-----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, VMD5GeU/u/HvacJvR+U4Eia8OFrColcfoEygqL+B22TySE7LupUB7apPTzkkMIkw 0VRX8iADRmjPb7G7X1Msig== 0000950117-99-001379.txt : 19990707 0000950117-99-001379.hdr.sgml : 19990707 ACCESSION NUMBER: 0000950117-99-001379 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19990702 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-4 SEC ACT: SEC FILE NUMBER: 333-82303 FILM NUMBER: 99659165 BUSINESS ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS STREET 2: 36TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2128995000 MAIL ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS STREET 2: 36TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 S-4 1 CD RADIO INC. FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1999 REGISTRATION NO. 333- ________________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ CD RADIO INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 4899 52-1700207 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
------------------------ 1221 AVENUE OF THE AMERICAS 36TH FLOOR NEW YORK, NEW YORK 10020 212-584-5100 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) PATRICK L. DONNELLY SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY CD RADIO INC. 1221 AVENUE OF THE AMERICAS 36TH FLOOR NEW YORK, NEW YORK 10020 212-584-5100 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: MITCHELL S. FISHMAN PAUL, WEISS, RIFKIND, WHARTON & GARRISON 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019-6064 212-373-3000 ------------------------ APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ------------------------ CALCULATION OF REGISTRATION FEE PROPOSED PROPOSED MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE(2) 14 1/2% Senior Secured Notes due 2009....... $200,000,000 $843.09 $168,618,000 $46,875.80
(1) Estimated solely for the purposes of calculating the registration fee in accordance with Rule 457 of the Securities Act of 1933. (2) The registration fee has been calculated in accordance with Rule 457(f)(2) under the Securities Act of 1933. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ________________________________________________________________________________ THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE AMENDED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED JULY 2, 1999 PRELIMINARY PROSPECTUS CD RADIO EXCHANGE OFFER FOR $200,000,000 OF ITS 14 1/2% SENIOR SECURED NOTES DUE 2009 TERMS OF THE EXCHANGE OFFER It will expire at 5:00 p.m., New York City time, on 1999, unless we extend it. If all the conditions to this exchange offer are satisfied, we will exchange all old notes that are validly tendered and not withdrawn. You may withdraw your tender of old notes at any time before the expiration of this exchange offer. The exchange notes that we will issue you in exchange for your old notes will be substantially identical to your old notes except that, unlike your old notes, the exchange notes will have no transfer restrictions or registration rights. The exchange notes that we will issue you in exchange for your old notes are new securities with no established market for trading. BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, PLEASE REFER TO THE SECTION IN THIS PROSPECTUS ENTITLED 'RISK FACTORS' COMMENCING ON PAGE 12. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------------------ The date of this prospectus is , 1999. ------------------------ TABLE OF CONTENTS
PAGE ---- Summary..................................................... 3 Risk Factors................................................ 12 Use of Proceeds............................................. 24 Capitalization.............................................. 26 Selected Historical Financial Data.......................... 27 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 28 Business.................................................... 35 Management.................................................. 53 Certain Relationships and Related Transactions.............. 55 Security Ownership of Certain Beneficial Owners and Management................................................ 55 The Exchange Offer.......................................... 59 Description of the Notes.................................... 66 Description of Other Indebtedness........................... 103 Certain United States Federal Income Tax Considerations..... 105 Plan of Distribution........................................ 109 Legal Matters............................................... 109 Experts..................................................... 109 Where You Can Obtain Additional Available Information....... 109 Incorporation by Reference.................................. 110 Index to Consolidated Financial Statements.................. F-1
