiary, which is required to be disclosed in the Registration Statement and the Prospectus (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the transactions contemplated by this Agreement or the performance by the Company of its obligations hereunder or thereunder; all pending legal or governmental proceedings to which the Company or its subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, in the aggregate could not reasonably be expected to result in a Material Adverse Effect. (xxii) Accuracy of Exhibits. There are no contracts or documents which are required to be described in the Registration Statement, the Prospectus or the documents incorporated by reference therein or to be filed as exhibits which have not been so described and filed as required. (xxiii) Possession of Intellectual Property. The Company and its subsidiary own or possess adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by them and intended to be operated by them in the manner described in the Registration Statement and the Prospectus, and neither the Company nor its subsidiary has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or its subsidiary therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect. (xxiv) Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or 9 governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities under this Agreement or the consummation of the transactions contemplated by this Agreement, except such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations and state securities or blue sky laws. (xxv) Possession of Licenses and Permits. Except as disclosed in the Prospectus, the Company and its subsidiary possess such permits, licenses (including, without limitation, the FCC License, as defined in the Prospectus), approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them or intended to be operated by them in the manner described in the Registration Statement and the Prospectus; the Company and its subsidiary are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and neither the Company nor its subsidiary has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. (xxvi) Title to Property. The Company and its subsidiary have good and marketable title to all real property owned by the Company and its subsidiary and good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (a) are described in the Prospectus or (b) do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its subsidiary; and all of the leases and subleases material to the business of the Company and its subsidiary, considered as one enterprise, and under which the Company or its subsidiary holds properties described in the Prospectus, are in full force and effect, and neither the Company nor its subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or its subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease. (xxvii) Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated, the issuance and sale of Common Stock in connection with the Stock Offerings, and the application of the net 10 proceeds therefrom as described in the Prospectus will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (xxviii) Environmental Laws. Except as described in the Registration Statement and except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor its subsidiary is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and its subsidiary have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or its subsidiary and (D) there are no events or circumstances that might reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or its subsidiary relating to Hazardous Materials or any Environmental Laws. (xxix) Taxes. All United States federal income tax returns of the Company and its subsidiary required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except assessments against which appeals have been or will be promptly taken and as to which adequate reserves have been provided. The Company and its subsidiary have filed all other tax returns that are required to have been filed by them pursuant to applicable foreign, state, local or other law, except insofar as the failure to file such returns would not result in a Material Adverse Effect, and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company and its subsidiary, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. (xxx) Internal Controls. The Company and its subsidiary maintain a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management's general or specific authorization, (B) transactions are recorded as necessary to permit preparation of 11 financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets, (C) access to assets is permitted only in accordance with management's general or specific authorization and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xxxi) Registration Rights. Except as described in the Prospectus, there are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act. (xxxii) Related Parties. No relationship, direct or indirect, exists between or among any of the Company or any affiliate of the Company, on the one hand, and any director, officer, stockholder or supplier of any of them, on the other hand, which is required to be described in the Registration Statement or the Prospectus which is not so described or is not described as required. (xxxiii) Offering Materials. The Company has not distributed and, prior to the Closing Time, will not distribute any Offering Materials in connection with the offering and sale of Securities, other than the Registration Statement, any preliminary prospectus, the Prospectus or any other Offering Materials, if any, permitted by the 1933 Act and the 1934 Act and approved by the Representatives. (xxxiv) Voting Trust Agreement. The Voting Trust Agreement, dated August 26, 1997 among the Company, Darlene Friedland and David Margolese and consented to by Robert M. Friedland has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery thereof by the parties thereto (other than the Company), is a valid, legal and binding obligation of the Company and Darlene Friedland in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (xxxv) Proposed Amendment. The Proposed Amendment (as defined in the Exchange Offer Registration Statement) has been approved by the Board of Directors of the Company and the stockholders of the Company and has been validly filed with the Secretary of State of the State of Delaware, and prior to the date hereof the Company's Articles of Incorporation have been amended by the Proposed Amendment. (xxxiv) Exchange Offer. Prior to the date hereof, the Exchange Offer has been consummated, and in the Exchange Offer shares of the Company's 10 1/2% Series 12 C Convertible Preferred Sock were exchanged for 100% of the outstanding shares of 5% Preferred Stock. (xxxv) Qualifying Offerings. Immediately after giving effect to the issuance and sale of the Securities, there will have occurred one or more Qualifying Offerings (as defined in the Certificate of Designations for the 5% Preferred Stock) yielding gross proceeds to the Company in an aggregate cash amount of at least $100 million. (xxxvi) Pledged Collateral. Upon the transfer to the Trustee of the Pledged Securities (as defined in the Pledge Agreement) and the acquisition by the Trustee of a security entitlement thereto, in accordance with the terms of the Pledge Agreement, the pledge of and grant of a security interest in the Pledged Collateral (as defined in the Pledge Agreement) securing the payment of the Obligations (as defined in the Pledge Agreement) for the benefit of the Trustee and holders of the Units will constitute a first priority perfected security interest in such Pledged Collateral, enforceable as such against all creditors of the Company (and any persons purporting to purchase any of the Pledged Collateral from the Company). (xxxvii) Security Interest. The Pledge Agreement and the pledge of the Pledged Collateral pursuant hereto create a valid and perfected first priority security interest in the Pledged Collateral in favor of the Trustee, securing the payment of all the Obligations, and all filings and other actions necessary or desirable as may be required by the Trustee or the Holders to perfect and protect such security interest have been duly taken. (b) Officer's Certificates. Any certificate signed by any officer of the Company delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to Underwriters; Closing. (a) Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price set forth in Schedule B, the aggregate amount of Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional principal amount of Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (b) Payment. Payment of the purchase price for, and delivery of certificates for, the Securities shall be made at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, or at such other place as shall be agreed upon by the Representatives and the Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the 13 pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called "Closing Time"). Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company, against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Securities which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Securities to be purchased by any Underwriter whose funds have not been received by the Closing Time, but such payment shall not relieve such Underwriter from its obligations hereunder. (c) Denominations; Registration. Certificates for the Units, the Notes and the Warrants shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time. The Units, the Notes and the Warrants will be made available for examination and packaging by the Representatives in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time. SECTION 3. Covenants of the Company. The Company covenants with each Underwriter as follows: (a) Compliance with Securities Regulations and Commission Requests. The Company, subject to Section 3(b), will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company 14 will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) Filing of Amendments. The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall object. (c) Delivery of Registration Statements. The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (d) Delivery of Prospectuses. The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (e) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations, the 1934 Act and the rules and regulations of the Commission under the 1934 Act (the "1934 Act Regulations"); and the 1939 Act and the rules and regulations thereunder (the "1939 Act Regulations") so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a 15 prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (f) Blue Sky Qualifications. The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions as the Global Coordinator may designate and to maintain such qualifications in effect for a period of not less than one year from the later of the effective date of the Registration Statement and any Rule 462(b) Registration Statement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the effective date of the Registration Statement and any Rule 462(b) Registration Statement. (g) Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (h) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds". (i) Listing. The Company will use its best efforts to maintain the quotation of the Common Stock on the Nasdaq National Market and will file with the Nasdaq National Market all documents and notices required by the Nasdaq National 16 Market of companies that have securities that are traded on the Nasdaq National Market and quotations for which are reported by the Nasdaq National Market. (j) Restriction on Sale of Securities. During a period of 180 days from the date of the Prospectus, the Company will not, without the prior written consent of Merrill Lynch, directly or indirectly, issue, sell, offer or contract to sell, grant any option for the sale of, or otherwise transfer or dispose of, any debt securities of the Company or securities of the Company that are convertible into, or exchangeable for, the Units or such other debt securities. (k) Reporting Requirements. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations. SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, any Term Sheets and of the Prospectus and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of the Trustee and the Warrant Agent, including the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Notes, and the fees and disbursements of counsel for the Warrant Agent in connection with the Warrant Agreement and the Warrants, (ix) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Securities and (x) the fees and expenses incurred in connection with the inclusion of the Warrant Securities on the Nasdaq National Market. (b) Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. 17 SECTION 5. Conditions of Underwriters' Obligations. The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the Company or its subsidiary delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective by 10:00 A.M. New York City time on November 21, 1997, and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. If the Company has elected to rely on Rule 430A, a prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 424(b). (b) Opinion of Counsel for Company. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit A hereto and to such further effect as counsel to the Underwriters may reasonably request. (c) Opinion of Regulatory Counsel for Company. At the Closing Time, the Representatives shall have received the favorable opinion, dated as of the Closing Time, of Wiley, Rein & Fielding, regulatory counsel for the Company, in form and substance satisfactory to counsel for the Underwriters to the effect set forth in Exhibit B hereto and to such further effect as counsel for the Underwriters may reasonably request. (d) Opinion of Patent Counsel for Company. At the Closing Time, the Representatives shall have received (i) the favorable opinion, dated as of the Closing Time, of Bright & Lorig, patent counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, to the effect set forth in Exhibit C hereto and to such further effect as counsel for the Underwriters may reasonably request and (ii) the favorable opinion, dated as of the Closing Time, of 18 Kenyon & Kenyon, patent counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters. (e) Opinion of Intellectual Property Counsel for Company. At the Closing Time, the Representatives shall have received the favorable opinion, dated as of the Closing Time, of Marzouk & Parry, intellectual property counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, to the effect set forth in Exhibit D hereto and to such further effect as counsel to the Underwriters may reasonably request. (f) Opinion of Counsel for Underwriters. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of Shearman & Sterling, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters with respect to the matters set forth in clauses (i), (ii), (v), (vii) through (xii), (xiii) (solely as to issuance), (xiv), (xix) (solely as to the information in the Prospectus under "Description of Units", "Description of the Notes" and "Description of the Warrants") and the penultimate paragraph of Exhibit A hereto. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the Representatives. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its subsidiary and certificates of public officials. (g) Officers' Certificate. At Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiary considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the chief executive officer of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or are contemplated by the Commission. 19 (h) Accountants' Comfort Letter. At the time of the execution of this Agreement, the Representatives shall have received from Coopers & Lybrand L.L.P. a letter dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (i) Bring-down Comfort Letter. At Closing Time, the Representatives shall have received from Coopers & Lybrand LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (h) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time. (j) Approval of Listing. At Closing Time, the Common Stock shall have been approved inclusion on the NASDAQ National Market. (k) No Objection. The NASD has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. (l) Consummation of the Exchange Offer. The Company shall have consummated the Exchange Offer. (o) Proposed Amendment. The company's Articles of Incorporation shall have been amended by the Proposed Amendment. (m) Additional Documents. At Closing Time, counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. (n) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representatives by notice to the Company at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect. 20 SECTION 6. Indemnification. (a) Indemnification of Underwriters. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided, further, that the Company will not be liable to an Underwriter with respect to any preliminary prospectus to the extent that the Company shall sustain the burden of proving that any such loss, liability, claim, damage or expense resulted from the fact that such 21 Underwriter, in contravention of a requirement of this Agreement or applicable law, sold Securities to a person to whom such Underwriter failed to send or give, at or prior to the Closing Time, a copy of the Prospectus, as then amended or supplemented if (i) the Company has previously furnished copies thereof (sufficiently in advance of the Closing Time to allow for distribution by the Closing Time) to the Underwriters and the loss, liability, claim, damage or expense of such Underwriter resulted from an untrue statement or omission or alleged untrue statement or omission of a material fact contained in or omitted from the preliminary prospectus which was corrected in the Prospectus as, if applicable, amended or supplemented prior to the Closing Time and (ii) such failure to give or send such Prospectus by the Closing Time to the party or parties asserting such loss, liability, claim, damage or expense would have constituted the sole defense to the claim asserted by such person. (b) Indemnification of Company, Directors and Officers. Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, 22 settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel it is entitled to reimbursement for under this Agreement, and shall have, if requested, provided such indemnifying party reasonably detailed information regarding such fees and expenses (including with respect to the services performed, the rate or rates charged and the expenses incurred) such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. SECTION 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus, or, if Rule 434 is used, the corresponding 23 location on the Term Sheet, bear to the aggregate initial public offering price of the Securities as set forth on such cover. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters' respective obligations to contribute pursuant to this Section are several in proportion to the amount of Securities set forth opposite their respective names in Schedule A hereto and not joint. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or its subsidiary submitted pursuant hereto shall remain operative 24 and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriters. SECTION 9. Termination of Agreement. (a) Termination; General. The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiary considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the Nasdaq National Market, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal or New York authorities. (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect. SECTION 10. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail at Closing Time to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the aggregate amount of the Securities to be purchased hereunder, the non-defaulting Underwriters shall be obligated, each severally and not jointly, to purchase the full 25 amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the aggregate amount of the Securities to be purchased hereunder, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Representatives or the Company shall have the right to postpone Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section. SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives at North Tower, World Financial Center, New York, New York 10281, attention of General Counsel; and notices to the Company shall be directed to it at CD Radio Inc., 1001 22d St., N.W., Washington, D.C. 20037, attention of Chairman and Chief Executive Officer. SECTION 12. Parties. This Agreement shall inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. 26 SECTION 14. Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 27 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, CD RADIO INC. By -------------------------------- Title: CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED LEHMAN BROTHERS INC. LIBRA INVESTMENTS, INC. By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By ------------------------------------ Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A hereto. 28 SCHEDULE A Number of Name of Underwriter Securities ------------------- ---------- Merrill Lynch, Pierce, Fenner & Smith Incorporated.......................................... 9,037 Lehman Brothers Inc............................................... 2,582 Libra Investments, Inc............................................ 1,291 ------ Total............................................................. 12,910 ====== Sch A-1 SCHEDULE B CD RADIO INC. 12,910 Units, each Unit consisting of $20,000 aggregate principal amount at maturity of 15% Senior Secured Discount Notes due 2007 and one Warrant, each Warrant entitling the holder thereof to acquire $3,000 aggregate principal amount at maturity of 15% Senior Secured Discount Notes. 1. The initial public offering price of the Units shall be $9,684.40 per Unit, plus accrued amortization of original issue discount on the Notes, if any, from November 26, 1997. 2. The purchase price to be paid by the Underwriters for the Units shall be $9,345.446 per Unit, plus accrued amortization of original issue discount on the Notes, if any, from November 26, 1997. 3. The interest rate on the Notes shall be 15% per annum. Sch B-1 Exhibit A FORM OF OPINION OF COMPANY'S COUNSEL (i) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Purchase Agreement. (iii) The Company is duly qualified as a foreign corporation to transact business and is in good standing in the District of Columbia, which is the only jurisdiction in which the Company is required to be qualified, whether by reason of the ownership or leasing of property or the conduct of business as of the date hereof, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (iv) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to the Stock Offerings, the Exchange Offer or pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Prospectus); the shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive rights or provisions contained in (i) the Charter Documents or (ii) the General corporation Law of the State of Delaware (the "DGCL"). (v) The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to the Purchase Agreement and, when issued and delivered by the Company pursuant to the Purchase Agreement against payment of the consideration set forth in the Purchase Agreement, will be validly issued and fully paid and non-assessable and no holder of the Securities is or will be subject to personal liability by reason of being such a holder. (vi) Satellite CD Radio, Inc. has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing the District of Columbia, which is the only jurisdiction in which the Company is required to be qualified, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not A-1 result in a Material Adverse Effect; all of the issued and outstanding capital stock of Satellite CD Radio, Inc. has been duly authorized and validly issued, is fully paid and non-assessable and, to our knowledge, is owned by the Company free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of capital stock of Satellite CD Radio, Inc. was issued in violation of the preemptive or similar rights of any securityholder in (i) Satellite CD Radio Inc's certificate of incorporation or by-laws or (ii) the DGCL. (vii) The Purchase Agreement has been duly authorized, executed and delivered by the Company. (viii) The Indenture has been duly authorized, executed and delivered by the Company and (assuming the due authorization, execution and delivery thereof by the Trustee) constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (ix) The Notes are in the form contemplated by the Indenture, have been duly authorized by the Company and, assuming that the Notes have been duly authenticated by the Trustee in the manner described in its certificate delivered to you today (which fact such counsel need not determine by an inspection of the Notes), the Notes have been duly executed, issued and delivered by the Company and constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be entitled to the benefits of the Indenture. (x) The Indenture has been duly qualified under the 1939 Act. (xi) The Warrant Agreement has been duly authorized, executed and delivered by the Company and (assuming the due authorization, execution and delivery thereof by the Warrant Agent) constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). A-2 (xii) The Warrants are in the form contemplated by the Warrant Agreement, have been duly authorized by the Company and, assuming that the Warrants have been duly executed by the Warrant Agent in the manner described in its certificate delivered to you today (which fact such counsel need not determine by an inspection of the Warrants), the Warrants have been duly executed, issued and delivered by the Company and constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be entitled to the benefits of the Indenture. (xiii) The Warrant Securities issuable upon exercise of the Warrants have been duly authorized and reserved by the Company and, when issued and delivered upon exercise of the Warrants in accordance with the terms of the Warrants and the Warrant Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the form contemplated by, and entitled to the benefits of, the Indenture. (xiv) The Pledge Agreement (assuming the due authorization, execution and delivery thereof by the Trustee) constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (xv) The Units, the Notes, the Warrants, the Indenture, the Warrant Agreement and the Pledge Agreement conform as to legal matters in all material respects to the descriptions thereof contained in the Prospectus. (xvi) The provisions of the Pledge Agreement are effective to create in favor of the Trustee for the benefit of the holders of the Units a valid security interest in the Pledged Collateral (as defined in the Pledge Agreement) to secure the payment of principal of and interest on, and any other amounts owning in respect of, the Notes. Upon delivery of the Pledged Collateral to the Trustee, duly endorsed in blank or accompanied by stock powers duly executed in blank, and the registration thereof in the name of the Trustee, the security interest of the Trustee in the Pledged Collateral will be a first priority, perfected security interest. A-3 (xvii) The Registration Statement, including any Rule 462(b) Registration Statement, has been declared effective under the 1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or threatened by the Commission. (xviii) The Registration Statement, including any Rule 462(b) Registration Statement, the Rule 430A Information and the Rule 434 Information, as applicable, the Prospectus, excluding the documents incorporated by reference therein, and each amendment or supplement to the Registration Statement and the Prospectus, excluding the documents incorporated by reference therein, as of their respective effective or issue dates (other than the financial statements and supporting schedules included therein or omitted therefrom, as to which we need express no opinion) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (xix) The documents incorporated by reference in the Prospectus (other than the financial statements and supporting schedules included therein or omitted therefrom, as to which we need express no opinion), when they were filed with the Commission complied as to form in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder. (xx) To our knowledge, (without having done any search of judicial records or the records of any governmental agency or body) there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company or its subsidiary is a party, or to which the property of the Company or its subsidiary is subject, before or brought by any court or governmental agency or body, domestic or foreign, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in the Purchase Agreement or the performance by the Company of its obligations thereunder (other than any pending of threatened actions, proceedings, inquiries or investigations relating to the Federal Communications Commission, as to which we express no opinion) . (xxi) The information in the Prospectus under "Description of Units", "Description of the Notes", "Description of the Warrants", "Description of Capital Stock", "Certain United States Tax Considerations" and "Business--Legal Proceedings" in the Registration Statement under Item 15, to the extent that it constitutes matters of law, summaries of legal matters, the Company's charter and by-laws or legal proceedings, or legal conclusions, has been reviewed by us and is correct in all material respects. (xxii) To our knowledge, there are no statutes or regulations of the United States or the State of New York or provisions of the DGCL that are required to be described in the Prospectus that are not described as required (except that we express no opinion as to the A-4 Federal Communications Act or other general statutes or regulations of the Federal Communications Commission affecting digital radio satellite broadcasting). (xxiii) All descriptions in the Registration Statement of contracts and other documents to which the Company or its subsidiary are a party are accurate in all material respects; to our knowledge, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto. (xxiv) To our knowledge, (a) neither the Company nor its subsidiary is in violation of its charter or by-laws and (b) except as described in the Registration Statement, no default by the Company or its subsidiary exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed or incorporated by reference as an exhibit to the Registration Statement. (xxv) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency of the State of New York or the United States (other than under the 1933 Act and the 1933 Act, which were made, or as may be required under the securities or blue sky laws of the various states, as to which we express no opinion) or under the DGCL is necessary or required in connection with the due authorization, execution and delivery of the Purchase Agreement or for the offering, issuance, sale or delivery of the Securities. (xxvi) The execution, delivery and performance of the Purchase Agreement and the consummation of the transactions contemplated in the Purchase Agreement and in the Registration Statement (including the issuance and sale of the Securities, and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use Of Proceeds") and compliance by the Company with its obligations under the Purchase Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(xvii) of the Purchase Agreement) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, filed as an exhibit or described in the Registration Statement, to which the Company or its subsidiary is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or its subsidiary is subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or its subsidiary, or any applicable law, statute, rule, regulation, judgment, order, writ or decree, known to us, of any government, government A-5 instrumentality or court of the State of New York or the United States, having jurisdiction over the Company or its subsidiary or any of their respective properties, assets or operations. (xxvii) The Company is not, and upon consummation of the Units Offering and the Stock Offerings will not be, an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Companies Act of 1940, as amended.. (xxvi) The Voting Trust Agreement constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); the provisions of the Voting Trust Agreement create a "voting trust" as provided in Section 218 under the Delaware General Corporation Law. In addition, although we have not undertaken to investigate or verify independently, and are not passing upon and do not assume any responsibility for, the accuracy, completeness or fairness of the contents of the Registration Statement and the Prospectus (except with respect to certain matters of corporate law, as set forth in paragraphs 5, 19 and 21 above), in connection with the preparation of the Registration Statement and the Prospectus, we have participated in conferences with representatives and counsel of Merrill Lynch and with certain officers and employees of, and the counsel and independent certified public accountants for, the Company, at which conferences the contents of the Registration Statement, the Prospectus and related matters were discussed, and advise you that nothing has come to our attention that would lead us to believe that the Registration Statement or any amendment thereto, including the Rule 430A Information and Rule 434 Information (if applicable), (except for financial statements and schedules and other financial data included or incorporated by reference therein or omitted therefrom, as to which we need make no statement), at the time such Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements and schedules and other financial data included or incorporated by reference therein or omitted therefrom, as to which we need make no statement), at the time the Prospectus were issued, at the time any such amended or supplemented prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely (A) as to matters involving the application of the federal communications laws of the United States, upon the opinion of Wiley, Rein & Fielding, special counsel to the Company (which opinion shall be dated and furnished to Merrill Lynch at the Closing Time, shall be satisfactory in form and substance to counsel for A-6 Merrill Lynch and shall expressly state that Merrill Lynch may rely on such opinion as if it were addressed to Merrill Lynch), provided that Paul, Weiss, Rifkind, Wharton & Garrison shall state in their opinion that they believe that they and Merrill Lynch are justified in relying upon such opinion, and (B), as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). A-7 Exhibit B FORM OF OPINION OF REGULATORY COUNSEL TO THE COMPANY (A) (1) the execution, and delivery and performance of the Purchase Agreements and the Pledge Agreement relating to the Stock Offerings and the Units Offering and the consummation of the transactions contemplated therein and in the Prospectuses used in connection with the Stock Offerings and the Units Offering, the consummation of the Stock Offerings, the Units Offering, the Exchange Offer and the granting of a security interest in the Pledged Collateral in accordance with the terms of the Pledge Agreement, and compliance by the Company with its obligations thereunder do not violate (i) the Federal Communications Act of 1934, as amended (the "Communications Act"), (ii) any rules or regulations of the Federal Communications Commission ("FCC") applicable to the Company or its subsidiaries, (iii) any state telecommunications law, rules or regulations ("State Law") applicable to the Company or its subsidiaries, and (iv) to the best of such counsel's knowledge, any decree from any court, and (2) no consent, approval, authorization or order of or filing with the FCC or any state authority overseeing telecommunications matters ("State Authority"), is necessary for the execution, delivery and performance of the Purchase Agreements relating to the Stock Offerings and the Units Offering, the consummation of the Stock Offerings, the Units Offering and Exchange Offer and except for consents, approvals, authorizations or orders of or qualifications as have already been obtained and except to the extent that the failure to obtain such consents, approvals, authorizations or orders or to qualify with the FCC or any State Authority would not, individually or in the aggregate, have a material adverse effect on the prospects, condition (financial or otherwise) or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole; (B) Except as described in the Prospectuses used in connection with the Stock Offerings and the Units Offering, (1) each of the Company and all of its subsidiaries have made all reports and filings, and paid all fees, required by the FCC and the State Authorities, and have all certificates, orders, permits, licenses, authorizations, consents and approvals of and from, and have made all filings and registrations, with the FCC and the State Authorities necessary to own, lease, license and use its properties and assets and to conduct the business now operated by them or intended to be operated by them in the manner described in the Prospectuses used in connection with the Stock Offerings and the Units Offering; and (2) neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the violation, revocation or modification of any such certificates, orders, permits, licenses, authorizations, consents or approvals, or the qualification or rejection of any such filing or registration, the effect of which, singly or in the aggregate, would have a material adverse effect on the prospects, condition, financial or otherwise, earnings, operations or business of the Company and its subsidiaries now operated by them or intended to be operated by them in the manner described in the Prospectuses used in connection with the Stock Offerings and the Units Offering, taken as a whole; A-8 (C) neither the Company nor any of its subsidiaries is in violation of, or in default under the Communications Act, the telecommunications rules or regulations of the FCC or State Law, the effect of which, singly or in the aggregate, would have a material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries, taken as a whole; (D) to the best of such counsel's knowledge after due inquiry (i) no adverse judgment, decree or order of the FCC or any State Authority has been issued against the Company or any of its subsidiaries and (ii) no litigation, proceeding, inquiry or investigation has been commenced or threatened against the Company or any of its subsidiaries before or by the FCC or any State Authority which, if decided adversely to the Company's interest, would have a material adverse effect on the Company and its subsidiaries, taken as a whole; and (E) the statements in the Prospectuses used in connection with the Stock Offerings and the Units Offering under the captions "Risk Factors - Continuing Oversight by the FCC," "Risk Factors - Application of Export Control Regulations, "Risk Factors Competition," "Business - Competition," and "Business - - Government Regulation,"insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly summarize the matters referred to therein. A-9 Exhibit C FORM OF OPINION OF PATENT COUNSEL TO THE COMPANY (A) The Company has received the following U.S. patents: ________, and no facts have come to the attention of such counsel that have led such counsel to express an opinion that any of such patents is unenforceable or invalid. (B) Such counsel is not aware of any pending or threatened action, suit, proceeding or claim by others that the Company is infringing or otherwise violating any patents or other proprietary information of others. (C) Such counsel has no knowledge of any adversarial legal or governmental proceedings or interference proceedings pending relating to patents of the Company; and (D) the statements in the Prospectuses used in connection with the Stock Offerings and the Units Offering under the captions "Risk Factors-- Uncertain Protection" and "Business--Technology, Patents and Trademarks," insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly summarize the matters referred to therein. A-10 Exhibit D FORM OF OPINION OF OTHER INTELLECTUAL PROPERTY COUNSEL TO THE COMPANY (A) To such counsel's knowledge, the Applications are still pending and all filings required to be made by the date of such opinion have been made. (B) Such counsel is not aware of any pending or threatened action, suit, proceeding or claim by others that the Company is infringing or otherwise violating any trademarks of others. (C) Aside from the pending Applications, we have no knowledge of any pending or threatened adversarial legal or governmental proceedings or interference proceedings relating to the Applications. A-11 EX-4 3 EXHIBIT 4.1 ================================================================================ CD RADIO INC. TO IBJ SCHRODER BANK & TRUST COMPANY, Trustee -------------------- Indenture Dated as of November , 1997 --------------------- $296,930,000 principal amount at maturity 15% Senior Secured Discount Notes due 2007 ================================================================================ Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of November , 1997 Trust Indenture Act Section Indenture Section 'SS' 310(a)(1) ....................................... 607 (a)(2) ....................................... 607 (b) ....................................... 607, 608 'SS' 312(c) ....................................... 701 'SS' 314(a) ....................................... 703 (a)(4) ....................................... 1008(a) (c)(1) ....................................... 102 (c)(2) ....................................... 102 (e) ....................................... 102 'SS' 315(b) ....................................... 601 'SS' 316(a)(last sentence) ....................................... 101 ("Outstanding") (a)(1)(A) ....................................... 502, 512 (a)(1)(B) ....................................... 513 (b) ....................................... 508 (c) ....................................... 104(d) 'SS' 317(a)(1) ....................................... 503 (a)(2) ....................................... 504 (b) ....................................... 1003 'SS' 318(a) ....................................... 111 TABLE OF CONTENTS