2 SUMMARY This summary highlights information contained elsewhere in this prospectus. Because it is a summary, it does not contain all of the information that you should consider before you participate in this exchange offer. You should read this entire prospectus carefully, including the 'Risk Factors' section. The term 'initial notes' refers to the 14 1/2% Senior Secured Notes due 2009 that were issued on May 18, 1999. The term 'exchange notes' refers to the 14 1/2% Senior Secured Notes due 2009 offered by this prospectus. The term 'notes' refers to the initial notes and the exchange notes, collectively. ABOUT OUR BUSINESS We are building a digital quality radio service with up to 100 channels to be broadcast directly from satellites to vehicles. CD Radio will be broadcast throughout the continental United States, over a frequency band, the 'S-band,' that will augment traditional AM and FM radio bands. We hold one of only two licenses issued by the Federal Communications Commission (the 'FCC') to build, launch and operate a national satellite radio broadcast system. Under our FCC license, we have the exclusive use of a 12.5 megahertz ('MHz') portion of the S-band for this purpose. Our service, which will be primarily for motorists, will offer 50 channels of commercial-free, digital quality music programming and up to 50 channels of news, sports, talk and entertainment programming. We currently expect to commence CD Radio broadcasts at the end of the fourth quarter of 2000, at a subscription price of $9.95 per month. As an entertainment company, we intend to design and originate programming on each of our 50 commercial-free music channels. Each channel will be operated as a separate radio station with a distinct format. These formats will include a variety of classical, popular, rock, jazz, soul, contemporary, Latin, country, alternative and children's music. The actual formats will be determined before the launch of the service and may be varied from time to time to optimize customer satisfaction. Some of the music channels will offer continuous music while others will have program hosts, depending on the type of music programming. Programming on our non-music channels will be provided by third parties, and to date we have entered into programming agreements with content providers for 25 of these channels, including Bloomberg News Radio, C-SPAN, Sports Byline USA, National Public Radio, Public Radio International, Classic Radio, Hispanic Radio Network, World Radio Network, Speedvision Radio and Outdoor Life Radio. A majority of our non-music channels will contain advertising, which will augment our subscription revenue. These channels will include news and talk shows and special interest programming directed to a diverse range of groups, including sports enthusiasts, Hispanic listeners and truck drivers. On June 11, 1999, we entered into an agreement with Ford Motor Company which anticipates Ford manufacturing, marketing and selling vehicles that include receivers capable of receiving the CD Radio broadcasts. We have also established relationships with major industry suppliers to design and/or develop the most important elements of our system: SPACE SYSTEMS/LORAL, INC. ('Loral') is constructing and will launch and deliver our satellites in-orbit and checked-out. Loral is a leading full-service provider of commercial satellite systems and services. Loral has scheduled the launch of our satellites for January, March and May of 2000 on Proton launch vehicles. LUCENT TECHNOLOGIES, INC. is developing and will manufacture a custom designed chip set, the essential element of CD Radio receivers, to perform all of the digital signal processing of CD Radio's broadcasts. Lucent has agreed to use commercially reasonable efforts to deliver commercial quantities of the chip set by June 2000. DELCO ELECTRONICS CORPORATION is designing and developing and has agreed to manufacture three-band receivers and satellite antennas for sale to major automotive manufacturers. Delco is 3 the world's largest producer of audio systems for original automotive equipment manufacturers and is a leader in mobile communications technology. Delco has agreed to complete the design and development work and have three-band receivers and antennas available for sale to automobile manufacturers by March 2001. RECOTON CORPORATION is designing and developing FM modulated receivers, radio cards and hard-wired and wireless satellite antennas. Recoton, the owner of the Jensen, Advent, AR/Acoustic Research and InterAct brands, is the third largest producer of aftermarket car stereos sold in the U.S. and has one of the largest distribution systems for automotive consumer electronics, with over 30,000 points of presence. Recoton has agreed to deliver prototypes of these receivers and antennas shortly after Lucent delivers a prototype of the chip set, which is expected to be in the second quarter of 2000. THE CD RADIO DELIVERY SYSTEM The CD Radio delivery system will consist of three principal components: THE SATELLITES. To provide CD Radio, we have contracted with Loral to build four satellites, to arrange for launch service providers to launch three of these satellites and to deliver the three launched satellites, in-orbit, by June 30, 2000. We intend to hold the fourth satellite as a ground spare. Our satellites will incorporate a design which will act as a 'bent pipe,' relaying received signals directly to the ground. Our satellites will not contain on-board processors. All of our processing operations will be on the ground where they are accessible for maintenance and continuing technological upgrade without the need to launch replacement satellites. In May 1998, we announced our plan to change the orbital location of our satellites from geostationary orbits over the equator to inclined elliptical orbits. This modification will allow our satellites to maximize the time spent over the continental United States, which will permit us to fully utilize the bandwidth allocated to us by the FCC. This modification must be approved by the FCC, which we have requested. THE RECEIVERS. We expect consumers will receive CD Radio either by purchasing