Page PARTIES..................................................................................... 1 RECITALS OF THE COMPANY..................................................................... 1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions............................................................... 2 SECTION 102. Compliance Certificates and Opinions...................................... 27 SECTION 103. Form of Documents Delivered to Trustee.................................... 28 SECTION 104. Acts of Holders........................................................... 29 SECTION 105. Notices, Etc., to Trustee and Company..................................... 30 SECTION 106. Notice to Holders; Waiver................................................. 30 SECTION 107. Effect of Headings and Table of Contents.................................. 31 SECTION 108. Successors and Assigns.................................................... 31 SECTION 109. Separability Clause....................................................... 31 SECTION 110. Benefits of Indenture..................................................... 31 SECTION 111. Governing Law............................................................. 32 SECTION 112. Legal Holidays............................................................ 32 ARTICLE TWO NOTE FORMS SECTION 201. Form of Note and Trustee's Certificate of Authentication.................. 32 SECTION 202. Notes Issued in Global Form............................................... 33 ARTICLE THREE THE NOTES SECTION 301. Title and Terms........................................................... 34 SECTION 302. Denominations............................................................. 34 SECTION 303. Execution, Authentication, Delivery and Dating............................ 35
- -------- Note: This table of contents shall not, for any purpose, be deemed to be a part of this Indenture. ii
Page SECTION 304. Temporary Notes........................................................... 36 SECTION 305. Registration, Registration of Transfer and Exchange....................... 36 SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes............................... 37 SECTION 307. Payment of Interest; Interest Rights Preserved............................ 38 SECTION 308. Persons Deemed Owners..................................................... 39 SECTION 309. Cancellation.............................................................. 40 SECTION 310. Computation of Interest................................................... 40 ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture................................... 40 SECTION 402. Application of Trust Money................................................ 42 ARTICLE FIVE REMEDIES SECTION 501. Events of Default......................................................... 42 SECTION 502. Acceleration of Maturity; Rescission and Annulment........................ 44 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee........... 45 SECTION 504. Trustee May File Proofs of Claim.......................................... 46 SECTION 505. Trustee May Enforce Claims Without Possession of Notes.................... 47 SECTION 506. Application of Money Collected............................................ 47 SECTION 507. Limitation on Suits....................................................... 48 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest........................................................... 48 SECTION 509. Restoration of Rights and Remedies........................................ 49 SECTION 510. Rights and Remedies Cumulative............................................ 49 SECTION 511. Delay or Omission Not Waiver.............................................. 49 SECTION 512. Control by Holders........................................................ 49 SECTION 513. Waiver of Past Defaults................................................... 50 SECTION 514. Waiver of Stay or Extension Laws.......................................... 50 ARTICLE SIX THE TRUSTEE SECTION 601. Notice of Defaults........................................................ 50
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Page SECTION 602. Certain Rights of Trustee................................................. 51 SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes................. 52 SECTION 604. May Hold Notes............................................................ 53 SECTION 605. Money Held in Trust....................................................... 53 SECTION 606. Compensation and Reimbursement............................................ 53 SECTION 607. Corporate Trustee Required; Eligibility; Conflicting Interests............ 54 SECTION 608. Resignation and Removal; Appointment of Successor......................... 54 SECTION 609. Acceptance of Appointment by Successor.................................... 56 SECTION 610. Merger, Conversion, Consolidation or Succession to Business............... 56 ARTICLE SEVEN HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Disclosure of Names and Addresses of Holders.............................. 57 SECTION 702. Reports by Trustee........................................................ 57 SECTION 703. Reports by Company........................................................ 57 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. Company May Consolidate, Etc. Only on Certain Terms....................... 58 SECTION 802. Successor Substituted..................................................... 59 SECTION 803. Notes to Be Secured in Certain Events..................................... 60 ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders........................ 60 SECTION 902. Supplemental Indentures with Consent of Holders........................... 62 SECTION 903. Execution of Supplemental Indentures...................................... 63 SECTION 904. Effect of Supplemental Indentures......................................... 63 SECTION 905. Conformity with Trust Indenture Act....................................... 63 SECTION 906. Reference in Notes to Supplemental Indentures............................. 63 SECTION 907. Notice of Supplemental Indentures......................................... 64
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Page ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium, if Any, and Interest...................... 64 SECTION 1002. Maintenance of Office or Agency.......................................... 64 SECTION 1003. Money for Note Payments to Be Held in Trust.............................. 65 SECTION 1004. Corporate Existence...................................................... 66 SECTION 1005. Payment of Taxes and Other Claims........................................ 66 SECTION 1006. Maintenance of Properties................................................ 66 SECTION 1007. Insurance................................................................ 67 SECTION 1008. Statement by Officers as to Default...................................... 68 SECTION 1009. Provision of Financial Statements........................................ 68 SECTION 1010. Purchase of Notes upon Change in Control................................. 69 SECTION 1011. Limitation on Indebtedness............................................... 70 SECTION 1012. Limitation on Restricted Payments........................................ 70 SECTION 1013. Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries....................................................... 73 SECTION 1014. Limitation on Transactions with Affiliates............................... 74 SECTION 1015. Limitation on Liens...................................................... 75 SECTION 1016. Limitation on Sale of Assets............................................. 75 SECTION 1017. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries............................................ 76 SECTION 1018. Waiver of Certain Covenants.............................................. 77 SECTION 1019. Required Stock Ownership................................................. 78 SECTION 1020. Further Assurances....................................................... 78 SECTION 1021. Limitation on Subsidiary Business Activities............................. 78 ARTICLE ELEVEN REDEMPTION OF NOTES SECTION 1101. Right of Redemption...................................................... 78 SECTION 1102. Applicability of Article................................................. 78 SECTION 1103. Election to Redeem; Notice to Trustee.................................... 79 SECTION 1104. Selection by Trustee of Notes to Be Redeemed............................. 79 SECTION 1105. Notice of Redemption..................................................... 79 SECTION 1106. Deposit of Redemption Price.............................................. 80 SECTION 1107. Notes Payable on Redemption Date......................................... 80 SECTION 1108. Notes Redeemed in Part................................................... 81
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Page ARTICLE TWELVE SECURITY AND PLEDGE OF COLLATERAL SECTION 1201. Collateral Documents..................................................... 81 SECTION 1202. Trustee May Perform...................................................... 81 SECTION 1203. Collateral Trust Arrangements............................................ 82 SECTION 1204. Certificates and Opinions................................................ 82 ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance............. 82 SECTION 1302. Defeasance and Discharge................................................. 83 SECTION 1303. Covenant Defeasance...................................................... 83 SECTION 1304. Conditions to Defeasance or Covenant Defeasance.......................... 84 SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions.............................. 86 SECTION 1306. Reinstatement............................................................ 86 TESTIMONIUM................................................................................ 87 SIGNATURES................................................................................. 87 EXHIBIT A -- FORM OF NOTE
INDENTURE, dated as of November , 1997 between CD Radio Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at Sixth Floor, 1001 22nd Street, N.W., Washington D.C. 20037, and IBJ Schroder Bank & Trust Company, a bank duly organized and existing under the laws of the State of New York, Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of 15% Senior Secured Discount Notes due 2007 (herein called the "Notes"), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. The Notes have been issued in the form of Units consisting of Notes and Warrants to acquire additional Notes with an aggregate principal amount at maturity of $38,730,000 (the "Warrants"). The Company has determined to secure its obligations in respect of the Notes and duly authorized the execution and delivery of the Collateral Documents (as defined herein) to which it is a party. This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. All things necessary have been done to make the Notes, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company and to make this Indenture a valid agreement of the Company, in accordance with their and its terms. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: 2 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article One have the meanings assigned to them in this Article One, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self-liquidating paper", as used in TIA Section 311, shall have the meanings assigned to them in the rules of the Commission adopted under the Trust Indenture Act; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Accreted Value" is defined to mean, for any specified date, the amount calculated pursuant to clause (i), (ii), (iii) or (iv) below for each $1,000 principal amount at maturity of Notes: (i) If the specified date occurs on one or more of the following dates (each a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set forth below for such Semi-Annual Accrual Date: 3 Semi-Annual Accreted Accrual Date Value ------------ ------ [ ], 1998....................... $[ ] [ ], 1998..................... $[ ] [ ], 1999....................... $[ ] [ ], 1999....................... $[ ] [ ], 2000....................... $[ ] [ ], 2000....................... $[ ] [ ], 2001....................... $[ ] [ ], 2001....................... $[ ] [ ], 2002....................... $[ ] [ ], 2002....................... $1,000 (ii) If the specified date occurs before the first Semi-Annual Accrual Date, the Accreted Value will equal the sum of (a) the original issue price and (b) an amount equal to the product of (1) the Accreted Value for the first Semi-Annual Accrual Date less the original issue price multiplied by (2) a fraction, the numerator of which is the number of days from the date of this Indenture to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is the number of days elapsed from the date of this Indenture to the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day months; (iii) If the specified date occurs between two Semi-Annual Accrual Dates, the Accreted Value will equal the sum of (a) the Accreted Value for the Semi-Annual Accrual Date immediately preceding such specified date and (b) an amount equal to the product of (1) the Accreted Value for the immediately following Semi-Annual Accrual Date less the Accreted Value for the immediately preceding Semi-Annual Accrual Date multiplied by (2) a fraction the numerator of which is the number of days from the immediately preceding Semi-Annual Accrual Date to the specified date, using a 360-day year of twelve 30-day months, and the denominator of which is 180; or (iv) If the specified date occurs after the last Semi-Annual Accrual Date, the Accreted Value will equal $1,000. "Acquired Indebtedness" means Indebtedness of a Person (a) existing at the time such Person becomes a Restricted Subsidiary or (b) assumed in connection with the acquisition of assets from such Person, in each case, other than Indebtedness incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary or such acquisition; provided that, for purposes of Section 1011, such Indebtedness shall be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Restricted Subsidiary. 4 "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Adjusted Consolidated Operating Cash Flow" means Consolidated Operating Cash Flow for the latest four fiscal quarters for which consolidated financial statements of Company are available, taken as a whole. For purposes of calculating "Consolidated Operating Cash Flow" for any four fiscal quarter period for purposes of this definition, (i) all Restricted Subsidiaries of the Company on the date of the transaction giving rise to the need to calculate "Adjusted Consolidated Operating Cash Flow" (the "Transaction Date") shall be deemed to have been Restricted Subsidiaries at all times during such four fiscal quarter period and (ii) any Unrestricted Subsidiary on the Transaction Date shall be deemed to have been an Unrestricted Subsidiary at all times during such four fiscal quarter period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated Operating Cash Flow" shall be calculated after giving effect on a pro forma basis for the applicable four fiscal quarter period to, without duplication, (i) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the Company or a Restricted Subsidiary (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the period commencing on the first day of such four fiscal quarter period to and including the Transaction Date (the "Reference Period"), as if such Asset Sale or Asset Acquisition occurred on the first day of the Reference Period and (ii) any incurrence or repayment, retirement or permanent reduction of any Indebtedness of the Company or any Restricted Subsidiary during the Reference Period, as if such incurrence, repayment, retirement or reduction occurred on the first day of the Reference Period. "Affiliate" means, with respect to any specified Person, (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person or (ii) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Voting Stock or any executive officer or director of any such specified Person or other Person or, with respect to any natural Person, any Person having a relationship with such Person by blood, marriage or adoption not more remote than first cousin. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Arianespace Agreement" means, collectively, the two Customer Loan Agreements, each dated July 22, 1997, between the Company and Arianespace S.A., as either such agreement is from time to time amended or supplemented in accordance with its terms. 5 "Asset Acquisition" means (i) any capital contribution (by means of transfers of cash or other property to others or payments for property or services for the account or use of others, or otherwise) by the Company or any Restricted Subsidiary in any other Person, or any acquisition or purchase of Capital Stock of any other Person by the Company or any Restricted Subsidiary, in either case pursuant to which such Person shall become a Restricted Subsidiary or shall be merged with or into the Company or any Restricted Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary of the assets of any Person which constitute substantially all of an operating unit or line of business of such person or which is otherwise outside of the ordinary course of business. "Asset Sale" means any direct or indirect sale, conveyance, transfer or lease (that has the effect of a disposition and is not for security purposes) or other disposition (that is not for security purposes) to any Person other than the Company or a Restricted Subsidiary in one transaction or a series of related transactions, of (i) any Capital Stock of any Restricted Subsidiary, (ii) any material license or other authorization of the Company or any Restricted Subsidiary, (iii) any assets of the Company or any Restricted Subsidiary which constitute substantially all of an operating unit or line of business of the Company and the Restricted Subsidiaries or (iv) any other property or asset of the Company or any Restricted Subsidiary outside of the ordinary course of business. For the purposes of this definition, the term "Asset Sale" shall not include (i) any disposition of properties and assets of the Company that is governed by the provisions of Article Eight, (ii) sales of property or equipment that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any Restricted Subsidiary, as the case may be, (iii) sales of accounts receivable by the Company for cash in an amount at least equal to the fair market value of such accounts receivable, (iv) for purposes of Section 1016 any sale, conveyance, transfer, lease or other disposition of any property or asset, whether in one transaction or a series of related transactions, involving assets with a Fair Market Value not in excess of $250,000 in any twelve-month period and (v) sales of rights to the Company's transmissions outside the continental United States and outside the ordinary course of the Company's business if (a) after giving effect to such sale and for a six month period thereafter, the Company and the Restricted Subsidiaries shall have no Indebtedness outstanding under any Bank Credit Agreement, (b) the consideration received by the Company for such sale is at least 80% cash or Cash Equivalents and (c) the proceeds of such sale are used by the Company for working capital or as provided in clause (i) or (ii) of paragraph (b) of Section 1016. "Attributable Indebtedness" means with respect to an operating lease included in any Sale and Leaseback Transaction at the time of determination, the present value (discounted at the interest rate implicit in the lease or, if not known, at the Company's incremental borrowing rate) of the obligations of the lessee of the property subject to such lease for rental payments during the remaining term of the lease included in such transaction, including any period for which such lease has been extended or may, at the option of the 6 lessor, be extended, or until the earliest date on which the lessee may terminate such lease without penalty or upon payment of penalty (in which case the rental payments shall include such penalty), after excluding from such rental payments all amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water, utilities and similar charges. "Average Life" means, as of the date of determination with respect to any Indebtedness, the quotient obtained by dividing (a) the sum of the products of (i) the number of years from the date of determination to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of each such principal payment by (b) the sum of all such principal payments. "Bank Credit Agreement" means any one or more credit agreements (which may include or consist of revolving credit agreements or similar arrangements) between the Company or any Restricted Subsidiary and one or more banks or other financial institutions providing financing for the business of the Company and its Restricted Subsidiaries. "Bankruptcy Law" means Title 11 of the United States Code, as amended, or any similar United States federal or state law, or any similar law of any other jurisdiction, relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Board of Directors" means the Board of Directors of the Company or any duly authorized committee thereof. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Bond Collateral" has the meaning specified in the definition of Permitted Liens. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations, rights in or other equivalents (however designated) of such Person's capital stock or other equity participations, including partnership interests, whether general or limited, in such Person, including any Preferred Stock, and any 7 rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock, whether now outstanding or issued after the date of this Indenture. "Capitalized Lease Obligation" of any Person means any obligation of such Person and its subsidiaries on a consolidated basis under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of this Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of 180 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System, in each case having combined capital and surplus and undivided profits of not less than $500,000,000; (iii) commercial paper with a maturity of 180 days or less issued by a corporation that is not an Affiliate of the Company and is organized under the laws of any state of the United States or the District of Columbia and rated at least A-1 by S&P or at least P-l by Moody's and (iv) any money market mutual fund organized under the laws of the United States or any state thereof whose assets consist solely of cash or the foregoing instruments. "CD Radio Assets" means all assets, rights, services and properties, whether tangible or intangible, used or intended for use in connection with a CD Radio Business, including, without limitation, satellites, terrestrial repeating stations, uplink facilities, musical libraries and other recorded programming, furniture, fixtures and equipment and telemetry, tracking, monitoring and control equipment. "CD Radio Business" means the business of transmitting digital radio programming throughout the United States by satellite to be received by paying subscribers, including, without limitation, any business in which the Company is engaged on the date of this Indenture, and any business reasonably related thereto. "Change of Control" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total outstanding Voting Stock of the 8 Company; (b) the Company consolidates with, or merges with or into another Person or conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with or merges with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding Voting Stock of the Company is not converted or exchanged at all (except to the extent necessary to reflect a change in the jurisdiction of incorporation of the Company) or is converted into or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation or (B) Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation and cash, securities and other property (other than Capital Stock of the Surviving Entity) in an amount that could be paid by the Company as a Restricted Payment as described under Section 1012 and (ii) immediately after such transaction, no "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total outstanding Voting Stock of the surviving or transferee corporation; (c) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election to such Board of Directors, or whose nomination for election by the stockholders of the Company, was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or a special resolution is passed by the shareholders of the Company approving the plan of liquidation or dissolution other than in a transaction which complies with the provisions of Article Eight. "Closing Price" on any Trading Day with respect to the per share price of any shares of Capital Stock means the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange or, if such shares of Capital Stock are not listed or admitted to trading on such exchange, on the principal national securities exchange on which such shares are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System or, if such shares are not listed or admitted to trading on any national securities exchange or quoted on such automated quotation system but the issuer is a Foreign Issuer (as defined in Rule 3b-4(b) of the Exchange Act) and the principal securities exchange on which such shares are listed or admitted to trading is a Designated Offshore Securities Market (as defined in Rule 902(a) of the Securities Act of 1933, as amended), the average of the reported closing bid and asked 9 prices regular way on such principal exchange, or, if such shares are not listed or admitted to trading on any national securities exchange or quoted on such automated quotation system and the issuer of such shares and/or principal securities exchange or quoted on such automated quotation system and the issuer of such shares and/or principal securities exchange do not meet such requirements, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm that is selected from time to time by the Company for that purpose. "Collateral" means all property in which a security interest is granted or purported to be granted pursuant to the Collateral Documents and not released pursuant to the terms hereof and thereof. "Collateral Agent" means initially IBJ Schroder Bank and Trust Company and thereafter any successor Collateral Agent that is a financial institution in the State of New York selected by the Trustee, acting as the agent and designee of the Trustee pursuant to a Custodian Agreement, that (a) is a financial intermediary (not a clearing corporation) within the meaning of Section 8-313(4) of the Uniform Commercial Code carrying on business in the State of New York, (b) issues (or whose parent issues) commercial paper or certificates of deposit rated as described in clause (c) of the definition of Cash Equivalent, (c) has combined capital and surplus and undivided profits of not less than $500,000,000 and (d) enters into a Custodian Agreement. "Collateral Documents" means the Indenture, Custodian Agreement, Pledge Agreement and the other Collateral Documents referred to therein. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means, with respect to any Person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of such Person's common stock or ordinary shares, whether outstanding 10 at the date of this Indenture, and includes, without limitation, all series and classes of such common stock or ordinary shares. "Company" means the Person named as the "Company" in the first paragraph of this Indenture, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman, its Chief Executive Officer, its President, any Vice President, its Treasurer or an Assistant Treasurer, and delivered to the Trustee. "Consolidated Income Tax Expense" means, with respect to any period, the provision for United States corporation, local, foreign and other income taxes of the Company and the Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, for any period, without duplication, the sum of (a) the interest expense of the Company and the Restricted Subsidiaries for such period, including, without limitation, (i) amortization of original issue discount, (ii) the net cost of Interest Rate Agreements (including amortization of discounts), (iii) the interest portion of any deferred payment obligation (excluding the amortization of fees related to the issuance of the Notes), (iv) accrued interest, (v) the consolidated amount of any interest capitalized by the Company, and (vi) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, plus (b) the interest component of Capitalized Lease Obligations of the Company and the Restricted Subsidiaries paid, accrued and/or scheduled to be paid or accrued during such period, in each case as determined on a consolidated basis in accordance with GAAP, plus (c) cash and non-cash dividends paid on Redeemable Capital Stock by the Company and any Restricted Subsidiary (to any Person other than the Company and any Restricted Subsidiary), in each case as determined on a consolidated basis in accordance with GAAP; provided that the Consolidated Interest Expense attributable to interest on any Indebtedness computed on a pro forma basis and (A) bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period and (B) which was not outstanding during the period for which the computation is being made but which bears, at the option of the Company, a fixed or floating rate of interest, shall be computed by applying, at the option of the Company, either the fixed or the floating rate. "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of the Company and all Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted by excluding, without duplication, (a) any net after-tax extraordinary gains or losses (less all fees and expenses relating thereto), (b) any net after-tax 11 gains or losses (less all fees and expenses relating thereto) attributable to asset dispositions other than in the ordinary course of business, (c) the portion of net income (or loss) of any Person (other than the Company or a Restricted Subsidiary), including Unrestricted Subsidiaries, in which the Company or any Restricted Subsidiary has an ownership interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any Restricted Subsidiary in cash dividends or distributions during such period, (d) net income (or loss) of any Person combined with the Company or any Restricted Subsidiary on a "pooling of interests" basis attributable to any period prior to the date of combination, (e) the net income of any Restricted Subsidiary, to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary is not at the date of determination permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary or its stockholders and (f) any non-cash items of the Company and any Restricted Subsidiary (including monetary corrections) increasing or decreasing Consolidated Net Income for such period (other than items that will result in the receipt or payment of cash). "Consolidated Operating Cash Flow" means, with respect to any period, the Consolidated Net Income of the Company and its Restricted Subsidiaries for such period increased by (in each case to the extent included in computing consolidated Net Income) the sum of (i) the Consolidated Income Tax Expense of the Company and its Restricted Subsidiaries accrued according to GAAP for such period (other than taxes attributable to extraordinary, unusual or non-recurring gains or losses); (ii) Consolidated Interest Expense for such period; (iii) depreciation of the Company and its Restricted Subsidiaries for such period; and (iv) amortization of the Company and its Restricted Subsidiaries for such period, including, without limitation, amortization of capitalized debt issuance costs for such period, all determined on a consolidated basis in accordance with GAAP. "Corporate Trust Office" means the principal corporate trust office of the Trustee, at which at any particular time its corporate trust business shall be administered which office at the date of execution of this Indenture is located at One State Street, 11th Floor, New York, New York 10004, except that with respect to presentation of Notes for payment or for registration of transfer or exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate agency business shall be conducted. "Cumulative Available Cash Flow" means, as at any date of determination, the positive cumulative Consolidated Operating Cash Flow realized during the period commencing on the date of this Indenture and ending on the last day of the most recent fiscal quarter immediately preceding the date of determination for which consolidated financial information of the Company is available or, if such cumulative Consolidated Operating Cash 12 Flow for such period is negative, the negative amount by which cumulative Consolidated Operating Cash Flow is less than zero. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement entered into by a Person that is designed to protect such Person against fluctuations in currency values. "Custodian Agreement" means an agreement between the Trustee and a Collateral Trustee that provides for the holding of the Collateral in accordance with the terms of the Indenture. "Default" means any event that after notice or passage of time or both would be an Event of Default. "Defaulted Interest" has the meaning specified in Section 307. "Depository" has the meaning specified in Section 205. "Disinterested Director" means, with respect to any transaction or series of transactions in respect of which the Board of Directors is required to deliver a resolution of the Board of Directors under this Indenture, a member of the Board of Directors who does not have any material direct or indirect financial interest in or with respect to such transaction or series of transactions. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. "Generally Accepted Accounting Principles" or "GAAP" means generally accepted accounting principles in the United States, consistently applied, that are in effect on the date of this Indenture. "guarantee" means, as applied to any obligation, (a) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (b) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) 13 of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. "Holder" or "Noteholder" means a Person in whose name a Note is registered in the Note Register. "Indebtedness" means, with respect to any Person, without duplication, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (a) all liabilities of such Person for borrowed money (including overdrafts) or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities (including outstanding disbursements) incurred in the ordinary course of business (whether or not evidenced by a note), but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit and acceptances issued under letter of credit facilities, acceptance facilities or other similar facilities, (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (c) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (d) all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred to in (but not excluded from) the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or with respect to property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (f) all guarantees by such Person of Indebtedness referred to in this definition of any other Person, (g) all Redeemable Capital Stock of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends, (h) all obligations of such Person under or in respect of Interest Rate Agreements or Currency Agreements and (i) all Attributable Indebtedness of such Person. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Redeemable Capital Stock, such fair market value shall be determined in good faith by the board of directors of the issuer of such Redeemable Capital Stock. For purposes of Section 1011 and Section 1012 and the definition of "Events of Default", in determining the principal amount of any Indebtedness to be incurred by the Company or a Restricted Subsidiary or which is outstanding at any date, (x) the principal amount of any Indebtedness which 14 provides that an amount less than the principal amount at maturity thereof shall be due upon any declaration of acceleration thereof shall be the Accreted Value thereof at the date of determination and (y) effect shall be given to the impact of any Currency Agreement with respect to such Indebtedness. "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes. "Interest Rate Agreements" means any interest rate protection agreement and other types of interest rate hedging agreements or arrangements (including, without limitation, interest rate swaps, caps, floors, collars and similar agreements) designed to protect against or manage exposure to fluctuations in interest rates in respect of Indebtedness. "Investment" means, with respect to any Person, any direct or indirect advance, loan or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase, acquisition or ownership by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued or owned by any other Person and all other items that would be classified as investments on a balance sheet prepared in accordance with GAAP. In addition, the Fair Market Value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary at such time. "Investments" shall exclude extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. "Lien" means any mortgage, charge, pledge, lien (statutory or otherwise), privilege, security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind, real or personal, movable or immovable, now owned or hereafter acquired. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Loral Satellite Purchase Contract" means the Contract No. SS/L-TP93002-01, dated March 2, 1993, between the Company and Loral Space Systems, Inc., as amended, modified or supplemented from time to time. 15 "Maturity" means, with respect to any Note, the date on which any principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity with respect to such principal or by declaration of acceleration, call for redemption or purchase or otherwise. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations or escrowed funds, but only when received in the form of, or stock or other assets when disposed for, cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage commissions and other fees and expenses (including fees and expenses of legal counsel, accountants, consultants and investment banks) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) payments made to retire Indebtedness where payment of such Indebtedness is secured by the assets or properties the subject of such Asset Sale or becomes due and payable as a result thereof, (iv) amounts required to be paid to any Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale and (v) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an Officers' Certificate delivered to the Trustee and (b) with respect to any capital contribution or issuance or sale of Capital Stock as referred to under Section 1012, the proceeds of such capital contribution, issuance or sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations when received in the form of, or stock or other assets when disposed for, cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary), net of attorney's fees, accountant's fees and brokerage, consultation, financial, advisory, underwriting and other fees and expenses actually incurred in connection with such capital contribution, issuance or sale and net of taxes paid or payable as a result thereof. "Notes" has the meaning stated in the first recital of this Indenture and more particularly means any Notes authenticated and delivered under this Indenture. "Note Register" and "Note Registrar" have the respective meanings specified in Section 305. 16 "Officers' Certificate" means a certificate signed by the Chairman, the Chief Executive Officer, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, including an employee of the Company, and who shall be reasonably acceptable to the Trustee. "Outstanding", when used with respect to Notes, means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: (i) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Notes, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Notes; provided that, if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Notes, except to the extent provided in Sections 1302 and 1303, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article Thirteen; and (iv) Notes which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture, other than any such Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Notes are held by a bona fide purchaser in whose hands the Notes are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Notes have given any request, demand, authorization, direction, consent, notice or waiver hereunder, and for the purpose of making the calculations required by TIA Section 313, Notes owned by the Company or any other obligor upon the Notes or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as 17 Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or such other obligor. "Paying Agent" means any Person (including the Company acting as Paying Agent) authorized by the Company to pay the principal of (and premium, if any) or interest on any Notes on behalf of the Company. "Pari Passu Indebtedness" means Indebtedness of the Company that is pari passu in right of payment to the Notes. "Permitted Holder" means Loral Space & Communications Ltd. and Arianespace S.A. "Permitted Indebtedness" means any of the following: (a) Indebtedness of the Company or any Restricted Subsidiary incurred under any one or more Bank Credit Agreements or Vendor Credit Facilities, in an aggregate principal amount not to exceed $50 million at any one time outstanding; (b) Indebtedness of the Company incurred under the Arianespace Agreement and Loral Satellite Purchase Contract, in an aggregate principal amount not to exceed $145 million at any one time outstanding; (c) Indebtedness of the Company pursuant to the Notes or the Warrants or of any Restricted Subsidiary pursuant to a guarantee of the Notes; (d) Indebtedness of the Company or any Restricted Subsidiary outstanding on the date of this Indenture and listed on a schedule thereto; (e) Indebtedness of the Company owing to any Restricted Subsidiary; provided that any Indebtedness of the Company owing to any such Restricted Subsidiary is subordinated in right of payment to the Notes from and after such time as the Notes shall become due and payable (whether at Stated Maturity, acceleration or otherwise) to the payment and performance of the Company's obligations under the Notes; provided further that any disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to the Company or another Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the Company not permitted by this clause (e); (f) Indebtedness of a Restricted Subsidiary owing to the Company or to a Restricted Subsidiary, provided that any disposition, pledge or transfer of any such 18 Indebtedness to a Person (other than a disposition, pledge or transfer to the Company or a Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness by such Restricted Subsidiary not permitted by this clause (f); (g) obligations of the Company entered into in the ordinary course of business (i) pursuant to bona fide Interest Rate Agreements designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates in respect of Indebtedness of the Company or any Restricted Subsidiary, which obligations do not exceed the aggregate principal amount of such Indebtedness, and (ii) pursuant to bona fide Currency Agreements entered into by the Company or any of its Restricted Subsidiaries and designed to protect such Person against fluctuation in currency values in respect of its (x) assets or (y) obligations; (h) Capitalized Lease Obligations and Purchase Money Obligations of the Company, the aggregate value (in the case of Capitalized Lease Obligations) or principal amount (in the case of Purchase Money Obligations) of which (including any refinancings (as defined in clause (l) below) thereof) does not exceed $20 million at any one time outstanding, less the amount of any Capitalized Lease Obligations and Purchase Money Obligations outstanding which are included in the amount of Indebtedness permitted under clause (d) above; (i) (x) Indebtedness of the Company incurred on or prior to December 31, 2000 such that, after giving effect to the incurrence thereof, the total aggregate principal amount of Indebtedness incurred under this clause (i)(x) and any refinancings thereof pursuant to clause (l) below would not exceed 125% of the Total Incremental Equity; and (y) Indebtedness incurred by the Company after December 31, 2000 such that, after giving effect to the incurrence thereof, the total aggregate principal amount of Indebtedness incurred under this clause (i)(y) and any refinancings thereof pursuant to clause (l) below would not exceed the sum of (1) 125% of the Total Incremental Equity on December 31, 2000 plus the total aggregate principal amount of Indebtedness incurred under clause (i)(x) and any refinancings thereof pursuant to clause (l) below, and (2) 100% of the difference between the Total Incremental Equity on the date of incurrence and the Total Incremental Equity on December 31, 2000. (j) Indebtedness incurred (i) by the Company in an aggregate principal amount not to exceed $60 million at any one time outstanding to finance the operation of CD Radio Assets or the construction, expansion, development or acquisition of music libraries and other recorded programming, furniture, fixtures and equipment, provided that immediately prior to incurring such Indebtedness the Total Incremental Equity shall equal or exceed $40 million and (ii) by the Company or any Restricted Subsidiary to finance the purchase, construction, launch, insurance and other costs 19 with respect to Satellite Assets for use in the CD Radio Business; provided that the net cash proceeds from the issuance of such Indebtedness does not exceed, as of the date of incurrence of such Indebtedness, 100% of the cost of such Satellite Assets less the aggregate principal amount of Indebtedness outstanding that was incurred to finance Satellite Assets; (k) unsecured Indebtedness of the Company incurred to finance the operation of CD Radio Assets or the construction, expansion, development or acquisition of music libraries and other recorded music programming, furniture, fixtures and equipment if such Indebtedness has an Average Life longer than the Average Life of the Notes and has a Final Stated Maturity after the Final Stated Maturity of the Notes; (l) in addition to the items referred to in clauses (a) through (k) above, Indebtedness of the Company having an aggregate principal amount not to exceed $15 million at any time outstanding; and (m) Indebtedness of the Company or any Restricted Subsidiary to the extent it represents a replacement, renewal, refinancing, refunding or extension of outstanding Indebtedness of the Company or any Restricted Subsidiary incurred or outstanding pursuant to clauses (b), (c), (d), (i), (j)(ii) and (k) of this definition or the proviso of Section 1011; provided that (i) Indebtedness of the Company may not be replaced, renewed, refinanced, refunded or extended to such extent under this clause (l) with Indebtedness of any Restricted Subsidiary and (ii) any such replacement, renewal, refinancing, refunding or extension (x) shall not result in a lower Average Life of such Indebtedness as compared with the Indebtedness being replaced, renewed, refinanced, refunded or extended, (y) shall not exceed the sum of the principal amount (or, if such Indebtedness provides for a lesser amount to be due and payable upon a declaration of acceleration thereof, an amount no greater than such lesser amount) of the Indebtedness being replaced, renewed, refinanced, refunded or extended plus the amount of accrued interest thereon and the amount of any reasonably determined prepayment premium necessary to accomplish such replacement, renewal, refinancing, refunding or extension and the reasonable fees and expenses incurred in connection therewith, and (z) in the case of any replacement, renewal, refinancing, refunding or extension by the Company of Pari Passu Indebtedness or Subordinated Indebtedness, such new Indebtedness is made pari passu with or subordinate to the Notes, at least to the same extent as the Indebtedness being replaced, renewed, refinanced or extended. "Permitted Investments" means (a) Cash Equivalents; (b) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers' compensation, performance and other similar deposits; (c) loans and advances to employees made in the ordinary course of business; (d) Interest Rate Agreements and Currency Agreements; (e) bonds, notes, debentures or other securities received as a result of Asset Sales permitted under Section 1016, provided that the Company and/or the Restricted 20 Subsidiaries, as the case may be, have received at least 80% of the aggregate consideration therefrom in cash or Cash Equivalents; (f) Investments by the Company or any Restricted Subsidiary in another Person, if as a result of such Investment (i) such other Person becomes a Restricted Subsidiary or (ii) such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to, the Company or a Restricted Subsidiary; (g) Investments in the Company or in any Restricted Subsidiary and (h) investments not otherwise permitted by the foregoing clauses (a) through (g) in an amount not to exceed $5.0 million at any one time outstanding. "Permitted Liens" means the following types of Liens: (a) Liens existing on the date of this Indenture; (b) Liens securing Indebtedness under any Vendor Credit Facility or Bank Credit Agreement incurred pursuant to clause (a) of the definition of Permitted Indebtedness so long as such Liens do not extend to (i) shares of Satellite CD Radio Inc. or any License owned by Satellite CD Radio Inc. that is required to operate a CD Radio business ("Bond Collateral"); (c) Liens securing Indebtedness under the Arianespace Agreement and the Loral Satellite Purchase Contract; (d) Liens on any property or assets of a Restricted Subsidiary granted in favor of the Company or any other Restricted Subsidiary; (e) Liens securing the Notes; (f) Liens securing Acquired Indebtedness created prior to (and not in connection with or in contemplation of) the incurrence of such Indebtedness by the Company or any Restricted Subsidiary; provided that such Lien does not extend to any property or assets of the Company or any Restricted Subsidiary other than the assets acquired in connection with the incurrence of such Acquired Indebtedness; (g) any interest or title of a lessor under any Capitalized Lease Obligation or any Purchase Money Obligation, in each case as permitted under clause (h) of the definition of "Permitted Indebtedness", and Liens securing Indebtedness incurred pursuant to clause (j)(ii) of the definition of Permitted Indebtedness to finance the purchase, acquisition, construction or launch of a satellite that is not one of the first three satellites acquired or constructed by the Company so long as such Lien does not extend to any property or assets of the Company or any Restricted Subsidiary other than the satellite financed; (h) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of 21 business of the Company or any Restricted Subsidiary and with respect to amounts not yet delinquent or being contested in good faith by appropriate proceeding promptly instituted and diligently proceeding and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (i) Liens for taxes, assessments, government charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (j) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance bonds and other obligations of a like nature incurred in the ordinary course of business (other than contracts for the payment of money); (k) easements, rights-of-way, encroachments and survey defects restrictions and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any Restricted Subsidiary incurred in the ordinary course of business; (l) Liens arising by reason of any judgment, decree or order of any court or arbitration proceeding so long as such Lien is adequately bonded and any appropriate legal proceedings that may have been duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (m) Liens securing obligations of the Company under Interest Rate Agreements or Currency Agreements or any collateral (other than Bond Collateral) for the Indebtedness to which such Interest Rate Agreements or Currency Agreements relate; (n) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (o) Liens securing reimbursement obligations of the Company or any Restricted Subsidiary with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof so long as such Liens do not extend to Bond Collateral; 22 (p) any extension, renewal or replacement, in whole or in part, of any Lien described in the foregoing clauses (a), (b), (c) (with respect to extensions, renewals or replacements either (i) securing Indebtedness incurred to Arianespace S.A., Loral Space Systems Inc. or any of their Affiliates or (ii) on assets that are not Bond Collateral) or (d) through (o); provided that any such extension, renewal or replacement shall be no more restrictive in any material respect than the Lien so extended, renewed or replaced and shall not extend to any additional property or assets; (q) Liens on Bond Collateral securing Indebtedness of the Company incurred pursuant to clause (i), (j) (i) or (l) of the definition of Permitted Indebtedness or Indebtedness incurred pursuant to the proviso of Section 1011 (other than Permitted Indebtedness); provided that each such Lien shall be equal and ratable in priority to the Lien on the Bond Collateral securing the Notes; and (r) Liens incurred in the ordinary course of business of the Company or any shareholder Restricted Subsidiary with respect to obligations that do not exceed $5 million at any one time outstanding. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Pledge Agreement" means the Pledge Agreement dated as of November __, 1997 from CD RADIO INC., as Pledgor, to IBJ SCHRODER BANK & TRUST COMPANY, as Collateral Agent, as amended, modified or supplemented from time to time. "Pledged Stock" means the capital stock of Satellite CD Radio Inc., a Delaware Corporation, that is pledged to secure the Notes. "Predecessor Note" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 306 in exchange for a mutilated security or in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's preferred or preference stock whether now outstanding, or issued after the Closing Date, and including, without limitation, all classes and series of preferred or preference stock of such Person. 23 "Purchase Money Obligations" means Indebtedness of the Company or any Restricted Subsidiary (i) issued to finance or refinance the purchase or construction of any assets of the Company or any Restricted Subsidiary, (ii) issued to finance the construction of satellite dish antennas or radio adapters to receive the Company's services or (iii) secured by a Lien on any assets of the Company or any Restricted Subsidiary where the lender's sole recourse is to the assets so encumbered, (a) in the case of clauses (i) or (iii) above, to the extent the purchase or construction prices for such assets are or should be included in "addition to property, plant or equipment" in accordance with GAAP and (b) in each case, if the purchase or construction of such assets is not part of any acquisition of a Person or business unit. "Qualified Capital Stock" of any person means any and all Capital Stock of such person other than Redeemable Capital Stock. "Redeemable Capital Stock" means any class or series of Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is, or upon the happening of an event or passage of time would be, required to be redeemed prior to the final Stated Maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to such final Stated Maturity, or is convertible into or exchangeable for debt securities at any time prior to such final Stated Maturity; provided, however, that Redeemable Capital Stock shall not include any Common Stock the holder of which has a right to put to the Company upon certain terminations of employment and provided further that any class or series of Capital Stock that would not constitute Redeemable Capital Stock but for provisions thereof giving holders thereof the right to require the issuer of such Capital Stock to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the final Stated Maturity of the Notes shall not constitute Redeemable Capital Stock if the "asset sale" or "change of control" provisions applicable to such class or series of Capital Stock are no more favorable to the holders of such Capital Stock in any material respect than the provisions of Section 1010 and Section 1016 and such class or series of Capital Stock specifically provides that the issuer of such Capital Stock will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Notes as are required to be purchased pursuant to Section 1010 and Section 1016, as applicable. "Redemption Date", when used with respect to any Note to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Note to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. 24 "Regular Record Date" for the interest payable on any Interest Payment Date means the [ ] or [ ] (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Responsible Officer", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above-designated officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Subsidiary" means a Subsidiary other than an Unrestricted Subsidiary. "S&P" means Standard and Poor's Ratings Services, a division of McGraw-Hill, Inc. and its successors. "Sale and Leaseback Transaction" means an arrangement by the Company or a Restricted Subsidiary with any lender or investor or to which such lender or investor is a party providing for the leasing by the Company or such Restricted Subsidiary of any property or asset of the Company or such Restricted Subsidiary which has been or is being sold or transferred by the Company or such Restricted Subsidiary not more than 270 days after the acquisition thereof to such lender or investor or any Affiliate thereof or to any Person to whom funds have been or are to be advanced by such lender or investor or any Affiliate thereof on the security of such property or asset. "Satellite Assets" means satellites, terrestrial repeating stations, uplink facilities and telemetry, tracking, monitoring and control equipment. "Secured Debt" means, as of any date, (i) the unpaid principal of, and any accrued interest and premiums on, the Indebtedness then outstanding under the Arianespace Agreement, Loral Satellite Purchase Contract and any Indebtedness secured by a Lien permitted by clause (q) of the definition of Permitted Liens, and (ii) fees, expenses and charges (including, without limitation, indemnification obligations) due or owing to any Secured Party arising under this Agreement or any Collateral Document. "Secured Party" means Arianespace S.A., Loral Space Systems, Inc., holders of Indebtedness secured by a Lien permitted by clause (q) of the definition of Permitted 25 Liens and the Trustee or any other obligee or indemnified party under any Collateral Document. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity" means, when used with respect to any Note or any installment of interest thereon, the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable, and, when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. "Stock Offerings" means (i) the offering of 2,240,000 shares of Common Stock in the United States and Canada and (ii) the offering of 560,000 shares of Common Stock outside the United States and Canada, both of which offerings are registered under the Securities Act on a From S-3 Registration Statement (No. 333-34767). "Strategic Equity Investor" means any company which is (or a controlled Affiliate of any company which is or a controlled affiliate of which is) engaged principally in the CD Radio Business or the satellite launch or manufacturing, broadcasting, programming production, satellite broadcasting, automotive manufacturing, automotive dealership, telecommunications or other business reasonably related to the foregoing which has a Total Market Capitalization of at least $1.0 billion. "Subordinated Indebtedness" means Indebtedness of the Company that is expressly subordinated in right of payment to the Notes. "Subsidiary" means any Person a majority of the equity ownership or Voting Stock of which is at the time owned, directly or indirectly, by the Company or by one or more other Subsidiaries or by the Company and one or more other Subsidiaries. "Total Consolidated Indebtedness" means, at any date of determination, an amount equal to the aggregate amount of all Indebtedness of the Company and the Restricted Subsidiaries outstanding as of the date of determination. "Total Incremental Equity" means, at any date of determination, the sum of, without duplication (i) the aggregate cash proceeds received by the Company after the date of this Indenture from the issuance or sale of Qualified Capital Stock of the Company (including Capital Stock issued upon the conversion of convertible Indebtedness or from the exercise of options, warrants or rights to purchase Qualified Capital Stock of the Company) to any Person other than a Restricted Subsidiary; plus (ii) an amount equal to the sum of (1) the net 26 reduction in Investments in any Person (other than the Permitted Investments) resulting from the payment in cash of dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary after the date of this Indenture from such Person and (2) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that in the case of (1) or (2) above the foregoing sum shall not exceed the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary and that constitutes a Restricted Payment that has been deducted from Total Incremental Equity pursuant to clause (iii) below, minus (iii) the aggregate amount of all Restricted Payments declared or made on or after the date of this Indenture and minus (iv) the aggregate amount paid pursuant to clauses (i), (ii), (iii), (iv) and (vi) of the second paragraph of Section 1012. "Total Market Capitalization" of any Person means, at the time of determination, the sum of (a) the consolidated Indebtedness of such Person, plus (b) the product of (i) the aggregate number of outstanding primary shares of Common Stock of such person (which shall not include any options or warrants on, or securities convertible or exchangeable into, shares of Common Stock of such person) and (ii) the average Closing Price of such Common Stock over the preceding 20 consecutive Trading Days, plus (c) the liquidation value of any outstanding shares of Preferred Stock of such Person. If no such Closing Price exists with respect to shares of any such class, the value of such shares for purposes of clause (b) of the preceding sentence shall be determined by the Board of Directors in good faith and evidenced by a Board Resolution filed with the Trustee. "Trading Day" with respect to a securities exchange or automated quotation system means a day on which such exchange or system is open for a full day of trading. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee "Unrestricted Subsidiary" means (a) any Subsidiary that at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors, as provided below) and (b) any subsidiary of an Unrestricted Subsidiary; provided, however, that in no event shall any Person that is a Restricted Subsidiary on the date of this Indenture become an Unrestricted Subsidiary. The Board of Directors may designate any newly acquired or newly formed Subsidiary to be an Unrestricted Subsidiary so long as (i) neither the Company nor any Restricted Subsidiary is directly or indirectly liable for any 27 Indebtedness of such Subsidiary, (ii) no default with respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity, (iii) neither the Company nor any Restricted Subsidiary has a contract, agreement, arrangement, understanding or obligation of any kind, whether written or oral, with such Subsidiary other than those that might be obtained at the time from persons who are not Affiliates of the Company and (iv) neither the Company nor any Restricted Subsidiary has any obligation (1) to subscribe for additional shares of Capital Stock or other equity interest in such Subsidiary or (2) to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing a board resolution with the Trustee giving effect to such designation. The Board of Directors may designate any Unrestricted Subsidiary as a Restricted Subsidiary if immediately after giving effect to such designation, there would be no Default or Event of Default under this Indenture and the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 1011. "Vendor Credit Facility" means any credit facility (other than the Arianespace Agreement and the Loral Satellite Purchase Contract) entered into with any vendor or supplier (or any financial institution acting on behalf of such a vendor or supplier); provided that the Indebtedness thereunder is incurred solely for the purpose of financing the cost (including the cost of design, development, construction, or integration) of CD Radio Assets. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Voting Stock" means, with respect to any Person, any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). SECTION 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) 28 relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 1008(a)) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel 29 knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 104. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) The principal amount at maturity and serial numbers of Notes held by any Person, and the date of holding the same, shall be proved by the Note Register. (d) If the Company shall solicit from the Holders of Notes any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than 30 the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Notes have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Notes shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 105. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 106. Notice to Holders; Waiver. Where this Indenture provides for notice of any event to Holders by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, 31 nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. SECTION 107. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 108. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 109. Separability Clause. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 110. Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any Notes Registrar and their successors hereunder, and the Holders any benefit or any legal or equitable right, remedy or claim under this Indenture. 32 SECTION 111. Governing Law. This Indenture and the Notes shall be governed by and construed in accordance with the law of the State of New York. This Indenture is subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 112. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Stated Maturity or Maturity of any Note shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes) payment of principal (or premium, if any) or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity or Maturity; provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Stated Maturity or Maturity, as the case may be, to the next Business Day. ARTICLE TWO NOTE FORMS SECTION 201. Form of Note and Trustee's Certificate of Authentication. The Notes and the Trustee's certificate of authentication shall be in substantially the forms set forth in Exhibit A, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Notes, as evidenced by their execution of the Notes. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note. The definitive Notes shall be printed, lithographed or engraved on steel-engraved borders or may be produced in any other manner, all as determined by the officers of the Company executing such Notes, as evidenced by their execution of such Notes. 33 SECTION 202. Notes Issued in Global Form. (a) If so specified in the Company Order referred to in Section 303, the Notes may be issued in the form of one or more global Notes, registered in the name of a securities depository (the "Depository") or its nominee, representing all the Outstanding Notes. (b) Subject to the provisions of Section 303 and, if applicable, Section 304, the Trustee shall deliver and redeliver any Note in global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 303 or Section 304 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a Note in global form shall be in writing but need not comply with Section 102 and need not be accompanied by an Opinion of Counsel. (c) Notwithstanding the provisions of Section 307, payment of principal of (and premium, if any) and interest on any Note in global form shall be made to the Person or Persons specified therein. Notwithstanding the provisions of Section 308 and except as provided in the preceding sentence, the Company, the Trustee and any agent of the Company and the Trustee shall treat the Holder of any global Note as the owner of such Note for the purpose of receiving payment of principal of (and premium, if any, on) and interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. (d) If at any time, (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository or if at any time the Depository shall no longer be registered or in good standing under the Exchange Act or other applicable statute or regulation and a successor Depository is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, or (ii) any Event of Default shall have occurred and be continuing and Holders of more than 25% in principal amount of the Notes Outstanding represented by one or more global Notes advise the Trustee that the continuation of a book-entry system through the Depository (or a successor thereto) with respect to the Notes is no longer required, then in such event this Section 205 shall no longer be applicable to the Notes and the Company will execute and the Trustee, upon Company Request, will authenticate and deliver Notes in definitive registered form, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the global Note or Notes in exchange for such global Note whereupon the global Note or Notes shall be cancelled by the Trustee. Such Notes in definitive registered form issued in exchange for the global Note or Notes pursuant to this Section 205(d) shall be registered in such names and issued in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall 34 instruct the Trustee. The Trustee shall deliver such Notes to the Persons in whose names such Notes are so registered. ARTICLE THREE THE NOTES SECTION 301. Title and Terms. The aggregate principal amount at maturity of Notes which may be authenticated and delivered under this Indenture is limited to $296,930,000, which includes Notes issuable upon exercise of the Warrants, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 304, 305, 306, 906, 1010, 1016 or 1108. The Notes shall be known and designated as the "[ ]% Senior Secured Discount Notes due 2007" of the Company. Their Stated Maturity shall be [ ], 2007, and they shall bear interest at the rate of [ ]% per annum from [ ], 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, payable on [ ], 2002 and semi-annually thereafter on [ ] and [ ] in each year and at said Stated Maturity, until the principal thereof is paid or duly provided for. The principal of this Note shall not accrue interest until [ ], 2002, except in the case of a default in payment of the amount due at Maturity, in which case the amount due on this Note shall bear interest at a rate of [ ]% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default to the date the payment of such amount has been made or duly provided for. Interest on any overdue principal amount shall be payable on demand. The principal of (and premium, if any) and interest on the Notes shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose; provided, however, that at the option of the Company interest may be paid by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Note Register. The Notes shall be redeemable as provided in Article Eleven. SECTION 302. Denominations. The Notes shall be issuable only in registered form without coupons. 35 SECTION 303. Execution, Authentication, Delivery and Dating. The Notes shall be executed on behalf of the Company by its Chairman, its Chief Executive Officer, its President or a Vice President, and attested by its Secretary or an Assistant Secretary. The signature of any of these officers on the Notes may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Notes. Notes bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Notes executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Notes, and the Trustee in accordance with such Company Order shall authenticate and deliver such Notes. Each Note shall be dated the date of its authentication. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. In case the Company, pursuant to Article Eight, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Notes authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Notes executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Notes surrendered for such exchange and of like principal amount at maturity; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Notes as specified in such request for the purpose of such exchange. If Notes shall at any time be authenticated and delivered in 36 any new name of a successor Person pursuant to this Section 303 in exchange or substitution for or upon registration of transfer of any Notes, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Notes at the time Outstanding for Notes authenticated and delivered in such new name. SECTION 304. Temporary Notes. Pending the preparation of definitive Notes, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as conclusively evidenced by their execution of such Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for such purpose pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount at maturity of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. SECTION 305. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes referred to as the "Note Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. The Note Register shall be in written form or any other form capable of being converted into written form within a reasonable time. At all reasonable times, the Note Register shall be open to inspection by the Trustee. The Trustee is hereby initially appointed as note registrar (the "Note Registrar") for the purpose of registering Notes and transfers of Notes as herein provided. Upon surrender for registration of transfer of any Note at the office or agency of the Company designated pursuant to Section 1002, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denomination or denominations of a like aggregate principal amount at maturity. 