specially designed radio receivers for their existing vehicles or through a new generation of three-band radios which will come fully installed in new vehicles by automobile manufacturers. In the automotive aftermarket, we expect that CD Radio subscribers will have the choice of one of three different receiving devices for their cars -- an FM modulated receiver, a three-band receiver and a radio card. FM Modulated Receivers. The CD Radio FM modulated receiver will be usable in all vehicles that have an FM radio, which represent approximately 95% of all U.S. vehicles. Each FM modulated receiver (which we call the Satellite Audio System) will operate with a device that will be approximately the size of a 35mm camera, and will be mounted either in the vehicle's trunk, behind the dashboard, in the glove compartment or under a seat. We expect the retail price of this FM modulated receiver, with a hard-wired satellite antenna and professional installation, will be approximately $299. Three-Band Receivers. To address consumers who replace their vehicle's sound system, we expect there will be available a receiver capable of receiving AM, FM and CD Radio broadcasts. We expect the retail price of these CD Radio-ready receivers, including the antenna and professional installation, will be approximately $150 more than similar receivers which are not capable of receiving CD Radio broadcasts. Radio Cards. CD Radio's wireless adapter, or radio card, will not require professional installation and will be usable by all vehicles in the United States equipped with a cassette player, which represent approximately 65% of all vehicles on the road. We expect the retail price of the radio card, including the wireless satellite antenna, will be approximately $199. 4 All CD Radio receivers will have a visual display that will indicate the channel and format selected, as well as the title, recording artist and album title of the musical selection being played. THE NATIONAL BROADCAST STUDIO. We will originate our 100 channels of programming from our National Broadcast Studio in Rockefeller Center in New York City. The National Broadcast Studio will house our music library, facilities for programming origination, programming personnel and program hosts, as well as facilities to transmit programming to our orbiting satellites, to activate or deactivate service to subscribers and to perform the tracking, telemetry and control of our satellites. RISK FACTORS Please refer to the section of this prospectus entitled 'Risk Factors' beginning on page 12, for a discussion of some of the risks you should consider before participating in the exchange offer. ------------------------ Our principal executive offices are located at 1221 Avenue of the Americas, New York, New York, 10020. Our telephone number is (212) 584-5100. Our internet address is cdradio.com. The information on our website is not incorporated in this prospectus. 5 SUMMARY OF THE EXCHANGE OFFER We are offering to exchange $200,000,000 aggregate principal amount of our exchange notes for a like aggregate principal amount of our initial notes. In order to exchange your initial notes, you must properly tender them and we must accept your tender. We will exchange all outstanding initial notes that are validly tendered and not validly withdrawn. Exchange Offer............................ We will exchange our exchange notes for a like aggregate principal amount of our initial notes. Expiration Date........................... This exchange offer will expire at 5:00 p.m., New York City time, on , 1999, unless we decide to extend it. Conditions to the Exchange Offer.......... We will complete this exchange offer only if: there is no litigation or threatened litigation which would impair our ability to proceed with this exchange offer, there is no change in the laws and regulations which would impair our ability to proceed with this exchange offer, there is no change in the current interpretation of the staff of the Securities and Exchange Commission which permits resales of the exchange notes, there is no stop order issued by the Commission which would suspend the effectiveness of the registration statement which includes this prospectus or the qualification of the exchange notes under the Trust Indenture Act of 1939, and we obtain all the governmental approvals we deem necessary to complete this exchange offer. Please refer to the section in this prospectus entitled 'The Exchange Offer -- Conditions to the Exchange Offer.' Procedures for Tendering Initial Notes.... To participate in this exchange offer, you must complete, sign and date the letter of transmittal or its facsimile and transmit it, together with your initial notes to be exchanged and all other documents required by the letter of transmittal, to United States Trust Company of New York, as exchange agent, at its address indicated under 'The Exchange Offer -- Exchange Agent.' In the alternative, you can tender your initial notes by book-entry delivery following the procedures described in this prospectus. If your initial notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you should contact that person promptly to tender your initial notes in this exchange offer. For more information on tendering your notes, please refer to the section in this prospectus entitled 'The Exchange Offer -- Procedures for Tendering Initial Notes.' Guaranteed Delivery Procedures............ If you wish to tender your initial notes and you cannot get the required documents to the exchange agent on time, you may tender your notes by using the guaranteed delivery procedures described under the section of this prospectus 6 entitled 'The Exchange Offer -- Procedures for Tendering Initial Notes -- Guaranteed Delivery Procedure.' Withdrawal Rights......................... You may withdraw the tender of your initial notes at any time before 5:00 p.m., New York City time, on the expiration date of the exchange offer. To withdraw, you must send a written or facsimile transmission notice of withdrawal to the exchange agent at its address indicated under the 'The Exchange Offer -- Exchange Agent' before 5:00 p.m., New York City time, on the expiration date of the exchange offer. Acceptance of Initial Notes and Delivery of Exchange Notes....................... If all the conditions to the completion of this exchange offer are satisfied, we will accept any and all initial notes that are properly tendered in this exchange offer on or before 5:00 p.m., New York City time, on the expiration date. We will return any initial note that we do not accept for exchange to you without expense as promptly as practicable after the expiration date. We will deliver the exchange notes to you as promptly as practicable after the expiration date and acceptance of your initial notes for exchange. Please refer to the section in this prospectus entitled 'The Exchange Offer -- Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes.' Federal Income Tax Considerations Relating to the Exchange Offer................... Exchanging your initial notes for exchange notes will not be a taxable event to you for United States federal income tax purposes. Please refer to the section of this prospectus entitled 'Certain United States Federal Income Tax Considerations.' Exchange Agent............................ United States Trust Company of New York is serving as exchange agent in the exchange offer. Fees and Expenses......................... We will pay all expenses related to this exchange offer. Please refer to the section of this prospectus entitled 'The Exchange Offer -- Fees and Expenses.' Use of Proceeds........................... We will not receive any proceeds from the issuance of the exchange notes. We are making this exchange offer solely to satisfy certain of our obligations under our registration rights agreement. Consequences to Holders who do not Participate in the Exchange Offer.......................... If you do not participate in this exchange offer: you will not necessarily be able to require us to register your initial notes under the Securities Act, you will not be able to resell, offer to resell or otherwise transfer your initial notes unless they are registered under the Securities Act or unless you resell, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act, and 7 the trading market for your initial notes will become more limited to the extent other holders of initial notes participate in the exchange offer. Please refer to the section in this exchange offer entitled 'Risk Factors -- Your failure to participate in the exchange offer will have adverse consequences.' SUMMARY OF TERMS OF THE EXCHANGE NOTES Issuer.................................... CD Radio Inc. Notes Offered............................. $200 million aggregate principal amount of 14 1/2% Senior Secured Notes due 2009. The form and terms of the exchange notes are the same as the form and terms of the initial notes except that the exchange notes are registered under the Securities Act, will not bear legends restricting their transfer and will not be entitled to registration rights under our notes registration rights agreement. The exchange notes will evidence the same debt as the initial notes and both the initial notes and the exchange notes will be governed by the same indenture. Maturity.................................. May 15, 2009. Interest Payment Dates.................... We will pay interest on the exchange notes on May 15 and November 15 of each year, commencing November 15, 1999. We used approximately $79.3 million of the proceeds of the offering of units consisting of initial notes and warrants to purchase common stock to purchase a portfolio of U.S. government securities in an amount sufficient to pay the first six payments of interest on the notes. Ranking................................... The exchange notes will be senior secured obligations and will rank senior in right of payment to all existing and future subordinated indebtedness and will rank equally with all existing and future senior indebtedness, including our 15% Senior Secured Discount Notes due 2007 (the 'Senior Discount Notes'). The indenture permits some kinds of subsidiary indebtedness and permits us to secure some kinds of indebtedness, which will rank equally with the exchange notes and the Senior Discount Notes. Please refer to the section of this prospectus entitled 'Description of the Notes -- Certain Covenants -- Limitation on Indebtedness.' After giving effect to the offering of units consisting of initial notes and warrants to purchase common stock, as of March 31, 1999, we would have had $474 million in aggregate principal amount of indebtedness outstanding which ranked equal in right of payment with the exchange notes, all of which was secured. As of December 31, 1998, our subsidiaries had no liabilities outstanding. Security.................................. The exchange notes will be secured by a first priority