37 At the option of the Holder, Notes may be exchanged for other Notes of any authorized denomination and of a like aggregate principal amount at maturity, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Note Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Note Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange or redemption of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 304, 906, 1010, 1016 or 1108 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the selection of Notes to be redeemed under Section 1104 and ending at the close of business on the day of such mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes. If (i) any mutilated Note is surrendered to the Trustee, or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor and principal amount at maturity, bearing a number not contemporaneously outstanding. 38 In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. Upon the issuance of any new Note under this Section 306, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Note issued pursuant to this Section 306 in lieu of any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section 306 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 307. Payment of Interest; Interest Rights Preserved. Interest on any Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 1002; provided, however, that each installment of interest may at the Company's option be paid by (i) mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 308, to the address of such Person as it appears in the Note Register or (ii) transfer to an account located in the United States maintained by the payee. Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Notes (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a Special Record Date for the payment of such 39 Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date, and in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to the Holders in the manner provided for in Section 106, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so given, such Defaulted Interest shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section 307, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. SECTION 308. Persons Deemed Owners. Prior to the due presentment of a Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 305 and 307) interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, 40 and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. Cancellation. All Notes surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Notes previously authenticated hereunder which the Company has not issued and sold, and all Notes so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Notes, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section 309, except as expressly permitted by this Indenture. All cancelled Notes held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures and certification of their disposal delivered to the Company unless by Company Order the Company shall direct that cancelled Notes be returned to it. SECTION 310. Computation of Interest. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Notes expressly provided for herein or pursuant hereto) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when 41 (1) either (a) all Notes theretofore authenticated and delivered (other than (i) Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Notes for whose payment money has theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (b) all such Notes not theretofore delivered to the Trustee for cancellation (i) have become due and payable, (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for Accreted Value of, premium, if any, and interest on the Notes to the date of such deposit (in the case of Notes which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable under this Indenture, the Notes and the Collateral Documents by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided in this Indenture relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 606 and, if money shall have been deposited 42 with the Trustee pursuant to subclause (ii) of clause (1) of this Section 401, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the Accreted Value of, premium, if any, and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. ARTICLE FIVE REMEDIES SECTION 501. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest on any Note when it becomes due and payable, and continuance of such default for a period of 30 days; (2) default in the payment of the principal of or premium, if any, on any Note at its Maturity; (3) default in the performance, or breach, of the provisions of Article Eight, the failure to make or consummate a Change of Control Offer in accordance with the provisions of Section 1010 or the failure to make or consummate an Excess Proceeds Offer in accordance with the provisions of Section 1016; (4) default in the performance, or breach, of any covenant or agreement of the Company in this Indenture (other than a default in the performance, or breach, of a covenant or warranty which is specifically dealt with elsewhere in this Indenture), and continuance of such default or breach for a period of 30 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the 43 Company and the Trustee by the Holders of at least 25% in principal amount at maturity of the Outstanding Notes a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; (5) any provision of the Collateral Documents shall cease, for any reason, to be in full force and effect in any material respect, or the Company shall so assert in writing; or the Trustee shall cease to have a first priority perfected security interest, for the benefit of the Trustee and the Holders, in the Collateral (other than by reason of the release of any such security interest in accordance with the Collateral Documents), or any representation, warranty or certification of the Company made in or pursuant to the Collateral Documents shall be false in any material respect as of the date when made; (6) (A) there shall have occurred one or more defaults in the payment of the principal of or premium, if any, on Indebtedness of the Company or any Subsidiary aggregating $5.0 million or more, when the same becomes due and payable at the Stated Maturity thereof, and such default or defaults shall have continued after any applicable grace period and shall not have been cured or waived or (B) Indebtedness of the Company or any Subsidiary aggregating $5.0 million or more shall have been accelerated or otherwise declared due and payable, or required to be prepaid or repurchased (other than by regularly scheduled required prepayment), prior to the Stated Maturity thereof; (7) one or more final judgments, orders, or decrees of any court or regulatory agency shall be rendered against the Company or any Subsidiary or their respective properties which require the payment in money, either individually or in an aggregate amount, that is more than $5.0 million and either (A) an enforcement proceeding shall have been commenced by any creditor upon such judgment or order or (B) there shall have been a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of pending appeal or otherwise, was not in effect; (8) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company or any Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Subsidiary under any Bankruptcy Law or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or 44 (9) the institution by the Company or any Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any Bankruptcy Law or any other applicable federal or state law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due. SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 501(8) or (9)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount at maturity of the Outstanding Notes by written notice to the Company (and to the Trustee if such notice is given by the Holders), may, and the Trustee upon the written request of such Holders shall, declare the Accreted Value of, premium, if any, and accrued interest on all of the Outstanding Notes immediately due and payable, and upon any such declaration all such amounts payable in respect of the Notes shall become immediately due and payable. If an Event of Default specified in Section 501(8) or (9) occurs and is continuing, then the Accreted Value of, premium, if any, and accrued interest on all of the Outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article Five, the Holders of a majority in principal amount at maturity of the Outstanding Notes, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay, (i) all overdue interest on all Outstanding Notes, (ii) all unpaid Accreted Value of and premium, if any, on any Outstanding Notes that have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, 45 (iii) to the extent that payment of such interest is lawful, interest on overdue interest and overdue principal at the rate borne by the Notes, and (iv) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (b) all Events of Default, other than the non-payment of amounts of principal of, premium, if any, or interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. Notwithstanding the preceding paragraph, in the event of a declaration of acceleration in respect of the Notes because of an Event of Default specified in Section 501(5) shall have occurred and be continuing, such declaration of acceleration shall be automatically annulled if the Indebtedness that is the subject of such Event of Default has been discharged or the Holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness, and written notice of such discharge or rescission, as the case may be, shall have been given to the Trustee by the Company and countersigned by the holders of such Indebtedness or a trustee, fiduciary or agent for such holders, within 30 days after such declaration of acceleration in respect of the Notes, and no other Event of Default has occurred during such 30-day period which has not been cured or waived during such period. SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (a) default is made in the payment of any installment of interest on any Note when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of (or premium, if any, on) any Note at the Maturity thereof, the Company will, upon demand of the Trustee, pay to the Trustee for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal (and premium, if any) and interest, and interest on any overdue principal (and premium, if 46 any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installment of interest, at the rate borne by the Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Notes or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; 47 and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 606. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 505. Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article Five shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 606; SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal (and premium, if any) and interest, respectively; and THIRD: The balance, if any, to the Person or Persons entitled thereto. 48 SECTION 507. Limitation on Suits. No Holder of any Notes shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount at maturity of the Outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority or more in principal amount at maturity of the Outstanding Notes; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment, as provided herein (including, if applicable, Article Thirteen) and in such Note of the principal of (and premium, if any) and (subject to Section 307) interest on such Note on the respective Stated Maturities expressed in such Note (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. 49 SECTION 509. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Five or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. Control by Holders. The Holders of not less than a majority in principal amount at maturity of the Outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and 50 (3) the Trustee need not take any action which might involve it in personal liability or be unjustly prejudicial to the Holders not consenting. SECTION 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount at maturity of the Outstanding Notes may, on behalf of the Holders of all the Notes, waive any past defaults under this Indenture and their consequences, except a default (1) in respect of the payment of the principal of (or premium, if any) or interest on any Note, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Note affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 514. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX THE TRUSTEE SECTION 601. Notice of Defaults. Within 30 days after the Trustee receives notice of the occurrence of any Default or an Event of Default hereunder, the Trustee shall transmit in the manner and to the extent provided in TIA Section 313(c), notice of such Default hereunder known to the 51 Trustee, unless such Default or Event of Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of (or premium, if any) or interest on any Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders; and provided further that in the case of any Default of the character specified in Section 501(4) no such notice to Holders shall be given until at least 30 days after the occurrence thereof. SECTION 602. Certain Rights of Trustee. Subject to the provisions of TIA Sections 315(a) through 315(d): (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction reasonably satisfactory to the Trustee; 52 (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and (9) the permissive right of the Trustee to act hereunder will not be construed as a duty. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes. The recitals contained herein and in the Notes, except for the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Notes and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility on Form T-1 supplied to the Company are true and accurate, subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of Notes or the proceeds thereof. 53 SECTION 604. May Hold Notes. The Trustee, any Paying Agent, any Note Registrar or any other agent of the Company or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Note Registrar or such other agent. SECTION 605. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 606. Compensation and Reimbursement. The Company agrees: (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its gross negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligations of the Company under this Section 606 to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. As security for the performance of such obligations of the Company, the Trustee shall have a claim prior to the 54 Notes upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Notes. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(7) or (8), the expenses (including the reasonable charges and expenses of its counsel) of and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law. The provisions of this Section 606 shall survive the termination of this Indenture. SECTION 607. Corporate Trustee Required; Eligibility; Conflicting Interests. There shall be at all times a Trustee hereunder which shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of Federal, State, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section 607, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 607, it shall resign immediately in the manner and with the effect hereinafter specified in this Article Six. SECTION 608. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article Six shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 609. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 609 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of not less than a majority in principal amount at maturity of the Outstanding Notes, delivered to the Trustee and to the Company. 55 (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, or (2) the Trustee shall cease to be eligible under Section 607 and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, by a Board Resolution, may remove the Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount at maturity of the Outstanding Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders of Notes in the manner provided for in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. 56 SECTION 609. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article Six. SECTION 610. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article Six, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. In case at that time any of the Notes shall not have been authenticated, any successor Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor Trustee. In all such cases such certificates shall have the full force and effect which this Indenture provides for the certificate of authentication of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Notes in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. 57 ARTICLE SEVEN HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Disclosure of Names and Addresses of Holders. Every Holder of Notes, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company or the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with TIA Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). SECTION 702. Reports by Trustee. Within 60 days after May 15 of each year commencing with the first May 15 after the first issuance of Notes, the Trustee shall transmit to the Holders, in the manner and to the extent provided in TIA Section 313(c), a brief report dated as of such May 15 if required by TIA Section 313(a). SECTION 703. Reports by Company. The Company shall: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with 58 the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit by mail to all Holders, in the manner and to the extent provided in TIA Section 313(c), within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section 703 as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. Company May Consolidate, Etc. Only on Certain Terms. The Company will not in a single transaction or a series of related transactions consolidate with or merge with or into any other Person or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to any Person or Persons, and the Company will not permit any Restricted Subsidiary to enter into any such transaction, or series of transactions, if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries on a consolidated basis to any Person or Persons, unless: (i) either (a) the Company shall be the surviving corporation or (b) the Person (if other than the Company) formed by such consolidation or into which the Company or the Company and its Restricted Subsidiaries is merged or the Person which acquires by sale, conveyance, transfer, lease or other disposition, all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, as the case may be, (the "Surviving Entity") (1) shall be a corporation organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and 59 (2) shall expressly assume, by an indenture supplemental to this Indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, the Company's obligations for the due and punctual payment of the principal of (or premium, if any, on) and interest on all the Notes and the performance and observance of every covenant of this Indenture on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any obligation of the Company or any Restricted Subsidiary in connection with or as a result of such transaction as having been incurred of the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction or series of transactions on a pro forma basis (on the assumption that the transaction or series of transactions occurred on the first day of the latest four fiscal quarters for which consolidated financial statements of the Company are available prior to the consummation of such transaction or series of transactions with the appropriate adjustments with respect to the transaction or series of transactions, including the incurrence and repayment of any Indebtedness incident to such transaction, being included in such pro forma calculation), the Company (or the Surviving Entity if the Company is not the continuing obligor under this Indenture) could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the proviso to Section 1011; (iv) if any of the property or assets of the Company or any of its Restricted Subsidiaries would thereupon become subject to any Lien, the provisions of Section 1015 are complied with; and (v) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition and such supplemental indenture comply with this Article Eight and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 802. Successor Substituted. Upon any consolidation of the Company with or merger of the Company with or into any other corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person in accordance with Section 801, 60 the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and in the event of any such conveyance or transfer, the Company (which term shall for this purpose mean the Person named as the "Company" in the first paragraph of this Indenture or any successor Person which shall theretofore become such in the manner described in Section 801), except in the case of a lease, shall be discharged of all obligations and covenants under this Indenture and the Notes and may be dissolved and liquidated. SECTION 803. Notes to Be Secured in Certain Events. If, upon any such consolidation of the Company with or merger of the Company into any other corporation, or upon any conveyance, lease or transfer of the property of the Company substantially as an entirety to any other Person, any property or assets of the Company would thereupon become subject to any Lien, then unless such Lien could be created pursuant to Section 1015 without equally and ratably securing the Notes, the Company, prior to or simultaneously with such consolidation, merger, conveyance, lease or transfer, will as to such property or assets, secure the Notes Outstanding (together with, if the Company shall so determine any other Indebtedness of the Company now existing or hereinafter created which is not subordinate in right of payment to the Notes) equally and ratably with (or prior to) the Indebtedness which upon such consolidation, merger, conveyance, lease or transfer is to become secured as to such property or assets by such Lien, or will cause such Notes to be so secured; provided that, for the purpose of providing such equal and ratable security, the principal amount of the Notes shall mean that amount which would at the time of making such effective provision be due and payable pursuant to Section 502 upon a declaration of acceleration of the Maturity thereof, and the extent of such equal and ratable security shall be adjusted, to the extent permitted by law, as and when said amount changes over time as provided in Section 502. ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: 61 (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein or such obligor in this Indenture and in the Notes in accordance with Section 801; (2) to add to the covenants of the Company or any obligor upon the Notes for the benefit of the Holders or to surrender any right or power herein conferred upon the Company or any other obligor upon the Notes for the benefit of the Holders, as applicable, in this Indenture or in the Notes; (3) to add any additional Events of Default; (4) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee pursuant to the requirements of Section 609; (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided that such action shall not adversely affect the interests of the Holders in any material respect; (6) to secure the Notes pursuant to the requirements of Section 803 or otherwise; (7) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act; (8) to add a guarantor of the securities under this Indenture; (9) to mortgage, pledge, hypothecate or grant a security interest in favor of the Trustee for the benefit of the Holders as additional security for the payment and performance of the Company's obligations under this Indenture, in any property, or assets, including any of which are required to be mortgaged, pledged or hypothecated, or in which a security interest is required to be granted to the Trustee pursuant to this Indenture or otherwise; or (10) to convey, transfer, assign, mortgage or pledge to the Trustee or the Custodian Agent as security for the Notes and the other Secured Debt any property or assets. The Trustee is hereby authorized to join in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer, assignment, mortgage or 62 pledge of any property thereunder, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 902. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount at maturity of the Outstanding Notes, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby: (i) change the Stated Maturity of the principal of or any installment of interest on any Note, or reduce the Accreted Value thereof (or premium, if any) or the rate of interest thereon or any premium payable upon the redemption thereof or reduce the amount of the principal of the Notes that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502 or the amount thereof provable in bankruptcy pursuant to Section 504, or change the coin or currency in which any Note or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); (ii) reduce the percentage in principal amount at maturity of the Outstanding Notes, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture; (iii) modify any of the provisions of this Article Nine, Article Five or Sections 1018, except to increase any such percentage of outstanding Notes required for such actions or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Note affected thereby; (iv) amend, change or modify the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or an Excess Proceeds Offer in connection with any Asset Sale or modify any of the provisions or definitions with respect thereto; or 63 (v) make any change in any of the provisions relating to the Collateral Documents not authorized by Article Twelve that materially adversely affects the Holders. It shall not be necessary for any Act of Holders under this Section 902 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article Nine or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustees own rights, duties or immunities under this Indenture or otherwise. SECTION 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article Nine, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article Nine shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 906. Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article Nine may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Notes. 64 SECTION 907. Notice of Supplemental Indentures. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 902, the Company shall give notice thereof to the Holders of each Outstanding Note affected, in the manner provided for in Section 106, setting forth in general terms the substance of such supplemental indenture. ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium, if Any, and Interest. The Company covenants and agrees for the benefit of the Holders that it will duly and punctually pay the principal of (and premium, if any) and interest on the Notes in accordance with the terms of the Notes and this Indenture. SECTION 1002. Maintenance of Office or Agency. The Company will maintain in The City of New York, an office or agency where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Corporate Trust Office of the Trustee shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. 65 SECTION 1003. Money for Note Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (or premium, if any) or interest on any of the Notes, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal of (or premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for the Notes, it will, on or before each due date of the principal of (or premium, if any) or interest on any Notes, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. The Company will cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 1003, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Notes) in the making of any payment of principal (and premium, if any) or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. 66 Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (or premium, if any) or interest on any Note and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. Corporate Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of the Company and each Subsidiary; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1005. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary and (b) all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 1006. Maintenance of Properties. The Company will cause all properties owned by the Company or any Subsidiary or used or held for use in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and 67 supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 1006 shall prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 1007. Insurance. (a) The Company will maintain launch insurance covering the period from the launch to 180 days following the launch of such satellite in an amount equal to or greater than the sum of (i) the cost to replace such satellite with a satellite of comparable or superior technological capability (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and having at least as much transmission capacity as the satellite to be replaced, (ii) the cost to launch a replacement satellite pursuant to the contract whereby a replacement satellite will be launched and (iii) the cost of launch insurance for such replacement or, in the event that the Company has reason to believe that the cost of obtaining comparable insurance for a replacement would be materially higher, the Company's best estimate of the cost of such comparable insurance. Notwithstanding the foregoing, the Company shall not be obligated to maintain insurance pursuant to this paragraph (a) with respect to (i) the launch of its first satellite and (ii) any subsequent launch not preceded by a launch failure or failure of any satellite within 180 days from the date of its launch; provided that the Company's spare satellite shall be under construction in accordance with the terms of the Loral Satellite Contract or the Company shall have otherwise obtained a spare satellite. (b) The Company will maintain full in-orbit insurance with respect to each satellite it owns and launches in an amount at least equal to (i) the cost to replace such satellite with a satellite of comparable or superior technological capability (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and having at least as much transmission capacity as such owned satellites, (ii) the cost to replace each such satellite pursuant to the contract pursuant to which a replacement satellite will be constructed and (iii) the cost of launch insurance for such replacement or, in the event that the Company has reason to believe that the cost of obtaining comparable insurance for a replacement would be materially higher, the Company's best estimate of the cost of such comparable insurance. The in-orbit insurance required by this paragraph will provide that if 50% or more of a satellite's capacity is lost, the full amount of insurance will become due and payable, and that if a satellite is able to maintain more than 50% but less that 100% of its capacity, a portion of such insurance will become due and payable. 68 (c) In the event that the Company receives proceeds from insurance relating to any satellite, the Company may use all or a portion of such proceeds to repay any vendor or third-party purchase money financing pertaining to such satellite that is required to be repaid by reason of the loss giving rise to such insurance proceeds. The Company shall use the remainder of such proceeds to develop and construct a replacement satellite; provided that (i) such replacement satellite is of comparable or superior technological capability as compared with the satellite being replaced and has at least as much transmission capacity as the satellite being replaced (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution); (ii) the Company will have sufficient funds (together with the proceeds of any business interruption insurance) to service the Company's projected debt service requirements until the scheduled launch of the Company's spare satellite and for one year thereafter and to develop and construct such replacement satellite; and (iii) that the Company's spare satellite is scheduled to be launched within 12 months of the receipt of such proceeds. Any such proceeds not used as permitted by this paragraph shall constitute "Excess Proceeds" for purposes of Section 1016. SECTION 1008. Statement by Officers as to Default. (a) The Company will deliver to the Trustee, within 60 days after the end of each fiscal quarter (90 days after the end of the last fiscal quarter of each fiscal year), a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this Section 1008(a), such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. (b) When any Default has occurred and is continuing under this Indenture, or if the trustee for or the holder of any other evidence of Indebtedness of the Company or any Subsidiary gives any notice or takes any other action with respect to a claimed default (other than with respect to Indebtedness in an aggregate principal amount of less than $1,000,000), the Company shall deliver to the Trustee by registered or certified mail or by telegram, telex or facsimile transmission an Officers' Certificate specifying such event, notice or other action within five Business Days of its occurrence. SECTION 1009. Provision of Financial Statements. (a) The Company will file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15 of the Exchange Act. 69 (b) The Company will also (i) file with the Trustee, and provide to each holder of Notes, without cost to such holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company would be required to file such reports and documents if the Company were so required and (ii) if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to supply at the Company's cost copies of such reports and documents to any prospective holder of Notes promptly upon written request. SECTION 1010. Purchase of Notes upon Change in Control. (a) If a Change of Control shall occur at any time, then each Holder shall have the right to require that the Company purchase such Holder's Notes in whole or in part in integral multiples of $1,000 principal amount at maturity, at a purchase price (the "Change of Control Purchase Price") in cash in an amount equal to 101% of the Accreted Value of such Notes as of the date of purchase plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Purchase Date"), pursuant to the offer described below (the "Change of Control Offer"), in accordance with the procedures set forth in paragraphs (b) and (c) of this Section 1010. (b) Within 15 days following any Change of Control, the Company shall notify the Trustee thereof and give to each Holder of the Notes in the manner provided in Section 106 a notice stating: (1) that a Change in Control has occurred and that such Holder has the right to require the Company to repurchase such Holder's Notes at the Change of Control Purchase Price; (2) the circumstances and relevant facts regarding such Change in Control (including but not limited to information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change in Control); (3) the Change of Control Purchase Price and the Change of Control Purchase Date which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed or such later date as is necessary to comply with requirements under the Exchange Act or any applicable securities laws or regulations; (4) that any Notes not tendered will continue to accrue interest and original issue discount; 70 (5) that, unless the Company defaults in the payment of the Change of Control Purchase Price, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest and original issue discount after the Change of Control Purchase Date; and (6) the instructions a Holder must follow in order to have its Notes repurchased in accordance with paragraph (b) of this Section 1010. The Company shall have no obligation to purchase any Notes in a Change of Control Offer if no Notes are tendered by the Holders thereof. (c) Holders electing to have Notes purchased will be required to surrender such Notes to the Company at the address specified in the notice at least five Business Days prior to the Change of Control Purchase Date. Holders will be entitled to withdraw their election if the Company receives, not later than three Business Days prior to the Change of Control Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount at maturity of the Notes delivered for purchase by the Holder as to which his election is to be withdrawn and a statement that such Holder is withdrawing his election to have such Notes purchased. Holders whose Notes are purchased only in part will be issued new Notes equal in principal amount at maturity to the unpurchased portion of the Notes surrendered. SECTION 1011. Limitation on Indebtedness. The Company will not, and will not permit any Restricted Subsidiary to, create, assume, issue, guarantee or in any manner become directly or indirectly liable for or with respect to the payment of, or otherwise incur (collectively, to "incur"), any Indebtedness, except for Permitted Indebtedness; provided that (i) the Company will be permitted to incur Indebtedness and (ii) a Restricted Subsidiary will be permitted to incur Acquired Indebtedness, if, in either case, after giving pro forma effect to such incurrence (including the application of the net proceeds therefrom), the ratio of (x) Total Consolidated Indebtedness to (y) Adjusted Consolidated Operating Cash Flow for the latest four fiscal quarters for which consolidated financial statements of the Company are available preceding the date of such incurrence, taken as a whole, would be greater than zero and less than or equal to 4.0 to 1.0. SECTION 1012. Limitation on Restricted Payments. The Company will not make, and will not permit any Restricted Subsidiary to make, directly or indirectly, any of the following: (i) the declaration or payment of any dividend or any other distribution on Capital Stock of the Company or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company 71 (other than dividends or distributions payable solely in Qualified Capital Stock of the Company or in options, warrants or other rights to purchase Qualified Capital Stock of the Company); (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company (other than any such Capital Stock owned by the Company or a Restricted Subsidiary) or any affiliate of the Company (other than any Restricted Subsidiary); (iii) the making of any principal payment on, or the repurchase, redemption, defeasance or other acquisition or retirement for value of, prior to any scheduled principal payment, sinking fund payment or maturity, any Pari Passu Indebtedness or Subordinated Indebtedness (other than any Subordinated Indebtedness held by a Restricted Subsidiary); or (iv) the making of any Investment (other than a Permitted Investment) in any Person (such payments or other actions described in (but not excluded from) clauses (i) through (iv) are collectively referred to as "Restricted Payments"), unless, in each case: (A) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Restricted Payment; (B) immediately after giving effect to such Restricted Payment, the Company would be able to incur at least $1.00 of Indebtedness (other than Permitted Indebtedness) under the proviso of Section 1011; and (C) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments declared or made on or after the date of this Indenture would not exceed an amount equal to the sum of (a) the difference between (x) the Cumulative Available Cash Flow determined at the time of such Restricted Payment and (y) 150% of the cumulative Consolidated Interest Expense of the Company determined for the period commencing on the date of this Indenture and ending on the last day of the latest fiscal quarter for which consolidated financial statements of the Company are available preceding the date of such Restricted Payment plus (b) the aggregate Net Cash Proceeds received by the Company from the issue or sale (other than to any Restricted Subsidiary) of Qualified Capital Stock of the Company after January 1, 1998, plus (c) the aggregate Net Cash Proceeds received after the date of this Indenture by the Company from the issuance or sale (other than to any Restricted Subsidiary) of debt securities or Redeemable Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company, together with the aggregate Net Cash Proceeds received by the Company at the time of such conversion or exchange, plus (d) to the extent not otherwise included in the Consolidated Operating Cash Flow of the Company, an amount equal to the sum of (1) the net reduction in Investments in any Person (other than the Permitted Investments) resulting from the payment in cash of dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary after the date of this Indenture from such Person and (2) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market 72 value of the net assets of any Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that in the case of (1) or (2) above the foregoing sum shall not exceed the aggregate amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary, minus (e) the sum of 80% of the outstanding principal amount of all Indebtedness incurred pursuant to clause (i)(x) or (i)(y)(1) of the definition of Permitted Indebtedness and 100% of the outstanding principal amount of all Indebtedness incurred pursuant to clause (i)(y)(2) of the definition of Permitted Indebtedness. For purposes of determining the amount expended for Restricted Payments, property other than cash shall be valued at its Fair Market Value. The provisions of this covenant shall not prohibit, so long as, with respect to clauses (ii) through (ix) below, no Default or Event of Default shall have occurred and be continuing, (i) the payment of any dividend or other distribution within 60 days after the date of declaration thereof if at such date of declaration such payment complied with the provisions of this Indenture, and such payment will be deemed to have been paid on the date of declaration for purposes of the calculation in the foregoing paragraph; (ii) the purchase, redemption, retirement or other acquisition of any shares of Capital Stock of the Company in exchange for, or out of the Net Cash Proceeds of a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of, shares of Qualified Capital Stock of the Company; (iii) the purchase, redemption, retirement, defeasance or other acquisition or retirement for value of Subordinated Indebtedness made by exchange for, or out of the Net Cash Proceeds of a substantially concurrent issue or sale (other than to a Restricted Subsidiary) of, Qualified Capital Stock of the Company; (iv) (A) the purchase of any Subordinated Indebtedness at a purchase price not greater than 101% of the principal amount or accreted value thereof, as the case may be, together with accrued interest, if any, in the event of a Change of Control in accordance with provisions similar to Section 1010 or (B) the purchase of any Preferred Stock at a purchase price not greater than 101% of the liquidation preference thereof, together with accrued dividends, if any, in the event of a Change of Control in accordance with provisions similar to Section 1010; provided that, in each case, prior to such purchase the Company has made the Change of Control Offer as provided in such covenant with respect to the Notes and has purchased all Notes validly tendered for payment in connection with such Change of Control Offer; (v) the purchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Indebtedness in exchange for, or out of the Net Cash Proceeds of a substantially concurrent incurrence (other than to a Restricted Subsidiary) of, new Subordinated Indebtedness so long as (A) the principal amount of such new Indebtedness does not exceed the principal amount (or, if such Subordinated Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) of the Subordinated Indebtedness being so purchased, redeemed, 73 defeased, acquired or retired, plus the lesser of the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Subordinated Indebtedness being refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing, plus, in either case, the amount of expenses of the Company incurred in connection with such refinancing, (B) such new Subordinated Indebtedness is subordinated to the Notes to the same extent as such Subordinated Indebtedness so purchased, redeemed, defeased, acquired or retired and (C) such new Subordinated Indebtedness has an Average Life longer than the Average Life of the Notes and a final Stated Maturity of principal later than the Stated Maturity of principal of the Notes (vi) the purchase of any Subordinated Indebtedness at a purchase price not greater than 100% of the principal amount or accreted value thereof, as the case may be, together with accrued interest, if any, following an Asset Sale in accordance with provisions similar to Section 1016, provided that prior to making any such purchase the Company has made the Excess Proceeds Offer as provided in such covenant with respect to the Notes and has purchased all Notes validly tendered for payment in connection with such Excess Proceeds Offer; (vii) the optional redemption or retirement of any Pari Passu Indebtedness if a pro rata principal amount at maturity of Notes is redeemed or retired by the Company at the same time; (viii) the payment of cash dividends on outstanding shares of Series C Preferred Stock of the Company out of the Net Cash Proceeds of a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of Common Stock of the Company; and (ix) any other Restricted Payments in an aggregate amount not to exceed $15.0 million. In determining the amount of Restricted Payments permissible under this covenant, amounts expended pursuant to clauses (i), (ii), (iii), (iv), (vi) (vii), (viii) and (ix) above shall be included as Restricted Payments. SECTION 1013. Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries. The Company (a) will not permit any Restricted Subsidiary to issue any Capital Stock (other than to the Company or a Restricted Subsidiary) and (b) will not permit any Person (other than the Company or a Restricted Subsidiary) to own any Capital Stock of any Restricted Subsidiary; provided, however, that this covenant shall not prohibit (i) the issuance and sale of all, but not less than all, of the issued and outstanding Capital Stock of any Restricted Subsidiary owned by the Company or any Restricted Subsidiary in compliance with the other provisions of this Indenture or (ii) the ownership by directors of directors' qualifying shares or the ownership by foreign nationals of Capital Stock of any Restricted Subsidiary, to the extent mandated by applicable law. 74 SECTION 1014. Limitation on Transactions with Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any Affiliate of the Company (other than the Company or a Restricted Subsidiary) unless (i) such transaction or series of related transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution, than those that could have been obtained in an arm's-length transaction with unrelated third parties who are not Affiliates, (ii) with respect to any transaction or series of related transactions involving aggregate consideration equal to or greater than $2,500,000, the Company shall have delivered an officers' certificate to the Trustee certifying that such transaction or series of related transactions complies with clause (i) above and such transaction or series of related transactions has been approved by a majority of the Disinterested Directors of the Board of Directors of the Company, or the Company has obtained a written opinion from a nationally recognized investment banking firm to the effect that such transaction or series of related transactions is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view and (iii) with respect to any transaction or series of related transactions including aggregate consideration in excess of $10,000,000, or in the event no members of the Board of Directors of the Company are Disinterested Directors with respect to any transaction or series of transactions included in clause (ii), the Company shall obtain an opinion from a nationally recognized investment banking firm as described above; provided, however, that this provision will not restrict (1) any transaction by the Company or any Restricted Subsidiary with an Affiliate directly related to the purchase, sale or distribution of products in the ordinary course of business consistent with industry practice, (2) the Company from paying reasonable and customary regular compensation and fees to directors of the Company or any Restricted Subsidiary who are not employees of the Company or any Restricted Subsidiary, (3) the payment of compensation (including stock options and other incentive compensation) to officers and other employees the terms of which are approved by the Board of Directors, (4) the Company or any Restricted Subsidiary from making any Restricted Payment in compliance with Section 1012 (including pursuant to the second paragraph thereof), (5) transactions between the Company and Batchelder & Partners Inc. pursuant to agreements in effect on the date of this Indenture and listed on a schedule to this Indenture; provided that the Company will not, and will not permit any Restricted Subsidiary to amend, modify or in any way alter, other than an extension of the termination thereof, the terms of any such agreement in a manner materially adverse to the holders of the Notes, (6) transactions among the Company and its Restricted Subsidiaries, (7) the payment of fees to Robertson, Stephens & Company, Incorporated for investment banking services rendered to the Company or (8) amendments to the Loral Satellite Purchase Contract; 75 provided that the Company will not amend, modify or in any way alter the terms of such agreement in a manner materially adverse to the holders of the Notes. SECTION 1015. Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind, other than Permitted Liens, on or with respect to any of its property or assets, including any shares of stock or indebtedness of any Restricted Subsidiary, whether owned at the date of this Indenture or thereafter acquired, or any income, profits or proceeds therefrom, or assign or otherwise convey any right to receive income thereon, unless (x) in the case of any Lien securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Lien and (y) in the case of any other Lien, the Notes are equally and ratably secured; provided that in no event may the Company or any Restricted Subsidiary grant any Lien (other than Permitted Liens) on the Bond Collateral. SECTION 1016. Limitation on Sale of Assets. (a) The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, engage in any Asset Sale unless (i) the consideration received by the Company or such Restricted Subsidiary for such Asset Sale is not less than the Fair Market Value of the shares or assets sold (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) the consideration received by the Company or the relevant Restricted Subsidiary in respect of such Asset Sale consists of at least 80% cash or Cash Equivalents. (b) If the Company or any Restricted Subsidiary engages in an Asset Sale, the Company may use the Net Cash Proceeds thereof within 12 months after the later of such Asset Sale or the receipt of such Net Cash Proceeds (i) to permanently repay or prepay any then outstanding Pari Passu Indebtedness, (ii) to invest in any one or more businesses, capital expenditures or other tangible assets of the Company or any Restricted Subsidiary, in each case, engaged, used or useful in the CD Radio Business (or enter into a legally binding agreement to do so within 6 months); or (iii) to invest in properties or assets that replace the properties and assets that are the subject to such Asset Sale (or enter into a legally binding agreement to do so within 6 months). If any such legally binding agreement to invest such Net Cash Proceeds is terminated, then the Company may, within 90 days of such termination or within 12 months of such Asset Sale, whichever is later, apply or invest such Net Cash Proceeds as provided in clause (i), (ii) or (iii) (without regard to the parenthetical contained in clause (i) or (ii)) above. The amount of such Net Cash Proceeds not so used as set forth above in this paragraph (b) constitutes "Excess Proceeds". 76 (c) When the aggregate amount of Excess Proceeds exceeds $10,000,000 the Company shall, within 30 business days, make an offer to purchase (an "Excess Proceeds Offer") from all holders of Notes, on a pro rata basis, in accordance with the procedures set forth below, the maximum Accreted Value as of the date of purchase (expressed as a multiple of $1,000) of Notes that may be purchased with the Excess Proceeds. The offer price as to each Note shall be payable in cash in an amount equal to 100% of the Accreted Value of such Note as of the date of purchase plus accrued interest, if any (the "Offered Price"), to the date such Excess Proceeds Offer is consummated (the "Offer Date"). To the extent that the aggregate Accreted Value of Notes tendered pursuant to an Excess Proceeds Offer is less than the Excess Proceeds relating thereto, the Company may use such additional Excess Proceeds for general corporate purposes or to fund an offer to redeem any outstanding Subordinated Indebtedness or Pari Passu Indebtedness in accordance with provisions similar to this Section 1016. If the aggregate Accreted Value of Notes validly tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset to zero. (d) If the Company becomes obligated to make an Offer pursuant to clause (c) above, the Notes shall be purchased by the Company, at the option of the holder thereof, in whole or in part in integral multiples of $1,000, on a date that is not earlier than 30 days and not later than 60 days from the date the notice is given to holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act or any other applicable securities laws or regulations, subject to proration in the event the amount of Excess Proceeds is less than the aggregate Offered Price of all Notes tendered. (e) The Company will comply to the extent applicable with the requirements of the tender offer rules, including Rule 14e-1 under the Exchange Act, and any other applicable securities laws and regulations in connection with an Excess Proceeds Offer. SECTION 1017. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make Investments in the Company or any other Restricted Subsidiary, (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary or (e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary, except 77 for such encumbrances or restrictions existing under or by reason of (i) any agreement in effect on the date of this Indenture and listed on Schedule A attached to this Indenture, (ii) applicable law or judicial or regulatory action, (iii) customary non-assignment provisions of any lease governing a leasehold interest of the Company or any Restricted Subsidiary, (iv) any agreement or other instrument of a Person acquired by the Company or any Restricted Subsidiary in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired and the Subsidiaries of such Person, (v) any mortgage or other Lien on real property acquired or improved by the Company or any Restricted Subsidiary after the date of this Indenture that prohibit transfers of the type described in (d) above with respect to such real property, (vi) any encumbrance or restriction contained in contracts for sales of assets permitted by Section 1016 with respect to the assets to be sold pursuant to such contract; (vii) any such customary encumbrance or restriction contained in a security document creating a Permitted Lien (other than a Lien securing Indebtedness under a Bank Credit Agreement or a Vendor Credit Facility) to the extent relating to the property or asset subject to such Permitted Lien; (viii) any agreement or other instrument governing any Indebtedness under any Bank Credit Agreement or Vendor Credit Facility if such encumbrance or restriction applies only (x) to amounts which at any point in time (other than during such periods as are described in clause (y)) (1) exceed amounts due and payable (or which are to become due and payable within 30 days) in respect of the Notes or this Indenture for interest, premium and principal (after giving effect to any realization by the Company under any applicable Currency Agreement), or (2) if paid, would result in an event described in the following clause (y) of this sentence, or (y) during the pendency of any event that causes, permits or, after notice or lapse of time, would cause or permit the holder(s) of the Indebtedness governed by such agreement or instrument to declare any such Indebtedness to be immediately due and payable or require cash collateralization or cash cover for such Indebtedness for so long as such cash collateralization or cash cover has not been provided; or (ix) the refinancing of Indebtedness incurred under the agreements listed on Schedule A attached to this Indenture or described in clause (v) above, so long as such encumbrances or restrictions are no less favorable in any material respect to the Company or any Restricted Subsidiary than those contained in the respective agreement as in effect on the date of this Indenture. SECTION 1018. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Section 803, Sections 1007 or 1009 through 1017, inclusive, if before or after the time for such compliance the Holders of at least a majority in principal amount at maturity of the Outstanding Notes, by Act of such Holders, waive such compliance in such instance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly 78 waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. SECTION 1019. Required Stock Ownership. The Company will at all times be the legal and beneficial owner of the Pledged Stock and will not sell, transfer or otherwise dispose of any Capital Stock of Satellite CD Radio Inc. SECTION 1020. Further Assurances. The Company will promptly execute and deliver such additional instruments and do such further acts as in the opinion of the Trustee may be reasonably necessary or proper to carry out the purposes of this Indenture and the Collateral Documents. SECTION 1021. Limitation on Subsidiary Business Activities. Satellite CD Radio, Inc. shall not engage in any trade or business other than holding an FCC license to build, launch and operate a national satellite radio broadcast system. ARTICLE ELEVEN REDEMPTION OF NOTES SECTION 1101. Right of Redemption. The Notes (a) may be redeemed, at the election of the Company, as a whole or from time to time in part, at any time on or after [ ], 2002 subject to the conditions and at the Redemption Prices specified in the form of Note, together with accrued interest to the Redemption Date and (b) may be redeemed, at the election of the Company, at any time or from time to time prior to [ ], 2000 upon the occurrence of the events and subject to the conditions and at the redemption price specified in the form of Note. SECTION 1102. Applicability of Article. Redemption of Notes at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article Eleven. 79 SECTION 1103. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Notes pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount at maturity of Notes to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Notes to be redeemed pursuant to Section 1104. SECTION 1104. Selection by Trustee of Notes to Be Redeemed. If less than all the Notes are to be redeemed, the particular Notes to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee by such method as the Trustee shall deem fair and appropriate; provided, however, that no such partial redemption shall reduce the portion of the principal amount at maturity of a Note not redeemed to less than $1,000. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount at maturity thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Notes shall relate, in the case of any Note redeemed or to be redeemed only in part, to the portion of the principal amount at maturity of such Note which has been or is to be redeemed. SECTION 1105. Notice of Redemption. Notice of redemption shall be given in the manner provided for in Section 106 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Notes to be redeemed. All notices of redemption shall state: (1) the Redemption Date; (2) the Redemption Price and the amount of accrued interest to the Redemption Date payable as provided in Section 1107, if any; 80 (3) if less than all Outstanding Notes are to be redeemed, the identification (and, in the case of a partial redemption, the principal amount at maturity) of the particular Notes to be redeemed; (4) in case any Note is to be redeemed in part only, the notice which relates to such Note shall state that on and after the Redemption Date, upon surrender of such Note, the holder will receive, without charge, a new Note or Notes of authorized denominations for the principal amount at maturity thereof remaining unredeemed; (5) that on the Redemption Date the Redemption Price (and accrued interest, if any, to the Redemption Date payable as provided in Section 1107) will become due and payable upon each such Note, or the portion thereof, to be redeemed, and that interest thereon will cease to accrue on and after said date; and (6) the place or places where such Notes are to be surrendered for payment of the Redemption Price and accrued interest, if any. Notice of redemption of Notes to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1106. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and accrued interest on, all the Notes which are to be redeemed on that date. SECTION 1107. Notes Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Notes shall cease to accrue interest or original issue discount. Upon surrender of any such Note for redemption in accordance with said notice, such Note shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders 81 of such Notes, or one or more Predecessor Notes, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Notes. SECTION 1108. Notes Redeemed in Part. Any Note which is to be redeemed only in part (pursuant to the provisions of this Article Eleven) shall be surrendered at the office or agency of the Company maintained for such purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holders attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in aggregate principal amount at maturity equal to and in exchange for the unredeemed portion of the principal amount at maturity of the Note so surrendered. ARTICLE TWELVE SECURITY AND PLEDGE OF COLLATERAL SECTION 1201. Collateral Documents. Each Holder of a Note, by its acceptance thereof, (i) consents and agrees to the terms of the Collateral Documents, (ii) authorizes and ratifies the entering into by the Trustee and the Collateral Agent of each of the Collateral Documents to which they are a party and (iii) authorizes and directs the Trustee and the Collateral Agent to perform their respective obligations and exercise their rights thereunder in accordance therewith. SECTION 1202. Trustee May Perform. If the Company fails to perform any agreement contained in this Article Twelve, the Trustee may, but shall not be obligated to, itself perform, or cause performance of, such agreement, and the expenses of the Trustee incurred in connection therewith shall be payable by the Company under Section 606. 82 SECTION 1203. Collateral Trust Arrangements. (a) The Trustee shall, upon request of the Company and upon receipt of the Opinion of Counsel and Officers Certificate described in paragraph (c) of this Section 1203, amend, revise and supplement the Pledge Agreement to assign and pledge to the Collateral Agent for the benefit of the Holders of the Notes and the equal and ratable benefit of the Secured Parties a security interest in the Collateral and to enter into a Custodian Agreement that provides for the enforcement of the payment of Indebtedness under this Indenture equally and ratably with all other Secured Debt. (b) Upon any such assignment or pledge pursuant to paragraph (a) above, the Collateral shall be held in trust under and subject to the terms and conditions of the Collateral Documents for the benefit of the Secured Parties and for the enforcement of the payment of Indebtedness under this Indenture equally and ratably with all other Secured Debt and for the performance of and compliance with the covenants and conditions of this Indenture and the other Collateral Documents. It is intended that this Indenture and the other Collateral Documents shall be construed and enforced to give effect to such intention. (c) Prior to giving effect to any assignment or pledge of the Collateral to the Collateral Agent, the Trustee shall receive an Opinion of Counsel and an Officer's Certificate as to the validity and perfection of a first-priority lien on the Collateral for the equal and ratable benefit of the Secured Parties. SECTION 1204. Certificates and Opinions. The Company shall comply with (a) TIA 'SS' 314(b), relating to Opinions of Counsel regarding the Lien of this Indenture and (b) TIA 'SS' 314(d), relating to, among other matters, the release of Collateral from the Lien of this Indenture and Officers' Certificates or other documents regarding fair value of the Collateral, to the extent such provisions are applicable. Any certificate or opinion required by TIA 'SS' 314(d) may be executed and delivered by an Officer of the Company to the extent permitted by TIA 'SS' 314(d). ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may, at its option by Board Resolution, at any time, with respect to the Notes, elect to have either Section 1302 or Section 1303 be applied to all 83 Outstanding Notes upon compliance with the conditions set forth below in this Article Thirteen. SECTION 1302. Defeasance and Discharge. Upon the Company's exercise under Section 1301 of the option applicable to this Section 1302, the Company shall be deemed to have been discharged from its obligations with respect to all Outstanding Notes on the date the conditions set forth in Section 1304 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the Outstanding Notes, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 1305 and the other Sections of this Indenture referred to in (A) and (B) below, and to have satisfied all its other obligations under such Notes and this Indenture insofar as such Notes are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Notes to receive, solely from the trust fund described in Section 1304 and as more fully set forth in Section 1304, payments in respect of the principal of (and premium, if any, on) and interest on such Notes when such payments are due, (B) the Company's obligations with respect to such Notes under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Thirteen. Subject to compliance with this Article Thirteen, the Company may exercise its option and at any time under this Section 1302 notwithstanding the prior exercise of its option under Section 1303 with respect to the Notes. SECTION 1303. Covenant Defeasance. Upon the Company's exercise under Section 1301 of the option applicable to this Section 1303, the Company shall be released from its obligations under any covenant contained in Section 803 and in Sections 1007 through 1017 with respect to the Outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Notes shall thereafter be deemed not to be "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 501(4), but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. 84 SECTION 1304. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 1302 or Section 1303 to the Outstanding Notes: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 607 who shall agree to comply with the provisions of this Article Thirteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Notes, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, at the principal of (and premium, if any) and interest on the Outstanding Notes at their Stated Maturity (or Redemption Date, if applicable) of such principal (and premium, if any) or installment of interest on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Notes; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Notes. Before such a deposit, the Company may give to the Trustee, in accordance with Section 1103 hereof, a notice of its election to redeem all of the Outstanding Notes at a future date in accordance with Article Eleven hereof, which notice shall be irrevocable. Such irrevocable redemption notice, if given, shall be given effect in applying the foregoing. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. 85 Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. (2) No Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit or, insofar as paragraphs (8) and (9) of Section 501 hereof are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (3) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound. (4) In the case of an election under Section 1302, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since [date of final prospectus], there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (5) In the case of an election under Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (6) In the case of an election under Section 1302 or Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States to the effect that after the 91st day following the deposit or after the date such opinion is delivered, the trust funds will not be subject to the effect of any applicable Bankruptcy Law. (7) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the Notes over the other creditors of the Company with the intent of hindering, delaying or defrauding creditors of the Company. 86 (8) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1302 or the covenant defeasance under Section 1303 (as the case may be) have been complied with. SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in respect of the Outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Governmental Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Notes. Anything in this Article Thirteen to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1304 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance, as applicable, in accordance with this Article Thirteen. SECTION 1306. Reinstatement. If the Trustee or any Paying Agent is unable to apply any money in accordance with Section 1305 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 1302 or 1303, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 1305; provided, however, that if the Company makes any payment 87 of principal of (or premium, if any) or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. CD RADIO INC. By ------------------------------------ Name: Title: IBJ SCHRODER BANK & TRUST COMPANY By ------------------------------------ Name: Title: EXHIBIT A -- FORM OF NOTE [FACE OF NOTE] [Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]* Unless and until it is exchanged in whole or in part for Notes in definitive registered form, this certificate may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such nominee to a successor Depository or a nominee of such successor Depository.]* CD RADIO INC. [ ]% Senior Discount Notes due 2007 No._____ $_____________ CUSIP: [ ] The following information is supplied for purposes of Sections 1273 and 1275 of the Internal Revenue Code: Issue Date: [ ], 1997 Original issue discount under Section 1273 of the Internal Revenue Code (for each $1,000 principal amount at maturity): $[ ] Issue Price (for each $1,000 Yield to Maturity: [ ]% principal amount at maturity): $[ ] - -------- * To be included on Notes issued in global form only. A-2 Method used to determine yield to maturity Original issue discount for short for short accrual period of [ ] accrual period of [ ] to to January 1, 1998: exact method January 1, 1998, (for each $1,000 principal amount amount at maturity): $[ ] CD Radio Inc., a Delaware corporation (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________________, or registered assigns, the principal sum of ___________ Dollars on [ ], 2007, at the office or agency of the Company referred to below, and to pay interest thereon on [ ], 2002, and semi-annually thereafter, on [ ] and [ ] in each year (each an "Interest Payment Date"), from [ ], 2002, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, at the rate of [ ]% per annum, until the principal hereof is paid or duly provided for, and (to the extent lawful) to pay on demand interest on any overdue interest at the rate of [ ]% per annum from the date on which such overdue interest becomes payable to the date payment of such interest has been made or duly provided for. The principal on this Note shall not accrue interest until [ ], 2002, except in the case of a default in payment of the amount due at Maturity, in which case, the amount then due on this Note shall bear interest at the rate of [ ]% per annum from the date of such default in payment, as provided in the previous sentence. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest, which shall be the [ ] or [ ] (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and such defaulted interest, and (to the extent lawful) interest on such defaulted interest at [ ]% per annum, may be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Notes not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of (and premium, if any) and interest on this Note will be made at the office or agency of the Company maintained for that purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company (i) by check mailed to the address of the Person entitled thereto as such address shall appear on the Note Register or (ii) by transfer to an account maintained by the payee located in the United States. A-3 [This Note is a global Note representing $_____ of the Notes. If at any time, (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository or if at any time the Depository shall no longer be registered or in good standing under the Exchange Act or other applicable statute or regulation and a successor Depository is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, or (ii) any Event of Default shall have occurred and be continuing and Holders of more than 25% in principal amount of the Notes Outstanding represented by one or more global Notes advise the Trustee that the continuation of a book-entry system through the Depository (or a successor thereto) with respect to the Notes is no longer required, then in such event the Company will execute and the Trustee will authenticate and deliver Notes in definitive registered form, in authorized denominations, and in an aggregate principal amount equal to the principal amount of this Note in exchange for this Note. Such Notes in definitive registered form shall be registered in such names and issued in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Notes to the Persons in whose names such Notes are so registered.]* Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under this Indenture, or be valid or obligatory for any purpose. - -------- * To be included on Notes issued in global form only. A-4 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: [ ] CD Radio Inc. By:____________________________ Name: Title: Attest: _______________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION. This is one of the Notes referred to in the within-mentioned Indenture. IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By_____________________________ Authorized Officer A-5 [REVERSE SIDE OF NOTE] This Note is one of a duly authorized issue of securities of the Company designated as its [ ]% Senior Secured Discount Notes due 2007 (herein called the "Notes"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount at maturity to $[ ], which may be issued under an indenture (herein called the "Indenture") dated as of [ ] 1997, between the Company and [ ], trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee and the Holders of the Notes, and of the terms upon which the Notes are, and are to be, authenticated and delivered. The Notes are secured by the Collateral. The Notes are subject to redemption, at the option of the Company, as a whole or from time to time in part, at any time on or after [ ], 2002, on not less than 30 nor more than 60 days' prior notice at the redemption prices (expressed as percentages of principal amount at maturity) set forth below, together with accrued interest, if any, to the redemption date, if redeemed during the 12-month period beginning on [ ] of the years indicated below (subject to the right of holders of record on relevant record dates to receive interest due on a relevant interest payment date): Redemption Year Price ---- ----------- 2002 % 2003 % 2004 % 2005 and thereafter 100% In addition, (i) upon the occurrence of a Change of Control, the Company is obligated to make an offer to purchase all outstanding Notes at a price of 101% of the Accreted Value thereof on the applicable date of purchase, together with accrued interest, if any, to the date of purchase (subject to the right of holders of record on relevant record dates to receive interest due on relevant interest payment dates), and (ii) upon the occurrence of an Asset Sale, the Company may be obligated to make an offer to purchase all or a portion of the outstanding Notes at a price of 100% of the Accreted Value thereof on the applicable date of purchase, together with accrued interest, if any, to the date of purchase (subject to the right of holders of record on relevant record dates to receive interest due on relevant interest payment dates). A-6 In the case of any redemption of Notes, interest installments whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Notes, or one or more Predecessor Notes, of record at the close of business on the relevant Record Date referred to on the face hereof. Notes (or portions thereof) for whose redemption and payment provision is made in accordance with the Indenture shall cease to bear interest from and after the Redemption Date. In the event of redemption of this Note in part only, a new Note or Notes for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default shall occur and be continuing, the principal of all the Notes may be declared to be due and payable in the manner and with the effect provided in the Indenture and in an amount equal to (i) the Accreted Value of the Notes as of the date on which the Notes first become due and payable, if such date occurs prior to [ ], 2002, or (ii) the Accreted value of the Notes as of the date on which the Notes first become due and payable plus accrued and unpaid interest, if any, to such date, if such date occurs on or after [ ], 2002. This Note is secured by a security interest in certain Collateral, as provided in the Indenture, and is entitled to the benefits thereof. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Note and (b) certain restrictive covenants and the related Defaults and Events of Default, upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Note. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount at maturity of the Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount at maturity of the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by or on behalf of the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and A-7 unconditional, to pay the principal of (and premium, if any, on) and interest on this Note at the times, place, and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable on the Note Register of the Company upon surrender of this Note for registration of transfer at the office or agency of the Company maintained for such purpose in The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to, the Company and the Note Registrar and duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount at maturity, will be issued to the designated transferee or transferees. The Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Notes are exchangeable for a like aggregate principal amount at maturity of Notes of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to the time of due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. A-8 TRANSFER NOTICE To assign this Note, fill in the form below: FOR VALUE RECEIVED, the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto: - -------------------------------------------------------- (Please print or typewrite name and address including zip code of assignee) - -------------------------------------------------------- (Insert assignee's social security or taxpayer identification number) the within Note and all rights thereunder, hereby irrevocably constituting and appointing ______________________________________________ attorney to transfer such Note on the books of the Company with full power of substitution in the premises. Date: _______________ Your Signature: ___________________________ A-9 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 1010, Section 1016 or Section 1101 of the Indenture, check the box: [ ]. If you wish to have a portion of this Note purchased by the Company pursuant to Section 1010, Section 1016 or Section 1101 of the Indenture, state the amount (in principal amount at maturity) below: $---------------------. Date: _____________ Your Signature: ___________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ______________________________ (Signature must be guaranteed) EX-4 4 EXHIBIT 4.3 WARRANT AGREEMENT between CD RADIO INC. and IBJ SCHRODER BANK & TRUST COMPANY Warrant Agent ------------------------- Dated as of [ ], 1997 i TABLE OF CONTENTS