perfected security interest in all of the issued and outstanding common stock of our subsidiary, Satellite CD Radio, Inc. (the 'Pledged Stock'). The security interest 8 benefitting the exchange notes will rank equally with the security interest benefitting our Senior Discount Notes, which are also secured by a first priority perfected security interest in the Pledged Stock. Satellite CD Radio, Inc. conducts no business activities and its only asset is an FCC license. In addition, we used approximately $79.3 million of the proceeds from the offering of the units consisting of initial notes and warrants to purchase a portfolio of U.S. government securities in an amount sufficient to pay the first six payments of interest on the notes. We pledged this portfolio of securities for the benefit of the holders of the initial notes and the exchange notes. See 'Description of the Notes -- Security.' Under the indenture, we and our subsidiaries are entitled to incur, subject to significant conditions and limitations, additional indebtedness. This additional indebtedness could also be secured by the issued and outstanding stock of Satellite CD Radio, Inc. Please refer to the section of this prospectus entitled 'Description of Certain Indebtedness.' Optional Redemption....................... We may redeem the exchange notes, in whole or in part, at any time after May 15, 2004, at the redemption prices described in this prospectus. Redemption Upon Sale of Equity............ Before May 15, 2002, we may redeem exchange notes representing up to 35% of the principal amount of the exchange notes with the net proceeds of one or more offerings of our equity securities. Please refer to the section of this prospectus entitled 'Description of the Notes -- Redemption.' Change of Control......................... Upon specific change of control events, each holder of the exchange notes may require us to purchase all or a portion of its exchange notes at a purchase price equal to 101% of the principal amount of the exchange notes, together with any accrued and unpaid interest owed on the exchange notes to the date of purchase. Please refer to the section of this prospectus entitled 'Description of the Notes -- Certain Covenants -- Purchase of Notes Upon a Change of Control.' Certain Covenants......................... The indenture contains covenants that require us to provide financial statements, obtain insurance and limit our ability to: incur additional indebtedness, pay dividends on, redeem or repurchase shares of our Common Stock or other classes of shares, engage in transactions with affiliates, create certain liens, sell assets, enter into sale and leaseback transactions, restrict dividend or other payments to us, issue and sell shares of restricted subsidiaries, and 9 merge or consolidate. There are important exceptions and qualifications to these covenants which are described in the section of this prospectus entitled 'Description of the Notes.' Original Issue Discount................... Each exchange note will have original issue discount for United States federal income tax purposes. The original issue discount will accrue from the issue date of the exchange note and will be includable as interest income periodically in a holder's gross income for United States federal income tax purposes in advance of receipt of the cash payments to which the income is attributable. Please refer to the section of this prospectus entitled 'Certain United States Federal Income Tax Considerations.' Absence of a Public Market for the Exchange Notes.......................... The exchange notes are new securities with no established market for them. We cannot assure you that a market for these notes will develop or that this market will be liquid. Form of the Exchange Notes................ Except as described below, the exchange notes will be represented by one or more permanent global securities in bearer form deposited on behalf of The Depository Trust Company with United States Trust Company of New York, as custodian. You will not receive exchange notes in registered form unless one of the events described in the section of this prospectus entitled 'Description of the Notes -- Book Entry; Delivery and Form' occurs. Instead, beneficial interests in the exchange notes will be shown on, and transfers of these notes will be effected only through, records maintained in book-entry form by The Depository Trust Company with respect to its participants. Initial notes issued in certificated form may be exchanged for beneficial interests in the global securities.
10 SUMMARY CONSOLIDATED FINANCIAL DATA The summary consolidated financial data for CD Radio shown below as of and for the years ended December 31, 1994, 1995, 1996, 1997 and 1998, are derived from CD Radio's respective audited consolidated financial statements. The financial information as of and for the three months ended March 31, 1998 and 1999 is derived from unaudited consolidated financial statements incorporated by reference into this prospectus. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, that are necessary for a fair presentation of the financial position and results of operations for these periods. The summary consolidated financial data should be read together with the Consolidated Financial Statements, the related notes and the information contained in this prospectus under the heading 'Management's Discussion and Analysis of Financial Condition and Results of Operations.'