Page ARTICLE I CERTAIN DEFINITIONS Section 1.1 Definitions...................................................... 1 ARTICLE II ORIGINAL ISSUE OF WARRANTS Section 2.1 Form of Warrant Certificates..................................... 4 Section 2.2 Restrictive Legends.............................................. 5 Section 2.3 Execution and Delivery of Warrant Certificates................... 5 Section 2.4 Loss or Mutilation............................................... 5 Section 2.5 CUSIP Number..................................................... 6 ARTICLE III EXERCISE PRICE; EXERCISE OF WARRANTS Section 3.1 Exercise Price................................................... 6 Section 3.2 Exercise; Restrictions on Exercise............................... 6 Section 3.3 Method of Exercise................................................ 7 ARTICLE IV Intentionally Omitted ARTICLE V WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER Section 5.1 Transfer and Exchange............................................. 8 Section 5.2 Registration, Registration of Transfer and Exchange............... 9 Section 5.3 Book-Entry Provisions for the Global Warrants.................... 10 Section 5.4 Surrender of Warrant Certificates................................ 11 ARTICLE VI
ii COVENANTS OF THE COMPANY Section 6.1 Reservation and Authorization.................................... 11 Section 6.2 Filing and Effectiveness of Warrant Securities Registration Statement ......................................................12 Section 6.3 Blue Sky......................................................... 12 Section 6.4 Accuracy of Disclosure........................................... 13 Section 6.5 Indemnity........................................................ 13 Section 6.6 Expenses......................................................... 13 ARTICLE VII REMEDIES Section 7.1 Liquidated Damages............................................... 14 Section 7.2 Remedies; No Waiver.............................................. 15 ARTICLE VIII THE WARRANT AGENT Section 8.1 Duties and Liabilities........................................... 15 Section 8.2 Right to Consult Counsel......................................... 17 Section 8.3 Compensation; Indemnification.................................... 17 Section 8.4 No Restrictions on Actions....................................... 17 Section 8.5 Discharge or Removal; Replacement Warrant Agent.................. 17 Section 8.6 Successor Warrant Agent.......................................... 18 ARTICLE IX WARRANT HOLDERS Section 9.1 Warrant Holder Not Deemed a Holder of Notes...................... 19 Section 9.2 Right of Action.................................................. 19 ARTICLE X MISCELLANEOUS Section 10.1 Money Deposited with the Warrant Agent........................... 19 Section 10.2 Payment of Taxes................................................. 19 Section 10.3 Merger, Consolidation or Sale of Assets of the Company........... 20 Section 10.4 Reports to Holders............................................... 21 Section 10.5 Notices.......................................................... 21 Section 10.6 Severability..................................................... 21 Section 10.7 Binding Effect................................................... 21
iii Section 10.8 Third Party Beneficiaries........................................ 22 Section 10.9 Amendments....................................................... 22 Section 10.10 Headings......................................................... 22 Section 10.11 GOVERNING LAW.................................................... 22 Section 10.12 Counterparts..................................................... 22 EXHIBIT A Form of Warrant Certificate EXHIBIT B Form of Legend for Global Warrants EXHIBIT C Form of Legend for Warrants Issued as Part of a Unit
WARRANT AGREEMENT AGREEMENT (this "Agreement") dated as of [ ], 1997 between CD Radio Inc. (the "Company"), a Delaware corporation, and IBJ Schroder Bank & Trust Company, Warrant Agent (the "Warrant Agent"). Pursuant to the terms of a Purchase Agreement dated [ ], 1997 (the "Purchase Agreement") among the Company on the one hand and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers Inc. and Libra Investments, Inc. on the other hand (collectively, the "Underwriters"), the Company has agreed to issue and sell to the Underwriters warrants (each, a "Warrant") entitling the holders thereof to purchase an aggregate of [ ] principal amount at maturity of [ ]% Senior Secured Discount Notes due 2007 (the "Notes") to be issued pursuant to the provisions of an Indenture dated as of [ ], 1997 (as in effect on the date hereof, the "Indenture") between the Company, as issuer, and IBJ Schroder Bank & Trust Company, trustee, as part of [ ] units (the "Units"), each Unit consisting of $[ ] principal amount at maturity of Notes and one Warrant. Each Warrant will entitle the registered holder thereof to receive $[ ] principal amount at maturity of Notes. The Notes and the Warrants included in each Unit will not be separately transferable until the earliest of (i) the occurrence of an Exercise Event (as defined herein), (ii) the occurrence of an Event of Default (as defined in the Indenture), or (iii) such earlier date as determined by Merrill Lynch in its sole discretion (the date of the occurrence of an event specified in clauses (i) through (iii) above being the "Separability Date"). In consideration of the foregoing and of the agreements contained in the Purchase Agreement and for the purpose of defining the terms and provisions of the Warrants and the respective rights and obligations thereunder of the Company, the record holders thereof (the "Holders") and the Warrant Agent, the Company and the Warrant Agent each hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS Section 1.1. Definitions. (a) As used in this Agreement, the following terms shall have the following meanings: "Business Day" means any day which is not a Saturday, a Sunday, or any other day on which banking institutions in New York City are not required to be open. 2 "Bylaws" means the bylaws of the Company, as the same may be amended or restated from time to time. "Commission" means the Securities and Exchange Commission. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman, its Chief Executive Officer, its President, any Vice President, its Treasurer or an Assistant Treasurer, and delivered to the Warrant Agent. "DTC" means The Depository Trust Company, its nominees and their respective successors. "Event of Default" has the meaning set forth in the Indenture. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended. "Exercise Event" means the exercise of a Warrant or Warrants in accordance with the terms of this Agreement. "Expiration Date" means [ ], 1997. "Issue Date" means [ ], 1997. "Notes" means the [ ]% Senior Secured Discount Notes due 2007 issued under the Indenture. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Securities Act" means the United States Securities Act of 1933, as amended. "Warrant Securities" means the Notes issuable upon exercise of the Warrants. (b) Each of the following terms is defined in the Section set forth opposite such term: Term Section ---- -------- Agent Members 5.3(a) 3 Agreement Preamble Certificated Warrant 2.3 Company Preamble Event Date 7.1(b) Global Warrant 2.3 Holders Recitals Indemnified Party 6.5 Indenture Recitals Merrill Lynch Recitals Notes Recitals Purchase Agreement Recitals Separability Date Recitals Underwriters Recitals Units Recitals Warrant Recitals Warrant Agent Preamble Warrant Certificates 2.1 Warrant Register 5.1 ARTICLE II ORIGINAL ISSUE OF WARRANTS Section 2.1. Form of Warrant Certificates. Certificates representing the Warrants (the "Warrant Certificates") shall be in registered form only and substantially in the form attached hereto as Exhibit A. The Warrant Certificates shall be dated the date on which countersigned by the Warrant Agent and shall have such insertions as are appropriate or required or permitted by this Agreement and may have such letters, numbers or other marks of identification and such legends and endorsements typed, stamped, printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation pursuant thereto, or to conform to usage. The terms and provisions contained in the form of Warrant Certificate annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Agreement. The definitive Warrant Certificates shall be typed, printed, lithographed or engraved or produced by any combination of these methods, all as determined by the officer of the Company executing such Warrant Certificates, as evidenced by such officer's execution of such Warrant Certificates. 4 Pending the preparation of definitive Warrant Certificates, temporary Warrant Certificates may be issued, which may be printed, lithographed, typewritten, mimeographed or otherwise produced, and which will be substantially of the tenor of the definitive Warrant Certificates in lieu of which they are issued. If temporary Warrant Certificates are issued, the Company will cause definitive Warrant Certificates to be prepared without unreasonable delay. After the preparation of definitive Warrant Certificates, the temporary Warrant Certificates shall be exchangeable for definitive Warrant Certificates upon surrender of the temporary Warrant Certificates to the Warrant Agent, without charge to the Holder. Until so exchanged the temporary Warrant Certificates shall in all respects be entitled to the same benefits under this Agreement as definitive Warrant Certificates. Section 2.2. Restrictive Legends. (a) Each Global Warrant shall bear the legend set forth in Exhibit B on the face thereof. (b) Each Warrant Certificate issued prior to the Separability Date shall bear the legend set forth in Exhibit C on the face thereof. Section 2.3. Execution and Delivery of Warrant Certificates. Warrant Certificates evidencing Warrants to purchase an aggregate of up to [ ] principal amount at maturity of Notes may be executed, on or after the Issue Date, by the Company and delivered to the Warrant Agent for countersignature, and the Warrant Agent shall thereupon countersign and deliver such Warrant Certificates upon the order and at the direction of the Company to the purchasers thereof on the date of issuance. The Warrant Agent is hereby authorized to countersign and deliver Warrant Certificates as required by this Section 2.3 or by Section 2.4, 3.3 or 5.3. The Warrant Certificates shall be executed on behalf of the Company by its Chief Executive Officer, President or any Vice President, either manually or by facsimile signature printed thereon. The Warrant Certificates shall be countersigned manually by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company whose signature shall have been placed upon any of the Warrant Certificates shall cease to be such officer of the Company before countersignature by the Warrant Agent and issuance and delivery thereof, such Warrant Certificates may, nevertheless, be countersigned by the Warrant Agent and issued and delivered with the same force and effect as though such person had not ceased to be such officer of the Company. The Warrants shall be issued initially in the form of one or more permanent global Warrant Certificates in definitive, fully registered form, substantially in the form set forth in Exhibit A (the "Global Warrant"), deposited with the Warrant Agent, as custodian for the depositary, duly executed by the Company and countersigned by the Warrant Agent 5 as hereinafter provided. Pursuant to Section 5.3, interests in the Global Warrant may be converted into or exchanged for one or more Warrant Certificates in definitive, fully registered form, substantially in the form set forth in Exhibit A ("Certificated Warrants"). Section 2.4. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent of evidence satisfactory to them, in their reasonable discretion, of the ownership and the loss, theft, destruction or mutilation of any Warrant Certificate and of indemnity satisfactory to them and (in the case of mutilation) upon surrender and cancellation thereof, then, in the absence of notice to the Company or the Warrant Agent that the Warrants represented thereby have been acquired by a bona fide purchaser, the Company shall execute and the Warrant Agent shall countersign and deliver to the registered Holder of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of the same tenor and for a like aggregate number of Warrants. Upon the issuance of any new Warrant Certificate under this Section 2.4, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and other expenses (including the reasonable fees and expenses of the Warrant Agent and of counsel to the Company) in connection therewith. Every new Warrant Certificate executed and delivered pursuant to this Section 2.4 in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute a contractual obligation of the Company, whether or not the allegedly lost, stolen or destroyed Warrant Certificates shall be at any time enforceable by anyone, and shall be entitled to the benefits of this Agreement equally and proportionately with any and all other Warrant Certificates duly executed and delivered hereunder. The provisions of this Section 2.4 are exclusive and shall preclude (to the extent lawful) all other rights or remedies with respect to the replacement of mutilated, lost, stolen, or destroyed Warrant Certificates. Section 2.5. CUSIP Number. The Company in issuing the Warrants may use a "CUSIP" number(s), and if so, the Warrant Agent shall use the CUSIP number(s) in notices as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number(s) printed in the notice or on the Warrants, and that reliance may be placed only on the other identification numbers printed on the Warrants. ARTICLE III EXERCISE PRICE; EXERCISE OF WARRANTS Section 3.1. No Exercise Price. Each Warrant Certificate shall, when countersigned by the Warrant Agent, entitle the Holder thereof, subject to and upon compliance with the provisions of this Agreement, to receive, without exercise price, $[ ] aggregate principal amount at maturity of Notes. 6 Section 3.2. Exercise; Restrictions on Exercise. Subject to the terms and conditions set forth herein, the Warrants shall be immediately exercisable upon issuance. Any Warrants not exercised by 5:00 p.m., New York City time, on the Expiration Date shall expire and all rights of the Holders of such Warrants shall terminate. Section 3.3. Method of Exercise. (a) (i) Each Warrant may only be exercised in whole. In order to exercise all or any of the Warrants represented by a Warrant Certificate, the Holder thereof shall surrender for exercise the Warrant Certificate to the Warrant Agent, with the subscription form set forth in the Warrant Certificate (or a copy thereof furnished by the Warrant Agent) duly executed. (ii) Upon receipt of the Warrant Certificate and the duly executed Subscription Form, the Warrant Agent shall promptly notify the Company in writing of such surrender. (iii) If fewer than all of the Warrants represented by a Global Warrant are exercised, the Global Warrant shall not be surrendered to the Warrant Agent in accordance with Section 3.3(a)(i) and the Warrant Agent shall decrease or reflect on its records, as custodian for DTC, or its nominee, a decrease in the aggregate number of Warrants represented by such Global Warrant equal to the number of Warrants exercised. (b) Upon exercise of any Warrants, following surrender of a Warrant Certificate in conformity with the foregoing provisions, the Warrant Agent shall instruct the Company to issue promptly, pursuant to the Indenture, the Warrant Securities to which such Holder is entitled, in the form required under such Indenture, registered in such name or names as may be directed by such Holder; provided that the Holder of such Warrant shall be responsible for the payment of any transfer taxes required as the result of any change in ownership of such Warrants or the issuance of Warrant Securities other than to the registered owner of such Warrants and the Company may deduct such taxes from any payment of money to be made and shall not be required to issue or deliver such Warrant Securities (if such taxes are not deducted in full) unless and until the Holder shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company and the Warrant Agent that such tax has been paid. (c) A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of exercise, as provided in and in accordance with paragraph (a) of this Section 3.3, of such Warrant and, for all purposes of this Agreement, the Person entitled to receive any Warrant Securities shall, as between such Person and the Company, be deemed to be the Holder of such Warrant Securities of record as of the close of business on such date and shall be entitled to receive, and the Company shall deliver to such Person, the Warrant Securities. 7 ARTICLE IV Intentionally Omitted ARTICLE V WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER Section 5.1. Transfer and Exchange. The Warrant Certificates shall be issued in registered form only. The Company shall cause to be kept at the office of the Warrant Agent a register (the "Warrant Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Warrant Certificates and transfers or exchanges of Warrant Certificates as herein provided. All Warrant Certificates issued upon any registration of transfer or exchange of Warrant Certificates shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefit under this Agreement, as the Warrant Certificates surrendered for such registration of transfer or exchange. A Holder may transfer its Warrants only by complying with the terms of this Agreement. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Warrant Agent in the Warrant Register. Prior to the registration of any transfer of Warrants by a Holder as provided herein, the Company, the Warrant Agent, any agent of the Company or the Warrant Agent may treat the Person in whose name the Warrants are registered as the owner thereof for all purposes and as the Person entitled to exercise the rights represented thereby, any notice to the contrary notwithstanding. Furthermore, any Holder of a Global Warrant, shall, by acceptance of such Global Warrant, agree that transfers of beneficial interests in such Global Warrant may be effected only through a book-entry system maintained by the Holder of such Global Warrant (or its agent), and that ownership of a beneficial interest in the Warrants represented thereby shall be required to be reflected in a book entry. When Warrants are presented to the Warrant Agent with a request to register the transfer or to exchange them for an equal amount of Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange in accordance with the provisions hereof. Section 5.2. Registration, Registration of Transfer and Exchange. Each Warrant shall initially be issued as part of a Unit consisting of $[ ] principal amount at maturity of Notes and one Warrant. Prior to the Separability Date, the Warrants may not be transferred or exchanged separately from, but may be transferred or exchanged only together 8 with, the Notes attached to such Warrants. Prior to the Separability Date, the Trustee under the Indenture shall act as transfer agent ("Transfer Agent") for both the Warrants and the Notes. Any request for transfer of a Warrant prior to the Separability Date to the Transfer Agent shall be accompanied by the Note attached thereto and the Transfer Agent will not execute any such transfer without such Note attached thereto. Such Note will be duly endorsed and accompanied by a written instrument of transfer in form satisfactory to the Company, duly executed by the Holder thereof or the Holder's attorneys duly authorized in writing. The Company shall provide notice to the Transfer Agent and the Warrant Agent of the Separability Date five Business Days prior to such date and the Transfer Agent will notify DTC of such date. When Certificated Warrants are presented to the Warrant Agent with a request from the Holder of such Warrants to register the transfer or to exchange them for an equal number of Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange as requested; provided that every Warrant presented and surrendered for registration of transfer or exchange shall be duly endorsed and be accompanied by a written instrument of transfer in form satisfactory to the Company, duly executed by the Holder thereof or the Holder's attorneys duly authorized in writing. To permit registrations of transfers and exchanges, the Company shall make available to the Warrant Agent a sufficient number of executed Warrant Certificates to effect such registrations of transfers and exchanges. No service charge shall be made to the Holder for any registration of transfer or exchange of Warrants, but the Company may require from the transferring or exchanging Holder payment of a sum sufficient to cover any transfer tax or similar governmental charge payable upon exchanges pursuant to Section 2.4 and exchanges in respect of portions of Warrants not exercised and the Company may deduct such taxes from any payment of money to be made and such transfer or exchange shall not be consummated (if such taxes are not deducted in full) unless or until the Holder shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company and the Warrant Agent that such tax has been paid. Section 5.3. Book-Entry Provisions for the Global Warrants. (a) The Global Warrant initially shall (i) be registered in the name of DTC or the nominee of DTC, (ii) be delivered to the Warrant Agent as custodian for DTC and (iii) bear legends as set forth in Section 2.2 hereof. Members of, or participants in, DTC ("Agent Members") shall have no rights under this Agreement with respect to the Global Warrant held on their behalf by DTC or the Warrant Agent as its custodian, and DTC may be treated by the Company, the Warrant Agent and any agent of the Company or the Warrant Agent as the absolute owner of such Global Warrant for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Warrant Agent or any agent of the Company or the Warrant Agent from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of 9 customary practices governing the exercise of the rights of a beneficial owner of any Warrants. (b) Transfers of the Global Warrant shall be limited to transfers of such Global Warrant in whole, but not in part, to DTC, its successors or their respective nominees. Interests of beneficial owners in the Global Warrant may be transferred in accordance with the rules and procedures of DTC. Certificated Warrants shall be transferred to all beneficial owners in exchange for their beneficial interests in the Global Warrant if (i) DTC notifies the Company that it is unwilling or unable to continue as depositary for the Global Warrant or (ii) DTC ceases to be a "Clearing Agency" registered under the Exchange Act and a successor depositary is not appointed by the Company within 90 days. (c) In connection with the transfer of the entire Global Warrant to beneficial owners pursuant to paragraph (b) of this Section 5.3, the Global Warrant shall be deemed to be surrendered to the Warrant Agent for cancellation, and the Company shall execute, and the Warrant Agent shall countersign and deliver, to each beneficial owner identified by DTC in exchange for its beneficial interest in the Global Warrant, Certificated Warrants of authorized denominations representing, in the aggregate, the number of Warrants theretofore represented by the Global Warrant. (d) Any Certificated Warrant delivered in exchange for an interest in a Global Warrant pursuant to paragraph (b) or (c) of this Section 5.3 shall bear legends as set forth in Section 2.2 hereof. (e) The registered holder of the Global Warrant may grant proxies and otherwise authorize any Person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Agreement or the Warrants. (f) Beneficial owners of interests in the Global Warrant may receive Certificated Warrants (which shall bear the legend set forth in Exhibit C if required by Section 2.2) in accordance with the procedures of DTC. In connection with the execution, countersigning and delivery of such Certificated Warrants, the Warrant Agent shall reflect on its books and records a decrease in the number of Warrants represented by the Global Warrant equal to the number of Warrants represented by such Certificated Warrants and the Company shall execute and the Warrant Agent shall countersign and deliver one or more Certificated Warrants representing, in the aggregate, the number of Warrants theretofore represented by the Global Warrant. Section 5.4. Surrender of Warrant Certificates. Any Warrant Certificate surrendered for registration of transfer, exchange or exercise of the Warrants represented thereby shall, if surrendered to the Company, be delivered to the Warrant Agent, and all 10 Warrant Certificates surrendered or so delivered to the Warrant Agent shall be promptly cancelled by the Warrant Agent and shall not be reissued by the Company and, except as provided in this Article V in case of an exchange or in Article III hereof in case of the exercise of less than all the Warrants represented thereby or in case of a mutilated Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu thereof. The Warrant Agent shall deliver to the Company from time to time or otherwise dispose of such cancelled Warrant Certificates as the Company may direct in writing. ARTICLE VI COVENANTS OF THE COMPANY Section 6.1. Reservation and Authorization. During the period within which the Warrants may be exercised in accordance with this Agreement, the Company will keep available for issue under the Indenture upon exercise of Warrants as herein provided, such aggregate principal amount at maturity of Notes sufficient to permit the exercise in full of all outstanding Warrants and will cause appropriate evidence of ownership of such Notes to be delivered to any Holder or to such Holder's order in accordance with this Agreement upon the Warrant Agent's instruction for delivery upon the exercise of Warrants. The Company shall use its best efforts to file and cause to be declared effective a Warrant Securities Registration Statement with respect to the Warrant Securities. The Company covenants that all Warrant Securities that may be issued upon the exercise of the Warrants will, upon issuance, be duly executed, issued and delivered by the Company and constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms and free from all taxes, liens, charges and security interests with respect to the issue thereof. Section 6.2. Freely Tradable Warrant Securities. The Company shall provide, upon exercise of Warrants in accordance with the terms of this Agreement, Warrant Securities that are freely tradable without restriction and are not "Restricted Securities" within the meaning of Rule 144 under the Securities Act ("Restricted Securities"). If such Warrant Securities are not freely tradable or are "Restricted Securities," the Company will, as soon a practicable, prepare and file a registration statement under the Securities Act and take any other necessary steps to ensure compliance with the first sentence of this Section 6.2. Section 6.3. Blue Sky. To the extent required to provide Warrant Securities that are freely tradable and are not Restricted Securities, the Company shall use its best efforts to register or qualify the Warrant Securities under all applicable securities or "blue sky" laws of all jurisdictions in the United States in which any Holder of Warrants may or may be deemed to purchase Warrant Securities upon the exercise of Warrants and shall use 11 its best efforts to maintain such registration or qualification through the earlier of the date upon which all Warrants have been exercised and the Expiration Date; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 6.3, (ii) file any general consent to service of process or (iii) subject itself to taxation in any jurisdiction if it is not otherwise so subject. Section 6.4. Accuracy of Disclosure. The Company and its successors represent and warrant to each Holder and agree for the benefit of each Holder that (i) any Warrant Securities Registration Statement and the documents incorporated by reference therein will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading and (ii) the Prospectus delivered to such Holder upon its exercise of the Warrants and the documents incorporated by reference therein will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that such representation shall not apply to statements in or omissions from any Warrant Securities Registration Statement and the documents incorporated by reference therein or the Prospectus contained therein and the documents incorporated by reference therein or any amendment or supplement thereto made in reliance upon and in conformity with written information furnished to the Company through a representative by or on behalf of such Indemnified Party specifically for use therein. Section 6.5. Indemnity. The Company hereby indemnifies each beneficial owner of a Warrant (whether or not it is, at the time the indemnity provided for in this Section 6.5 is sought, such a beneficial owner) (each, an "Indemnified Party") against all losses, damages or liabilities which such beneficial owner suffers as a result of any breach, on the date of any exercise of a Warrant by such beneficial owner, of the representations, warranties or agreements contained in Section 6.4; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement in or omission or alleged omission from any registration statement required to be filed by the Company under Section 6.2 and the documents incorporated by reference therein or the Prospectus contained therein and the documents incorporated by reference therein or any amendment or supplement thereto made in reliance upon and in conformity with written information furnished to the Company through a representative by or on behalf of such Indemnified Party specifically for use therein. Section 6.6. Expenses. All expenses incident to the Company's performance of or compliance with its obligations under this Agreement will be borne by the Company, regardless of whether a Warrant Securities Registration Statement becomes effective, including without limitation: (i) all Commission, stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all fees and expenses incurred in 12 connection with compliance with state securities or "blue sky" laws, (iii) all expenses of any Persons incurred by or on behalf of the Company in preparing or assisting in preparing, word processing, printing and distributing any Warrant Securities Registration Statement, any Prospectus, any amendments or supplements thereto and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) the fees and disbursements of the Warrant Agent, (vi) the fees and disbursements of counsel for the Company and (vii) the fees and disbursements of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance. ARTICLE VII REMEDIES Section 7.1. Remedies; No Waiver. Notwithstanding any other provision of this Agreement, if a default occurs and is continuing, the Holders of the Warrants may pursue any available remedy to enforce the performance of any provision of this Agreement. A delay or omission by any Holder of a Warrant in exercising, or a failure to exercise, any right or remedy arising out of a default shall not impair the right or remedy or constitute a waiver of or acquiescence in the default. All remedies are cumulative to the extent permitted by law. ARTICLE VIII THE WARRANT AGENT Section 8.1. Duties and Liabilities. The Company hereby appoints the Warrant Agent to act as agent of the Company as set forth in this Agreement. The Warrant Agent hereby accepts the agency established by this Agreement and agrees to perform the same upon the terms and conditions herein set forth, by all of which the Company and the Holders of Warrants, by their acceptance thereof, shall be bound. The Warrant Agent shall not have any obligation towards or relationship of agency or trust for the Holders, except as provided in Section 7.1(b) and Section 10.1 hereof. The Warrant Agent shall not, by countersigning Warrant Certificates or by any other act hereunder, be deemed to make any representations as to the validity or authorization of the Warrants or the Warrant Certificates (except as to its countersignature thereon) or of any securities or other property delivered upon exercise of any Warrant, or as to the accuracy of the computation of the Exercise Price or the number or kind or amount of stock or other securities or other property deliverable upon exercise of any Warrant, or as to the correctness of the representations of the Company made in the certificates that the Warrant Agent receives or the validity, sufficiency or 13 adequacy of any offering materials. The Warrant Agent shall not be accountable for the use or application by the Company of the proceeds of the exercise of any Warrant. The Warrant Agent shall not (a) be liable for any recital or statement of fact contained herein or in the Warrant Certificates or for any action taken, suffered or omitted by it in good faith in the belief that any Warrant Certificate or any other documents or any signatures are genuine or properly authorized, (b) be responsible for any failure on the part of the Company to comply with any of its covenants and obligations contained in this Agreement or in the Warrant Certificates or (c) be liable for any act or omission in connection with this Agreement except for its own gross negligence or willful misconduct. The Warrant Agent is hereby authorized to accept instructions with respect to the performance of its duties hereunder from the Chief Executive Officer, President, any Vice President or the Secretary or Treasurer of the Company and to apply to any such officer for instructions (which instructions will be promptly given in writing when requested) and the Warrant Agent shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with the instructions of any such officer; however, in its discretion, the Warrant Agent may in lieu thereof accept other evidence of such or may require such further or additional evidence as it may deem reasonable. The Warrant Agent shall not be liable for any action taken, or failure to take any action, with respect to any matter in the event it requests instructions from the Company as to that matter and does not receive such instructions within a reasonable period of time after the request therefor. The Warrant Agent may execute and exercise any of the rights and powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys, agents or employees, and the Warrant Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys, agents or employees, provided reasonable care has been exercised in the selection and in the continued employment of any such attorney, agent or employee. The Warrant Agent shall not be under any obligation or duty to institute, appear in or defend any action, suit or legal proceeding in respect hereof, unless first indemnified to its satisfaction, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without such indemnity. The Warrant Agent shall promptly notify the Company in writing of any claim made or action, suit or proceeding instituted against it arising out of or in connection with this Agreement. The Warrant Agent may rely and shall be fully protected in acting or refraining from acting upon any certificate, notice, instruction, Warrant, document or other writing believed by it to be genuine and to have been signed or presented by the proper Person. The Warrant Agent need not investigate any fact or matter stated in any such certificate, notice, instruction, Warrant, document or other writing. The Warrant Agent shall not be liable for any action that it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. 14 The Company will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further acts, instruments and assurances as are consistent with this Agreement and as may reasonably be required by the Warrant Agent in order to enable it to carry out or perform its duties under this Agreement. The Warrant Agent shall act solely as agent of the Company hereunder. The Warrant Agent shall not be liable except for the failure to perform such duties as are specifically set forth herein, and no implied covenants or obligations shall be read into this Agreement against the Warrant Agent, whose duties and obligations shall be determined solely by the express provisions hereof. With respect to the identity of beneficial owners of interests in the Global Warrant and the number of Warrants beneficially owned by any beneficial owner, the Warrant Agent shall be entitled to conclusively rely on the records of DTC and shall be fully protected in so relying. Section 8.2. Right to Consult Counsel. The Warrant Agent may at any time consult with legal counsel acceptable to it (who may be legal counsel for the Company), and the opinion or advice of such counsel shall be full and complete authorization and protection to the Warrant Agent and the Warrant Agent shall incur no liability or responsibility to the Company or to any Holder for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel. Section 8.3. Compensation; Indemnification. The Company agrees to pay to the Warrant Agent from time to time compensation for all services rendered by it hereunder as the Company and the Warrant Agent may agree in writing from time to time, and to reimburse the Warrant Agent for reasonable expenses and disbursements incurred in connection with the execution and administration of this Agreement (including the reasonable fees and the expenses of its counsel), and further agrees to indemnify the Warrant Agent for, and to hold it harmless against, any claim, loss, liability or expense arising out of or in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending itself against any such claim or liability, except that the Company shall have no liability hereunder to the extent that any such loss, liability or expense results from the Warrant Agent's own gross negligence or willful misconduct. The obligations of the Company under this Section 8.3 shall survive the exercise and the expiration of the Warrants and the resignation or removal of the Warrant Agent. No provision of this Agreement shall require the Warrant Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. 15 Section 8.4. No Restrictions on Actions. The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in transactions in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not the Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. Section 8.5. Discharge or Removal; Replacement Warrant Agent. Except as otherwise provided in this Section 8.5, no resignation or removal of the Warrant Agent and no appointment of a successor warrant agent shall become effective until the acceptance of appointment by the successor warrant agent provided herein. The Warrant Agent may resign from its position as such and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's own gross negligence or willful misconduct), after giving one month's prior written notice to the Company. The Company may remove the Warrant Agent upon one month's prior written notice specifying the date when such discharge shall take effect, and the Warrant Agent shall thereupon in like manner be discharged from all further duties and liabilities hereunder, except as aforesaid. The Warrant Agent or the Company shall cause to be mailed (by first-class mail, postage prepaid) to each Holder of a Warrant a copy of said notice of resignation or notice of removal, as the case may be. Upon such resignation or removal the Company shall appoint in writing a new warrant agent. If the Company shall fail to make such appointment within a period of 30 calendar days after it has been notified in writing of such resignation by the resigning Warrant Agent or after such removal, then the resigning Warrant Agent or the Holder of any Warrant may apply to any court of competent jurisdiction for the appointment of a new warrant agent. Any new warrant agent, whether appointed by the Company or by such a court, shall be a bank or trust company doing business under the laws of the United States or any state thereof, in good standing and having a combined capital and surplus of not less than $50,000,000. The combined capital and surplus of any such new warrant agent shall be deemed to be the combined capital and surplus as set forth in the most recent annual report of its condition published by such warrant agent prior to its appointment, provided that such reports are published at least annually pursuant to law or to the requirements of a federal or state supervising or examining authority. After acceptance in writing of such appointment by the new warrant agent, it shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed; however, the original Warrant Agent, upon payment of its fees and expenses, shall in all events deliver and transfer to the successor Warrant Agent all property, if any, at the time held hereunder by the original Warrant Agent and if for any reason it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed and delivered by the resigning or removed Warrant Agent. Not later than the effective date of any such appointment, the Company shall file a 16 notice thereof with the resigning or removed Warrant Agent and shall forthwith cause a copy of such notice to be mailed to each Holder of a Warrant. Failure to give any notice provided for in this Section 8.5, however, or any defect therein, shall not affect the legality or validity of the resignation of the Warrant Agent or the appointment of a new warrant agent, as the case may be. Section 8.6. Successor Warrant Agent. Any corporation into which the Warrant Agent or any successor warrant agent may be merged or converted, or any corporation resulting from any consolidation to which the Warrant Agent or any successor warrant agent shall be a party, and any corporation which acquires substantially all of the corporate trust business of the Warrant Agent, shall be a successor Warrant Agent under this Agreement without any further act, provided that such corporation would be eligible for appointment as successor to the Warrant Agent under the provisions of Section 8.5 hereof. Any such successor Warrant Agent shall promptly cause notice of its succession as Warrant Agent to be mailed (by first-class mail, postage prepaid) to each Holder of a Warrant. ARTICLE IX WARRANT HOLDERS Section 9.1. Warrant Holder Not Deemed a Holder of Notes. The Company and the Warrant Agent may deem and treat the registered Holder(s) of the Warrant Certificates as the absolute owner(s) thereof (notwithstanding any notation of ownership or other writing thereon made by anyone), for the purpose of any exercise thereof and for all other purposes, and neither the Company nor the Warrant Agent nor any agent of the Company or the Warrant Agent shall be affected by any notice to the contrary. Prior to the exercise of the Warrants, no Holder of a Warrant Certificate, as such, shall be entitled to any rights of a holder of Notes. Section 9.2. Right of Action. All rights of action with respect to this Agreement are vested in the Holders of the Warrants, and any Holder of any Warrant, without the consent of the Warrant Agent or the Holder of any other Warrant, may, on such Holder's own behalf and for such Holder's own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company suitable to enforce, or otherwise in respect of, such Holder's right to exercise, exchange or tender for purchase such Holder's Warrants in the manner provided in the Warrant Certificate representing his Warrants and in this Agreement. ARTICLE X 17 MISCELLANEOUS Section 10.1. Money Deposited with the Warrant Agent. The Warrant Agent shall not be required to pay interest on any moneys deposited pursuant to the provisions of this Agreement except such as it shall agree in writing with the Company to pay thereon. Any moneys, securities or other property which at any time shall be deposited by the Company or on its behalf with the Warrant Agent pursuant to this Agreement shall be and are hereby assigned, transferred and set over to the Warrant Agent in trust for the purpose for which such moneys, securities or other property shall have been deposited; but such moneys, securities or other property need not be segregated from other funds, securities or other property except to the extent required by law. The Warrant Agent shall distribute any money deposited with it for payment and distribution to the Holders by mailing by first-class mail a check in such amount as is required by this Agreement to each such Holder at the address shown on the Warrant register of the Company, or as it may be otherwise directed in writing by such Holder, in accordance with the terms and conditions hereof. Any money, securities or other property deposited with the Warrant Agent for payment or distribution to the Holders that remains unclaimed for two years after the date the money, securities or other property was deposited with the Warrant Agent shall be delivered to the Company upon its written request therefor. Section 10.2. Payment of Taxes. The Company shall pay any stamp, registration, and other similar taxes and other governmental charges that may be imposed under the laws of the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery thereof or of other securities deliverable upon exercise of Warrants (other than income taxes imposed on the Holders). The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any Warrant Securities to any Person other than the Holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and in case of such transfer or payment, the Warrant Agent and the Company shall not be required to issue any Warrant Securities or pay any cash until such tax or charge has been paid or it has been established to the Warrant Agent's and the Company's satisfaction that no such tax or other charge is due. Section 10.3. Merger, Consolidation or Sale of Assets of the Company. (a) To the extent permitted in the Indenture, the Company may consolidate with or merge into another corporation or other entity, or convey or transfer all or substantially all of its properties and assets to any other corporation or other entity. In case of any such consolidation, merger, conveyance or transfer and upon any assumption of the duties and obligations of the Company by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named in this Agreement, and the Company shall be relieved of any further 18 obligation under this Agreement and the Warrants. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Warrant Securities issuable pursuant to the terms of the Warrant Agreement and the Warrants. All the Warrant Securities so issued shall in all respects have the same legal rank and benefit under the Indenture as the Warrant Securities theretofore or thereafter issued in accordance with the terms of this Agreement and the Indenture. (b) In case of any consolidation, merger, conveyance or transfer pursuant to Section 10.3(a), the Company shall cause to be mailed to the Warrant Agent and each Holder of a Warrant, at the earliest practicable time (and, in any event, not less than 20 calendar days before any date set for definitive action), notice of the date on which such transaction shall take place. Such notice shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the holders of Notes and Warrants. Such notice shall also specify any date as of which the holders of record of the Notes or Warrants shall be entitled to exchange their securities for securities, money or other property deliverable upon such consolidation, merger, conveyance or transfer, as the case may be. Section 10.4. Reports to Holders. The Company shall: (a) file the reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) required to be filed by it under the Securities Act and the Exchange Act, and the rules, regulations and policies adopted by the Commission thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then the Company will, upon the request of any Holder or beneficial owner of Warrants, make available such information as necessary to permit sales pursuant to Rule 144A under the Securities Act; and (b) file with the Warrant Agent and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Agreement as may be required from time to time by such rules and regulations. Section 10.5. Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or any air courier (i) if to a Holder of the Warrants, at the address of such Holder maintained by the Warrant Agent, (ii) if to the Company, to CD Radio Inc., 1001 22nd Street, N.W., Washington, D.C. 20037, Attention: [ ], and (iii) if to the Warrant 19 Agent, to IBJ Schroder Bank & Trust Company, One State Street, 11th Floor, New York, New York 10004, Attention: Corporate Trust Administration. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; at the time received, if mailed or sent by air courier; when answered back, if telexed; and when receipt is acknowledged, by recipient's telecopy operator, if telecopied. Section 10.6. Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. Section 10.7. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Warrant Agent and their respective successors and assigns, and the Holders from time to time of the Warrants. Nothing in this Agreement is intended or shall be construed to confer upon any Person, other than the Company, the Warrant Agent and the Holders of the Warrants, any right, remedy or claim under or by reason of this Agreement or any part hereof. Section 10.8. Third Party Beneficiaries. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Warrant Agent, on the other hand, and each Holder shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. Section 10.9. Amendments. The Company may, without the consent of the Holders of the Warrants, by supplemental agreement or otherwise, make any changes or corrections in this Agreement that it shall have been advised by counsel (a) are required to cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein or (b) add to the covenants and agreements of the Company for the benefit of the Holders, or surrender any rights or power reserved to or conferred upon the Company in this Agreement; provided that, in each case, such changes or corrections shall not adversely affect the interests of the Holders in any material respect. Amendments or supplements which do not meet the requirements of the preceding sentence shall require the written consent of the Holders of a majority of the then outstanding warrants; provided, however, that the consent of each Holder is required for any amendment or supplement pursuant to which the Exercise Price would be increased or the Exercise Rate would be decreased (other than pursuant to adjustments as provided in Article IV of this Agreement). The Warrant Agent shall join with the Company in the execution and delivery of any such supplemental agreements unless it affects the Warrant Agent's own rights, duties 20 or immunities hereunder, in which case the Warrant Agent may, but shall not be required to, join in such execution and delivery. Section 10.10. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. Section 10.11. GOVERNING LAW. THIS AGREEMENT AND THE WARRANTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA. Section 10.12. Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 21 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, and their respective corporate seals to be hereto affixed and attested, all as of the day and year first above written. CD RADIO INC. By _______________________________ Name: Title: IBJ SCHRODER BANK & TRUST COMPANY, Warrant Agent By _______________________________ Name: Title: Exhibit A FORM OF WARRANT CERTIFICATE CD RADIO INC. CUSIP No. __________ No. _____ Certificate for ________ Warrants WARRANTS TO PURCHASE [ ]% SENIOR SECURED DISCOUNT NOTES DUE 2007 This certifies that _______________, or its registered assigns, is the owner of the number of Warrants set forth above or such other number as shall be represented from time to time by this Warrant Certificate in accordance with the terms of the within-mentioned Warrant Agreement, each of which represents the right to receive, immediately upon issuance of such Warrants, from CD Radio Inc. (the "Company"), a Delaware corporation, $[ ] principal amount at maturity of Notes per Warrant upon surrender hereof at the office of IBJ Schroder Bank & Trust Company or to its successor as the warrant agent under the Warrant Agreement (any such warrant agent being herein called the "Warrant Agent"), with the Subscription Form on the reverse hereof (or a copy thereof furnished by the Warrant Agent) duly executed, with signature guaranteed as therein specified, subject to the terms and conditions hereof and of the Warrant Agreement. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of [ ], 1997 (the "Warrant Agreement"), between the Company and IBJ Schroder Bank & Trust Company, Warrant Agent, and is subject to the terms and provisions contained therein, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Company and the Holders of the Warrants. The summary of the terms of the Warrant Agreement contained in this Warrant Certificate is qualified in its entirety by express reference to the Warrant Agreement. All terms used in this Warrant Certificate that are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. Copies of the Warrant Agreement are on file at the office of the Warrant Agent and may be obtained by writing to the Warrant Agent at the following address: IBJ Schroder Bank & Trust Company A-2 One State Street 11th Floor New York, New York 10004 Attention: Corporate Trust Administration To the extent permitted in the Indenture, the Company may consolidate with or merge into another corporation or other entity, or convey or transfer all or substantially all of its properties and assets to any other corporation or other entity. In case of any such consolidation, merger, conveyance or transfer and upon any assumption of the duties and obligations of the Company by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named in the Warrant Agreement, and the Company shall be relieved of any further obligation under the Warrant Agreement and the Warrants. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Warrant Securities issuable pursuant to the terms of the Warrant Agreement and the Warrants. All the Warrant Securities so issued shall in all respects have the same legal rank and benefit under the Indenture as the Warrant Securities theretofore or thereafter issued in accordance with the terms of the Warrant Agreement and the Indenture. All Warrant Securities shall be duly executed, issued and delivered by the Company and the Company shall pay all stamp, registration or other similar taxes and other governmental charges that may be imposed under the laws of the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery of such Warrant Securities. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any Warrant Securities to any Person other than the Holder of a Warrant Certificate surrendered upon the exercise or repurchase of a Warrant, and in case of such transfer or payment, the Warrant Agent and the Company may deduct such taxes from any payment of money to be made and shall not be required to issue any Warrant Securities until such tax or charge has been paid or it has been established to the Warrant Agent's and the Company's satisfaction that no such tax or other charge is due. Subject to the restrictions on transfer set forth in Article V of the Warrant Agreement, this Warrant Certificate and all rights hereunder are transferable by the registered Holder hereof, in whole or in part, on the Warrant Register of the Company maintained by the Warrant Agent for such purpose at its office in New York, New York, upon surrender of this Warrant Certificate duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Warrant Agent duly executed, with signatures guaranteed as specified in the attached Form of Assignment, by the registered Holder hereof or his attorney duly authorized in writing and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer, the Company will issue and the Warrant Agent will countersign and deliver A-3 to such Holder a new Warrant Certificate or Certificates with respect to any portion not so transferred. Each taker and Holder of this Warrant Certificate, by taking and holding the same, consents and agrees that prior to the registration of transfer as provided in the Warrant Agreement, the Company and the Warrant Agent and any agent of the Company or the Warrant Agent may treat the person in whose name the Warrants are registered as the absolute owner hereof for any purpose and as the Person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding. This Warrant Certificate may be exchanged at the office of the Warrant Agent maintained for such purpose in New York, New York for Warrant Certificates representing the same aggregate number of Warrants, each new Warrant Certificate to represent such number of Warrants as the Holder hereof shall designate at the time of such exchange. Prior to the exercise of the Warrants represented hereby, the Holder of this Warrant Certificate, as such, shall not be entitled to any rights of a holder of Notes. This Warrant Certificate shall be void and all rights evidenced hereby shall cease on [ ], 1997 unless sooner terminated by the liquidation, dissolution or winding-up of the Company or as otherwise provided in the Warrant Agreement upon the consolidation or merger of the Company with, or sale of the Company to, another Person. A-4 This Warrant Certificate shall not be valid for any purpose until it shall have been countersigned by the Warrant Agent. Dated: CD RADIO INC. By _______________________________ Name: Title: Countersigned: IBJ Schroder Bank & Trust Company, Warrant Agent By __________________________________ Authorized Signatory A-5 FORM OF REVERSE OF WARRANT CERTIFICATE SUBSCRIPTION FORM (To be executed only upon exercise of Warrant) To: The undersigned irrevocably exercises ____________ of the Warrants represented by the Warrant Certificate, each for the purchase of $[ ] principal amount at maturity of [ ]% Senior Secured Discount Notes due 2007 of CD Radio Inc. (the "Warrant Securities"), and on the terms and conditions specified in the within Warrant Certificate and the Warrant Agreement therein referred to, surrenders this Warrant Certificate and all right, title and interest therein to and directs that the Warrant Securities deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Dated: ____________________________ (1) ----------------------------------- (Signature of Owner) ----------------------------------- (Street Address) ----------------------------------- (City) (State) (Zip Code) Signature Guaranteed By: ----------------------------------- Securities and/or check to be issued to: _______________________________________ Please insert social security or identifying number:____________________________ - -------- (1) The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatever, and must be guaranteed by a United States national bank or trust company or by a member firm of any United States national securities exchange. A-6 Name:___________________________________________________________________________ Street Address:_________________________________________________________________ City, State and Zip Code:_______________________________________________________ A-7 FORM OF ASSIGNMENT FOR VALUE RECEIVED the undersigned registered holder of the within Warrant Certificate hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any Warrants constituting a part of the Warrants evidenced by the within Warrant Certificate not being assigned hereby) all of the right of the undersigned under the within Warrant Certificate, with respect to the number of Warrants set forth below: Name(s) of Assignee(s):_________________________________________________________ Address:________________________________________________________________________ No. of Warrants:_________________________ Please insert social security or other identifying number of assignee(s): _______________ and does hereby irrevocably constitute and appoint _____________________________ the undersigned's attorney to make such transfer on the books of________________ maintained for the purposes, with full power of substitution in the premises. Exhibit B to Warrant Agreement FORM OF LEGEND FOR GLOBAL WARRANTS Any Global Warrant authenticated and delivered hereunder shall bear a legend in substantially the following form: THIS WARRANT IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS WARRANT IS NOT EXCHANGEABLE FOR WARRANTS REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT, AND NO TRANSFER OF THIS WARRANT (OTHER THAN A TRANSFER OF THIS WARRANT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. Exhibit C to Warrant Agreement FORM OF LEGEND FOR WARRANTS ISSUED AS PART OF A UNIT THE WARRANT EVIDENCED BY THIS CERTIFICATE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $[ ] PRINCIPAL AMOUNT AT MATURITY OF [ ]% SENIOR DISCOUNT NOTES DUE 2007 OF CD RADIO INC. (THE "NOTES") AND ONE WARRANT. PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (I) THE OCCURRENCE OF AN EXERCISE EVENT, (II) THE OCCURRENCE OF AN EVENT OF DEFAULT, OR (III) SUCH EARLIER DATE AS DETERMINED BY MERRILL LYNCH IN ITS SOLE DISCRETION (AS SUCH TERMS ARE DEFINED IN THE WARRANT AGREEMENT REFERRED TO HEREIN), THE WARRANT EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE NOTES. EX-4 5 EXHIBIT 4.5 PLEDGE AGREEMENT Dated as of November __, 1997 from CD RADIO INC., as Pledgor to IBJ SCHRODER BANK AND TRUST COMPANY, as Collateral Agent TABLE OF CONTENTS Page ---- 1. Grant of Security Interest................................. 1 2. Security for Obligations................................... 2 3. Delivery of Pledged Collateral............................. 3 4. Representations and Warranties............................. 3 5. As to the Pledged Collateral............................... 5 6. Additional Shares.......................................... 6 7. Payment of Taxes and Claims................................ 7 8. Covenants and Agreements................................... 7 9. The Collateral Agent Appointed Attorney-in-Fact............ 9 10. The Collateral Agent May Perform........................... 9 11. The Collateral Agent's Duties.............................. 10 12. Events of Default.......................................... 10 13. Notice of Event of Default................................. 11 14. Remedies................................................... 11 15. Expenses................................................... 12 16. Repayment in Bankruptcy, etc............................... 12 17. No Segregation of Moneys; No Interest...................... 13 18. Continuing Security Interest; Termination.................. 13 19. Notices.................................................... 13 20. Other Provisions........................................... 13 PLEDGE AGREEMENT PLEDGE AGREEMENT (this "Agreement"), dated as of November __, 1997, made by CD Radio Inc., a Delaware corporation (the "Pledgor"), to IBJ Schroder Bank and Trust Company, Trustee, as collateral agent (the "Collateral Agent") for the holders (the "Holders") from time to time of the Notes (as defined herein). RECITALS A. The Pledgor and IBJ Schroder Bank and Trust Company, as Trustee (in such capacity, the "Trustee"), have entered into that certain indenture dated the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Indenture"; capitalized terms used herein without definition are used herein as defined in the Indenture), pursuant to which the Pledgor may issue up to $296,930,000 aggregate principal amount at maturity of its 15% Senior Secured Discount Notes due 2007 (the "Notes"). B. The Pledgor is the owner of the issued and outstanding capital stock described in Schedule I hereto (the "Pledged Shares") representing 100% of the issued and outstanding capital stock of Satellite CD Radio, Inc., a Delaware corporation (the "Subsidiary"). C. The Pledgor has agreed to grant to the Collateral Agent the assignment and security interest and make the pledge and assignment contemplated by this Agreement. In consideration of the premises, the agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce the Holders to purchase the Notes, the Pledgor hereby covenants and agrees with the Collateral Agent for its benefit and for the ratable benefit of the Holders. 1. Grant of Security Interest. (a) The Pledgor hereby unconditionally assigns, pledges and grants to the Collateral Agent for its benefit and the ratable benefit of the Holders, a first priority security interest in and to all of the Pledgor's right, title and interest in and to the following, whether now owned or existing or hereafter arising or acquired and wheresoever located (collectively, the "Pledged Collateral"): (i) the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; 2 (ii) all additional shares of issued and outstanding shares, interests, participations, warrants or other equivalents (however designated) of corporate stock ("Stock") of the Subsidiary from time to time acquired by the Pledgor in any manner, and the certificates representing such additional shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (iii) all Proceeds (as defined herein) of any and all of the foregoing Pledged Collateral (including, without limitation, proceeds that constitute property of the types described in clauses (i) and (ii) above). (b) As used herein, the term "Proceeds" shall have the meaning assigned to such term under Article 9 of the Uniform Commercial Code from time to time in effect in the State of New York (the "UCC"; provided that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of the Collateral Agent's security interest in any Pledged Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions) and, to the extent not otherwise included, shall include, but not be limited to, (i) any stock dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spin-off or split-off; (ii) any option or other right, whether as an addition to, in substitution of or in exchange for any Pledged Shares or otherwise; (iii) distributions payable in property (whether real, personal, tangible, intangible, or mixed property; collectively "Property") ; (iv) dividends or distributions on dissolution, or in partial or total liquidation, or from capital, capital surplus or paid-in surplus; (v) any and all payments (in any form whatsoever) made or due and payable to the Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Pledged Collateral by any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator (a "Governmental Body"); and (vi) any and all other amounts from time to time paid or payable under or in connection with the Pledged Collateral. 2. Security for Obligations. This Agreement secures the payment of all of the obligations and liabilities of any kind of the Pledger under this Agreement, the Indenture or the Notes, whether liquidated, unliquidated, direct, indirect, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, and whether for principal, interest, fees, costs, expenses or otherwise (whether arising or accruing before or after the occurrence of any Event of Default (as defined herein) and whether discharged, stayed or otherwise affected or allowed as a claim in any bankruptcy proceeding of the Subsidiary), and all costs, 3 fees and expenses of the Collateral Agent, the Trustee or the Holders (including reasonable attorneys' fees and expenses and with respect to the Collateral Agent, reasonable allocated costs and expenses of in-house counsel and legal staff) in enforcing, preserving and protecting its rights against the Pledgor, whether or not suit is instituted (as the foregoing obligations and liabilities may be amended, increased, modified, renewed, refinanced, refunded or extended from time to time) (collectively, the "Secured Obligations"), now or hereafter existing, whether for principal, interest, fees, costs, expenses or otherwise. Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Secured Obligations and would be owed by the Pledgor to the Collateral Agent, the Trustee or the Holders under this Agreement, the Indenture and the Notes but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Pledgor. 3. Delivery of Pledged Collateral. (a) All certificates and other instruments at any time owned or acquired by the Pledgor representing or evidencing the Pledged Shares shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. Upon the occurrence and during the continuance of an Event of Default (as defined herein), the Collateral Agent shall have the right, upon written instructions from the Trustee and without notice to the Pledgor, to transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Pledged Collateral. In addition, upon the occurrence and during the continuance of an Event of Default, the Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. (b) If there shall occur a change in applicable law or regulations regarding (i) the steps necessary to obtain and maintain a perfected security interest in any Pledged Collateral or (ii) the ability to obtain a security interest directly in any license granted by the Federal Communications Commission or Governmental Body succeeding to the functions thereof (the "FCC"), or if there is Pledged Collateral for which the foregoing procedures are not effective to perfect a security interest, the Pledgor will immediately upon its becoming aware thereof so notify the Collateral Agent and will deliver to the Collateral Agent an Opinion of Counsel setting forth the steps necessary for the Collateral Agent to obtain and maintain such a perfected security interest in the Pledged Collateral affected by such change or for which the foregoing procedures are not effective to perfect a security interest, and the Collateral Agent, instead of the actions specified in this Section 3, shall take such other action, as specified in such Opinion of Counsel, as will create and maintain such perfected security interest. (c) Upon the execution and delivery of this Agreement, the Pledgor will file proper financing statements with the appropriate office or offices under the Uniform 4 Commercial Code in the State of New York, covering the Pledged Collateral described in this Agreement and, thereafter, such renewals, amendments or continuations thereof or such additional financing statements in such additional offices in such jurisdictions or in the appropriate filing offices in such additional jurisdictions as shall be required from time to time under the UCC in order to perfect and to continue the perfection of the security interest in the Pledged Collateral. 4. Representations and Warranties. The Pledgor hereby represents and warrants to the Collateral Agent as follows: (a) Organization; Good Standing. The Pledgor is duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified and in good standing in every other jurisdiction where it is doing business, except where the failure to be so qualified or maintain good standing would not have a Material Adverse Effect (as defined herein). The chief place of business and chief executive office of the Pledgor are located at 1001 22nd Street, N.W., Washington, D.C. 20037. (b) Corporate Power; Authorization. The execution, delivery and performance by the Pledgor of this Agreement, and the consummation of the transactions contemplated hereby, (i) are within the Pledgor's corporate authority; (ii) have been duly authorized by all necessary or proper corporate action; (iii) are not in contravention of any provision of the Pledgor's by-laws or charter; (iv) will not violate any law or regulation, or any order or decree of any court or governmental instrumentality to which the Pledgor or its property is subject; and (v) will not conflict with or result in the breach or termination of, constitute a default under, or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Pledgor is a party or by which the Pledgor or any of its property is bound (except for such conflict, breach, termination, default or acceleration as could not reasonably be expected to have a Material Adverse Effect). Subject to Section 21(f) hereof, no authorization, approval or action by, or notice to, or filing with, any governmental authority or regulatory body is required under existing laws and regulations on the date hereof (i) for the grant or perfection of the security interests contemplated hereby or for the execution, delivery or performance of this Agreement by the Company, except as may be set forth in Section 3 with respect to actions to be taken by the Collateral Agent, the Trustee or a financial intermediary holding Pledged Collateral and except for the filings referred to in Section 3(b) that may be required in the future, or (ii) for the exercise by the Collateral Agent of the voting or other rights provided for this Agreement or its rights and remedies in respect of the Pledged Collateral pursuant to this Agreement, except (A) as may be required in connection with the disposition of Pledged Collateral by laws affecting the offering and sale of securities, generally, and (B) with respect to Pledged Shares, for authorizations, approvals, notices and filings that may be required pursuant to regulations of the FCC (as defined herein), or any successor laws or regulations. 5 (c) Enforceability. This Agreement is the legal, valid and binding obligation of the Pledgor enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights or insolvent corporations generally, and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. (d) Absence of Liens. It is the legal and beneficial owner of the Pledged Collateral free and clear of all Liens other than the security interest created by this Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Collateral Agent under this Agreement. (e) Pledged Collateral. The Pledged Shares have been duly authorized and validly issued and are fully paid and non-assessable. The Pledged Shares represent one hundred percent (100%) of the total number of shares of the Subsidiary which are issued and outstanding or for which the Subsidiary is obligated to issue after giving effect to the issuance of all such shares. (f) Security Interest. This Agreement and the pledge of the Pledged Collateral pursuant hereto create a valid and perfected first priority security interest in the Pledged Collateral in favor of the Collateral Agent, securing the payment of all of the Secured Obligations, and all filings and other actions necessary or desirable as may be required by the Trustee or the Holders to perfect and protect such security interest have been duly taken. 5. As to the Pledged Collateral. (a) So long as no event or circumstance which constitutes a Default shall have occurred and be continuing: (i) The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Indenture; provided, however, that the Pledgor shall not exercise or refrain from exercising any such right without the consent of the Collateral Agent if, in the Collateral Agent's judgment, such action or inaction would have a Material Adverse Effect (as defined herein) on the fair market value of any of the Pledged Collateral including, without limitation, the validity, priority or perfection of the security interests granted hereby or the remedies of the Collateral Agent hereunder. (ii) Any and all dividends and other distributions (whether or not in cash) paid or payable, and certificates, instruments and other Property received, receivable or otherwise distributed in respect of, or in exchange for, Pledged 6 Collateral, shall be, and shall be forthwith delivered to the Collateral Agent to be held as Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Trustee and the Holders, be segregated from the other Property of the Pledgor, and be forthwith delivered to the Collateral Agent, as Pledged Collateral in the same form as so received (with any necessary endorsement). Any cash dividends or distributions delivered to or otherwise held by the Collateral Agent pursuant to this Section 5, and any other cash constituting Pledged Collateral delivered to the Collateral Agent, shall be invested, at the written direction of the Pledgor by the Collateral Agent in Cash Equivalents. (iii) The Collateral Agent shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to subsection (i) or (ii) above. (b) Upon the occurrence and during the continuance of a Default (except as provided below), at the Collateral Agent's option and following written notice by the Collateral Agent to the Pledgor: (i) all rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 5(a)(i) shall cease, provided, however, that the Pledgor shall be entitled to exercise such rights without the prior consent of the Collateral Agent if such rights are to be exercised to vote in favor of a transaction which is reasonably expected to cure the Default, not result in another Default and not result in a Material Adverse Effect. Except as provided in the prior sentence, after the occurrence and during the continuance of an Event of Default, all such voting and other consensual rights shall thereupon become vested in the Collateral Agent, who shall thereupon have the sole right to exercise such voting and other consensual rights, subject to the satisfaction of any regulatory requirements. Effective upon the occurrence and during the continuance of an Event of Default, the Pledgor hereby appoints the Collateral Agent the Pledgor's true and lawful attorney-in-fact and grants to the Collateral Agent an IRREVOCABLE PROXY to vote the Pledged Collateral in any manner the Collateral Agent deems advisable for or against all matters submitted or which may be submitted to a vote of shareholders. The power-of-attorney granted hereby is coupled with an interest and shall be irrevocable; and (ii) the provisions of Section 5(a)(ii) shall continue in full force and effect, except that no dividends or distributions may be paid to the Pledgor. As used in this Agreement, the term "Material Adverse Effect" shall mean an effect resulting from any circumstance or event of whatever nature (including any adverse determination in any litigation) which does, or could reasonably be expected to, materially and adversely (a) impair the validity or enforceability of any of the Indenture or the Notes or the Collateral Agent's, the Trustee's or any Holder's rights or remedies with respect thereto; 7 (b) cause a Default; (c) affect the business, property, business prospects, operations, or financial or other condition of the Subsidiary or Pledgor; or (d) impair or affect the Pledged Collateral or the Collateral Agent's Liens on the Pledged Collateral or the priority of such Liens. (c) In the event that all or any part of the securities or instruments constituting the Pledged Collateral are lost, mutilated, destroyed or wrongfully taken while such securities or instruments are in the possession of the Collateral Agent, the Pledgor agrees that it will cause the delivery of new securities or instruments in place of the lost, mutilated, destroyed or wrongfully taken securities or instruments upon request therefor by the Collateral Agent without the necessity of any indemnity bond or other security other than the Collateral Agent's agreement or indemnity therefor customary for security agreements similar to this Agreement. 6. Additional Shares. (a) The Pledgor agrees that it will cause the Subsidiary not to issue any Stock of any kind. (b) Without derogating from paragraph (a) of this Section 6, in the event that, during the term of this Agreement: (i) any stock dividend, stock split, reclassification, readjustment, or other change is declared or made in the capital structure of the Subsidiary, all new, substituted, and additional shares, or other securities, issued by reason of any such change and received by the Pledgor (directly or indirectly) or to which the Pledgor shall be entitled shall be promptly delivered or otherwise transferred to the Collateral Agent, together with undated stock powers endorsed in blank by the Pledgor, and shall thereupon constitute additional Pledged Collateral to be held by the Collateral Agent under the terms of this Agreement; and (ii) any subscriptions, warrants or any other rights or options shall be issued in connection with the Pledged Shares, all new stock or other securities acquired through such subscriptions, warrants, rights or options, and all additional shares of capital stock of the Subsidiary or any successor in interest thereto from time to time acquired by the Pledgor (directly or indirectly) in any manner whatsoever (including, without limitation, any shares of preferred stock issued by the Subsidiary) together with appropriate powers by the Pledgor, shall be promptly delivered or otherwise transferred to the Collateral Agent and shall thereupon constitute Pledged Collateral to be held by the Collateral Agent under the terms of this Agreement. 7. Payment of Taxes and Claims. The Pledgor shall make payment of (i) all taxes, assessments, license fees, levies and other charges of Governmental Bodies imposed upon it which if unpaid, could reasonably be expected to have a Material Adverse Effect or become a Lien on the Property 8 of the Pledgor, unless and to the extent only that such taxes, assessments, charges, license fees, levies and other charges shall be contested in good faith and by appropriate proceedings diligently conducted by the Pledgor and the Collateral Agent has received prompt notice of such contest, (ii) all taxes, assessments, license fees, levies and other charges of Governmental Bodies on any of the Pledged Collateral before any penalty or interest accrues thereon, unless and to the extent only that such taxes, assessments, charges, license fees, levies and other charges shall be contested in good faith and by appropriate proceedings diligently conducted by the Pledgor and the Collateral Agent has received prompt notice of such contest, before any penalty or interest accrues thereon, and (iii) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums materially adversely affecting the Pledged Collateral, which have become due and payable and which by law have or may become a Lien upon any of the Pledged Collateral prior to the time when any penalty or fine shall be incurred with respect thereto, unless and to the extent such claim is being contested in good faith and by appropriate proceedings diligently conducted by the Pledgor, the Collateral Agent has received prompt notice of such contest, any proceeding to place a lien on the Pledged Collateral or to enforce a lien on the Pledged Collateral has been stayed and such contest is not reasonably expected to have a Material Adverse Effect. 8. Covenants and Agreements. The Pledgor covenants and agrees that on and after the date hereof until the Payment in full of the Secured Obligations and the termination and discharge of the Indenture, unless the Collateral Agent shall otherwise consent in writing: (a) At any time and from time to time, upon the reasonable request of the Collateral Agent, and at the sole expense of the Pledgor, the Pledgor shall promptly do, file, record, execute and deliver any and all such further notices, instruments and documents and will take such further action as may be reasonably deemed necessary or desirable in the judgment of the Collateral Agent and its counsel to obtain, protect and perfect the security interests granted hereby and enforce and give effect to the rights, remedies and powers hereunder, including, without limitation, and the recording or filing of all instruments and documents reasonably necessary to perfect and protect the perfection of the security interests granted hereby under Articles 8 or 9 of the Uniform Commercial Code in effect in any applicable jurisdiction. In connection therewith, the Collateral Agent is hereby irrevocably authorized and empowered as the Pledgor's attorney-in-fact, solely to make, at the Collateral Agent's option, all filings and to give all other notices as it shall reasonably deem necessary with respect to any of the Pledged Collateral, all of which may be done with or without the signature of the Pledgor. The Pledgor agrees that the foregoing power constitutes a power coupled with an interest which shall survive until the Payment in full of all of the Secured Obligations. The Pledgor agrees to reimburse the Collateral Agent on demand for any actual and reasonable expenses (including reasonable attorneys' fees and expenses with respect to the Collateral Agent, including reasonable allocated costs and expenses of in-house counsel and legal staff) incurred by the Collateral Agent in connection with such matters and, until such reimbursement, such expenses shall be a part of the Secured Obligations. 9 (b) The Pledgor shall defend its ownership interest in and to the Collateral and the Collateral Agent's security interest in and to the Pledged Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the interests of the Collateral Agent. (c) The Pledgor shall, at all times, maintain or cause to be maintained accurate books and records with respect to the Pledged Collateral, and shall furnish to the Collateral Agent such information concerning such Pledged Collateral as the Collateral Agent may from time to time reasonably request. The Collateral Agent and its designees are hereby given the right, at the Pledgor's expense, to inspect and copy, following prior notice to the Pledgor and during regular business hours, or the Pledgor shall furnish the Collateral Agent with copies of, all records and documents reasonably required by the Collateral Agent relating to the Pledged Collateral. (d) The Pledgor shall not further hypothecate, assign, pledge, encumber, transfer, sell or otherwise dispose of, or grant any option with respect to, or create or suffer to exist a security interest in, or a Lien on, the Pledged Collateral or any portion thereof, except for the pledge, assignment and security interest created by this Agreement in favor of the Collateral Agent and except as contemplated by Article 12 of the Indenture. The inclusion of "Proceeds" of the Pledged Collateral under the security interest granted herein shall not be deemed a consent by the Collateral Agent to any sale or other disposition of any Pledged Collateral except as expressly permitted herein. (e) The Pledgor shall promptly notify the Collateral Agent of any change occurring in or to the Pledged Collateral, of a change in the Pledgor's mailing address, of any material change in any fact or circumstance warranted or represented by the Pledgor in this Agreement or furnished to the Collateral Agent, or if any Default or Event of Default hereunder shall occur. (f) The Pledgor shall not, without the prior written consent of the Collateral Agent, sign or file or authorize the signing or filing of any document, financing statement or instrument creating or perfecting, or purporting to create or perfect, any Lien or other encumbrance on all or any part of its Pledged Collateral except in favor of the Collateral Agent as required hereby and except as contemplated in Article 12 of the Indenture. (g) The security interest granted hereby constitutes and shall at all times constitute a perfected continuing first priority security interest in the Pledged Collateral. 9. The Collateral Agent Appointed Attorney-in-Fact. Effective upon the occurrence and during the continuance of an Event of Default, the Pledgor hereby irrevocably appoints the Collateral Agent its attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Collateral Agent's discretion, to take any action and to 10 execute any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral and/or extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, or release, any Pledged Collateral or obligations, without otherwise discharging or affecting the Secured Obligations, the Pledged Collateral or the security interests granted by this Agreement, (b) to file any claims or take any action or institute any proceedings which the Collateral Agent may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of the Pledged Collateral, and (c) to receive, indorse and collect any drafts or other instruments and documents made payable to the Pledgor in connection with clause (a) above or representing any dividend or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. The power-of-attorney granted hereby is coupled with an interest and shall be irrevocable. 10. The Collateral Agent May Perform. If the Pledgor fails to perform any agreement contained herein or make payment of any amount required hereunder, the Collateral Agent may itself perform, or cause performance of, or provide payment for the performance thereof, and the reasonable expenses of the Collateral Agent incurred in connection therewith shall be payable by the Pledgor under Section 15 of this Agreement and any such payment made shall be deemed an advance by the Collateral Agent to the Pledgor, payable on demand together with interest at the interest rate then payable under the Indenture. 11. The Collateral Agent's Duties. The powers conferred on the Collateral Agent hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Pledged Collateral, including the filing of any financing or continuation statements relating to the Pledged Collateral. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Collateral Agent accords its own Property, it being understood that the Collateral Agent shall not be under any obligation to (a) ascertain or take action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged 11 Collateral, whether or not the Collateral Agent has or is deemed to have knowledge of such matters, or (b) take any necessary steps to preserve rights against prior parties or any other rights pertaining to any Pledged Collateral, but may do so at its option, and all reasonable expenses incurred in connection therewith shall be for the sole account of the Pledgor, and shall be added to the Secured Obligations. 12. Events of Default. If any of the following events shall occur, then an "Event of Default" has occurred hereunder: (a) If the Pledgor fails to fully and punctually pay, perform or observe any debt, obligation or liability of the Pledgor under this Agreement or the Indenture; or (b) If any representation or warranty made herein or the Indenture or in any certificate, report or other document furnished by the Pledgor in connection with this Agreement or the Indenture shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; or (c) If the Pledgor shall fail to observe or perform any term, covenant or agreement contained in Sections 8(a), 8(d) or 8(f) of this Agreement; or (d) If the Pledgor shall fail to perform or observe any other term, covenant or agreement on its part to be performed or observed pursuant to this Agreement and such failure shall have continued unremedied for a period of thirty (30) days after the Pledgor shall become aware of such failure; or (e) The occurrence and continuance of an Event of Default under and as defined in the Indenture. 13. Notice of Event of Default. The Pledgor agrees to notify the Collateral Agent of the occurrence of an Event of Default promptly upon its obtaining knowledge thereof. 14. Remedies. Upon the occurrence and during the continuation of an Event of Default, the Collateral Agent may upon written instructions from the Trustee, subject to regulatory requirements, exercise any and all remedies and other rights provided under this Agreement and by applicable law, including, without limitation, the following: (a) The Collateral Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the UCC (whether or not the UCC applies to the affected Pledged Collateral) and also may without notice, except as 12 specified below, sell, lease, assign, grant an option or options to purchase or otherwise dispose of the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Any cash held by the Collateral Agent as Pledged Collateral and all cash proceeds received by the Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Collateral Agent, be held by the Collateral Agent as Pledged Collateral for, and then or at any time thereafter applied (after the payment of any amounts payable to the Collateral Agent pursuant to Section 15 hereof) in whole or in part by the Collateral Agent for the ratable benefit of the Holders against all or any part of the Secured Obligations. Any surplus of such cash or cash proceeds held by the Collateral Agent and remaining after payment of all of the Secured Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. (c) The Pledgor acknowledges and agrees that the Collateral Agent may elect, with respect to the offer or sale of any or all of the Pledged Collateral, to conduct such offer and sale in such a manner as to avoid the need for registration or qualification of the Pledged Collateral or the offer and sale thereof under any federal or state securities laws and that the Collateral Agent is authorized to comply with any limitation or restriction in connection with such sale as counsel may advise the Collateral Agent is necessary in order to avoid any violation of applicable law, including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to Persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Pledged Collateral, or in order to obtain any required approval of the sale or of the purchaser by any Governmental Body. The Pledgor further acknowledges and agrees that any such transaction may be at prices and on terms less favorable than those which may be obtained through a public sale and not subject to such restrictions and agrees that, notwithstanding the foregoing, the Collateral Agent is under no obligation to conduct any such public sale and may elect to impose any or all of the foregoing restrictions, or any other restrictions which may be necessary or desirable in order to avoid any such registration or qualification, at its sole discretion or with the consent or direction of the parties entitled to give direction pursuant to the Intercreditor Agreement, and that any such offer and sale shall, taking into account the possible restrictions on such offer and sale described in this subsection (c), be conducted in a commercially reasonable manner. 13 (d) The Pledgor hereby expressly waives and covenants not to assert any appraisement, valuation, extension, redemption or similar laws, now or at any time hereafter in force, which might delay, prevent or otherwise impede the performance or enforcement of this Agreement. 15. Expenses. The Pledgor will upon demand make payment to the Collateral Agent of any and all reasonable out-of-pocket sums, costs and expenses, which the Collateral Agent may pay or incur pursuant to the provisions of this Agreement or in perfecting, defending, protecting or enforcing this Agreement or the security interests granted herein or in enforcing Payment of all of the Secured Obligations or otherwise in connection with the provisions hereof, including, but not limited to court costs, reasonable collection charges, reasonable travel expenses, and reasonable attorneys' fees (including with respect to the Collateral Agent, the reasonable allocated costs and expenses of in-house counsel and legal staff) all of which together with interest at the highest rate then payable under the Indenture, shall be part of the Secured Obligations. 16. Repayment in Bankruptcy, etc. Notwithstanding anything to the contrary contained in this Agreement, if, at any time or times subsequent to the payment of all or any part of the Secured Obligations, the Collateral Agent shall be required to repay any amounts previously paid by or on behalf of the Subsidiary or the Pledgor in reduction thereof by virtue of an order of any court having jurisdiction thereof, including, without limitation, as a result of an adjudication that such amounts constituted preferential payments or fraudulent conveyances, the Pledgor unconditionally agrees to make payment to the Collateral Agent within 10 days after demand of the amount of such repayment, together with interest on such amount from the date of such repayment by the Collateral Agent to the date of payment to the Collateral Agent at the default interest rate set forth in the Indenture. 17. No Segregation of Moneys; No Interest. No moneys or any other property received by the Collateral Agent hereunder need be segregated in any manner except to the extent required by law, and any such moneys or other Property may be deposited under such general conditions as may be prescribed by law applicable to the Collateral Agent, and the Collateral Agent shall not be liable for any interest thereon. 18. Continuing Security Interest; Termination. (a) This Agreement shall create a continuing perfected first security interest in the Pledged Collateral and shall (i) remain in full force and effect until the payment in full of all of the Secured Obligations, (ii) be binding upon the Pledgor, its successors and assigns and (iii) inure, together with the rights and remedies of the Collateral Agent hereunder, to 14 the benefit of the Collateral Agent, the Trustee and the Holders and their respective successors, transferees and assigns. (b) Notwithstanding anything to the contrary in this Section 18, upon (a) satisfaction by the Trustee of the conditions set forth in Article Four of the Indenture, upon the satisfaction and discharge of the Indenture, (b) the payment in full of all Secured Obligations or (c) the defeasance of the Notes and the Indenture as provided in Section 1302 of the Indenture, the security interests created under this Agreement shall terminate and the Collateral Agent shall, at the request and expense of the Pledgor, cause to be assigned, transferred and delivered, against receipt but without recourse, warranty or representation whatsoever, any remaining Pledged Collateral, to or on the order of the Pledgor, and shall execute and deliver to the Pledgor an instrument or instruments acknowledging the release of such Pledged Collateral from the Lien of this Agreement. 19. Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopy, telex or cable communication) and mailed, telegraphed, telecopied, telexed, cabled or delivered to it, if to the Pledgor, addressed to it at CD Radio Inc., Sixth Floor, 1001 22nd Street, N.W., Washington, D.C. 20037, Attention: Chief Executive Officer, if to the Collateral Agent, at the address of the Trustee specified in the Indenture, or as to any party at such other address as shall be designated by such party in a written notice to each other party. All such notices and other communications shall, when mailed, telegraphed, telecopied, telexed or cabled, be effective when deposited in the mails, delivered to the telegraph company, transmitted by telecopier, confirmed by telex answerback or delivered to the cable company, respectively. 20. Margin Regulations. The Pledgor shall take such steps as may be necessary so that it shall comply with Regulations G, U and X (in so far as Regulation X applies to Regulations G and U) promulgated by the Board of Governors of the Federal Reserve System, in each case as in effect from time to time and to the extent such Regulations are at the time applicable to the Notes issued by the Pledgor. 21. Other Provisions. (a) Except as expressly provided in this Agreement, the Pledgor hereby waives presentment, demand for payment, notice of default, nonperformance and dishonor, protest and notice of protest of or in respect of this Agreement, the Indenture, the Notes or the Secured Obligations, notice of acceptance of this Agreement and reliance hereupon by the Collateral Agent and notice of any sale of collateral security or any default of any sort. (b) The Pledgor waives all errors or omissions of the Collateral Agent in connection with the administration of Security Interest created hereby and the Pledged 15 Collateral, except errors or omissions which constitute gross negligence or willful misconduct. (c) The Pledgor agrees that the Collateral Agent, the Trustee or the Holders may at any time, without notice to or consent of the Pledgor, and without in any manner affecting the liability of the Pledgor hereunder, amend, modify or waive any term or condition of the Indenture, the Notes, the Intercreditor Agreement and any of the other Secured Obligations and any collateral security therefor and otherwise deal with Pledgor as if this Agreement did not exist. (d) The Pledgor is not relying upon the Collateral Agent to provide to the Pledgor any information concerning the Subsidiary, including, without limitation, information which might have a Material Adverse Effect, and the Pledgor has made arrangements satisfactory to the Pledgor to obtain from the Subsidiary on a continuing basis such information concerning the Subsidiary as the Pledgor may desire. (e) In addition to all other rights it may have at law or otherwise, upon the occurrence and during the continuance of an Event of Default, the Collateral Agent, is hereby authorized at any time and from time to time, without notice, to set-off against any and all obligations which the Collateral Agent may owe to the Subsidiary or the Pledgor, of any kind or nature, and the Pledgor shall continue to be liable to the Collateral Agent for any deficiency with interest at the applicable interest rate forth in the Indenture or the Notes. (f) Notwithstanding anything to the contrary contained in the Indenture or in any other agreement, instrument or document executed by the Pledgor and delivered to the Collateral Agent, the Collateral Agent will not take any action pursuant to any document referred to above which would constitute or result in any assignment of any FCC license or any change of control (whether de jure or de facto) of the Pledgor or the Subsidiary if such assignment of any FCC license or change of control would require, under then existing law, the prior approval of the FCC without first obtaining such prior approval of the FCC. Upon the occurrence of an Event of Default or at any time thereafter during the continuance thereof, subject to terms and conditions of this Agreement, the Pledgor agrees to take any action which the Collateral Agent may reasonably request in order to obtain from the FCC such approval as may be necessary to enable the Collateral Agent to exercise and enjoy, the full rights and benefits granted to the Collateral Agent by this Agreement and the other documents referred to above, including specifically, at the cost and expense of the Pledgor, the use of its best efforts to assist in obtaining approval of the FCC for any action or transaction contemplated by this Agreement for which such approval is or shall be required by law, and specifically, without limitation, upon request, to prepare, sign and file with the FCC the assignor's or transferor's portion of any application or applications for consent to the assignment of license or transfer of control necessary or appropriate under the FCC's rules and regulations for approval of (i) any sale or other disposition of the Pledged Collateral by or on behalf of the Collateral Agent, or (ii) any assumption by the Collateral Agent of voting rights in the Pledged Collateral effected in accordance with the terms of this Agreement. It is understood and agreed that all foreclosure and related actions will be made in accordance with the Communications Act of 1934, as amended, and the rules and 16 regulations promulgated thereunder, as from time to time in effect (the "Communications Act") and other applicable FCC regulations and published policies and decisions. (g) the Pledgor agrees to indemnify and hold harmless the Collateral Agent, the Trustee, and the Holders, the respective affiliates of the Collateral Agent, the Trustee, and the Holders, and the respective officers, directors, employees, agents (including, without limitation each of their counsel), and controlling persons of the Collateral Agent, the Trustee, and the Holders and each such affiliate (each, an "Indemnified Party") from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and costs and expenses (including, without limitation, the reasonable fees and disbursements of counsel and with respect to the Collateral Agent, reasonably allocated costs and expenses of in-house counsel and legal staff) of every nature and character arising out of or in connection with any actual or threatened claim, litigation, investigation or proceeding relating to the Indenture, the Notes or this Agreement or the transactions contemplated hereby (other than any such actions or expenses resulting from the gross negligence or willful misconduct of the Collateral Agent, the Trustee or the Holders), in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of in-house counsel and legal staff incurred in connection with any such investigation, litigation or other proceeding whether or not such Indemnified Party is a party thereto, and the Pledgor agrees to reimburse each Indemnified Party, upon demand, for all out-of-pocket costs and expenses (including, without limitation, the reasonable fees and disbursements of counsel and with respect to the Collateral Agent, reasonably allocated costs and expenses of in-house counsel and legal staff) incurred in connection with any of the foregoing. In litigation, or the preparation therefor, the Collateral Agent, the Trustee and the Holders shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Pledgor agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Pledgor under this Section 21(g) are unenforceable for any reason, the Pledgor hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. The Pledgor shall not make any claim against any Indemnified Party for any special, indirect or consequential damages in respect of any breach or wrongful conduct (whether the claim therefor is based in contract, tort or duty imposed by law) in connection with, arising out of or in any way related to the transactions contemplated by, and the relationship established by the Indenture, the Notes, or any act, omission or event occurring in connection therewith, and the Pledgor hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in the Pledgor's favor. The covenants contained in this Section 21(g) shall survive payment or satisfaction in full of all other of the Secured Obligations. (h) The Pledgor hereby appoints Fishbein, Badillo Wagner & Harding, 909 Third Avenue, New York, New York 10002 Attn: Lawrence F. Gilberti, as its legally authorized process agent to accept service on behalf of the Pledgor. 17 (i) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. The Pledgor agrees that any suit for the enforcement of this Agreement may be brought in the courts of the State of New York or any federal court sitting therein and consents to the nonexclusive jurisdiction of such court and service of process in any such suit being made upon the Pledgor by mail to ______________________________ at the address specified in Section 21(h). The Pledgor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit is brought in an inconvenient court. (j) This Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. (k) This Agreement and any other documents executed in connection herewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in Section 21(m). (l) the Pledgor hereby waives its right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Agreement, or any of the other loan documents, any rights or obligations hereunder or thereunder or the performance of such rights and obligations. Except as prohibited by law, the Pledgor hereby waives any right it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Pledgor (a) certifies that no agent or representative of the Collateral Agent, the Trustee or any Holder has represented, expressly or otherwise, that the Collateral Agent, the Trustee or such Holder, as the case may be, would not, in the event of litigation, seek to enforce the foregoing waivers and (b) acknowledges that the Trustee, the Holders and the Collateral Agent have been induced to enter into this Agreement and Indenture among other things, the waivers and certifications contained herein. (m) Any consent or approval required or permitted by this Agreement to be given by the Collateral Agent may be given, and any term of this Agreement, may be amended, and the performance or observance by the Pledgor of any terms of this Agreement, or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Pledgor and the written consent of the Collateral Agent. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of the Collateral Agent, the Trustee or any Holder in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Pledgor shall entitle the Pledgor to other or further notice or demand in similar or other circumstances. 18 (n) Notwithstanding the foregoing, this Agreement may be amended, revised and supplemented, as contemplated by Section 1205 of the Indenture, to assign and pledge to the Custodian for the benefit of the Holders and the equal and ratable benefit of the Secured Parties a security interest in the Pledged Collateral. Any such amendment, revision or supplement shall comply with the provisions of Section 1205 of the Indenture. (o) The Pledgor hereby waives any and all rights against immunity from jurisdiction, attachment (both before and after judgment) and execution to which it might be entitled. (p) The provisions of this Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction. 19 IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered as of the date hereof. CD RADIO INC. By: ------------------------------------ Name: Title: Accepted and Agreed to: IBJ SCHRODER BANK AND TRUST COMPANY as Collateral Agent By: -------------------------------- Name: Title: Schedule I Pledged Shares EX-5 6 EXHIBIT 5.1 PAUL, WEISS, RIFKIND, WHARTON & GARRISON 1285 Avenue of the AMericas New York, New York 10019-6064 November __, 1997 CD Radio Inc. 1001 22nd Street N.W. Washington DC 20037 CD Radio Inc. -- Registration Statement on Form S-3 Registration No. 333-34769 Ladies and Gentlemen: In connection with the above-captioned Registration Statement (the "Registration Statement"), filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"), and the rules and regulations promulgated thereunder (the "Rules"), we have been requested by CD Radio Inc., a Delaware corporation (the "Company"), to furnish our opinion as to the legality of the securities comprising the Units to be offered pursuant to the Prospectus, each Unit consisting of $1,000 principal amount at maturity of Senior Discount Notes due 2007 (the "Notes") of the Company and a number of warrants (each, a "Warrant"), each Warrant initially entitling the holder thereof to purchase one share of common stock, par value $0.001 per share (the "Common Stock") of the Company, registered thereunder. In connection with the furnishing of this opinion, we have reviewed (i) the Registration Statement (including all amendments thereto filed on or prior to the date hereof); (ii) the form of Indenture to be executed by the Company and IBJ Schroder Bank & Trust Company, as Trustee, relating to the Notes (the "Indenture"), including the form of Note; (iii) the form of Warrant Agreement to be executed by the Company and IBJ Schroder Bank & Trust Company, as Warrant Agent, relating to the Warrants (the "Warrant Agreement," and together with the Registration Statement and the Indenture the "Documents"), including the form of Warrant; and (iv) records of certain of the Company's corporate proceedings. CD Radio Inc. 2 In our examination of the aforesaid documents, we have assumed without independent investigation, (i) the due organization and valid existence of the Company under the laws of its jurisdiction of organization, (ii) the enforceability of the Documents against each party thereto (other than the Company), (iii) the necessary power and authority of the Company to execute, deliver and perform its obligations under each of the Documents to which it is a party, (iv) the due authorization, execution and delivery by the Company of each of the Documents to which it is a party, (v) that the due authorization, execution and delivery by the Company of each Document to which it is a party and the consummation by the Company of the transactions contemplated thereby do not violate or result in a breach of or default under the Company's charter documents, (vi) that the Notes and Warrants will be substantially in the form reviewed by us and that any information omitted from such form will be properly added, (vii) the genuineness of all signatures, (viii) the legal capacity of all individuals who have executed any of the Documents, (ix) the authenticity of all documents submitted to us as originals, (x) the conformity to the original documents of all documents submitted to us as certified, photostatic, reproduced or conformed copies of valid existing agreements or other documents and (xi) the authenticity of all such latter documents. We also have examined and relied upon representations as to factual matters contained in certificates of officers of the Company, and have made such other investigations of fact and law and have examined and relied upon the originals, or copies certified or otherwise identified to our satisfaction, of such documents, records, certificates or other instruments, and upon such factual information otherwise supplied to us, as in our judgment are necessary or appropriate to render the opinion expressed below. Based upon the foregoing, and subject to the assumptions, exceptions and qualifications set forth herein, we are of the opinion that when issued and paid for pursuant to the Purchase Agreement and when issued, authenticated and delivered in accordance with the terms of the Indenture and the Warrant Agreement, respectively, and in accordance with the terms set forth in the Registration Statement, each of the Notes and the Warrants will be legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, moratorium and other similar laws affecting creditors' rights generally and (b) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law). CD Radio Inc. 3 Our opinion expressed above is limited to the laws of the State of New York and the federal laws of the United States. Our opinion is rendered only with respect to laws, and the rules, regulations and orders thereunder, which are currently in effect. We hereby consent to the use of this opinion as an Exhibit to the Registration Statement and to the use of our name under the heading "Legal Opinions" contained in the Prospectus included in the Registration Statement. In giving this consent, we do not thereby admit that we come within the category of persons whose consent is required by the Act or the Rules. Very truly yours, PAUL, WEISS, RIFKIND, WHARTON & GARRISON CD Radio Inc. 4 Prepared by: ------------------------ Jonathan G. L. King Signed by: ------------------------ Mitchell S. Fishman Reviewed by: ------------------------ Seymour Hertz -----END PRIVACY-ENHANCED MESSAGE-----