THREE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31, ---------------------------------------------------- ------------------- 1994 1995 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Operating revenues............................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- Net loss(1)...................................... (4,065) (2,107) (2,831) (4,737) (48,396) (5,838) (10,444) Preferred stock dividends........................ -- -- -- (2,338) (19,380) (4,781) (7,330) Preferred stock deemed dividends(2).............. -- -- -- (51,975) (11,676) -- (2,256) Accretion of dividends in connection with the issuance of warrants on preferred stock........ -- -- -- -- (6,501) (4,275) (74) Net loss applicable to common stockholders....... (4,065) (2,107) (2,831) (59,050) (85,953) (14,894) (20,104) Per common share: Net loss applicable to common stockholders... (0.48) (0.23) (0.29) (5.08) (4.79) (0.93) (0.87) Weighted average common shares outstanding (basic and diluted)........................ 8,398 9,224 9,642 11,626 17,932 16,049 23,220 Ratio of earnings to fixed charges(3)............ -- -- -- -- -- -- -- Deficiency of earnings to fixed charges.......... $ 4,065 $ 2,107 $ 2,831 $ 4,760 $ 62,334 $ 6,115 $ 20,571 BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents........................ $ 3,400 $ 1,800 $ 4,584 $ 900 $204,753 $160,794 $162,057 Marketable securities, at market(4).............. -- -- -- 169,482 60,870 -- 46,170 Working capital.................................. 2,908 1,741 4,442 170,894 180,966 161,429 104,489 Total assets..................................... 3,971 2,334 5,065 323,808 643,880 336,855 662,846 Short-term notes payable......................... -- -- -- -- 70,863 -- 79,814 Deferred satellite payments...................... -- -- -- -- 31,324 -- 32,132 Long-term debt................................... -- -- -- 131,387 153,033 150,508 161,707 10 1/2% Series C Preferred Stock................. -- -- -- 176,025 156,755 115,323 161,169 9.2% Series A Junior Preferred Stock............. -- -- -- -- 137,755 -- 140,788 Deficit accumulated during the development stage.......................................... (13,598) (15,705) (18,536) (23,273) (71,669) (29,110) (82,113) Stockholders' equity............................. 3,431 1,991 4,898 15,980 77,953 70,845 60,343
- ------------ (1) Included in the 1998 net loss of ($48,396) is ($25,682) of special charges related primarily to the termination of some launch and orbit related contracts required when we decided to enhance our satellite delivery system to include a third in-orbit satellite. (2) The deemed dividend in 1997 relates to the discount feature associated with our 5% Delayed Convertible Preferred Stock and the deemed dividend in 1998 relates primarily to the conversion feature associated with our 9.2% Series A Junior Cumulative Convertible Preferred Stock. We computed these deemed dividends in accordance with the Commission's position on accounting for preferred stock which is convertible at a discount to the market price. (3) For purposes of this computation, earnings are defined as losses plus fixed charges. Fixed charges are the sum of (i) interest expensed and capitalized, (ii) amortization of deferred financing costs, premium and debt discounts and (iii) the portion of operating lease rental expense that is representative of the interest factor (deemed to be one-third). Our ratio of earnings to fixed charges was less than 1.00 for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and for the three months ended March 31, 1998 and 1999; thus earnings available for fixed charges were inadequate to cover fixed charges for these periods. (4) Marketable securities consist of fixed income securities with a maturity at the time of purchase of greater than three months. 11 RISK FACTORS In addition to the other information in this prospectus, the following factors should be considered carefully in evaluating us and our business. This prospectus contains some forward-looking statements. Actual results and the timing of some events could differ materially from those projected in the forward looking statements due to a number of factors, including those described below and elsewhere in this prospectus. See 'Managment's Discussion and Analysis of Financial Condition and Results of Operations -- Special Note Regarding Forward Looking Statements.' OUR BUSINESS IS STILL IN THE DEVELOPMENT STAGE Historically, we have only generated losses. We are a development stage company. The service we propose to offer, CD Radio, is in a relatively early stage of development and we have never recognized any operating revenues or conducted any operations. Since our inception, we have concentrated on raising capital, obtaining required licenses, developing technology, strategic planning, market research and building our infrastructure. Our financial results from our inception on May 17, 1990 through March 31, 1999, are as follows: no revenues; net losses of approximately $82 million (including net losses of approximately $5 million during the year ended December 31, 1997 and $48 million during the year ended December 31, 1998); and net losses applicable to common stock of approximately $184 million, which includes a deemed dividend on our former 5% Delayed Convertible Preferred Stock (the '5% Preferred Stock') of $52 million. In November 1997, we exchanged 1,846,799 shares of our 10 1/2% Series C Convertible Preferred Stock for all of the issued and outstanding shares of 5% Preferred Stock. We do not expect any revenues before 2001, and still have a variety of hurdles to surmount before commencing operations. We have not started to broadcast CD Radio and do not expect to generate any revenues from operations until the first quarter of 2001 or to generate positive cash flow from operations until the third quarter of 2001, at the earliest. Our ability to generate revenues, generate positive cash flow and achieve profitability will depend upon a number of factors, including: raising additional financing; the timely receipt of all necessary regulatory authorizations; the successful and timely construction and deployment of our satellite system; the development and manufacture by one or more consumer electronics manufacturers of devices capable of receiving CD Radio; and the successful marketing and consumer acceptance of CD Radio. We cannot assure you that we will accomplish any of the above, that CD Radio will ever commence operations, that we will attain any particular level of revenues, that we will generate positive cash flow or that we will achieve profitability. WE NEED ADDITIONAL FINANCING TO BUILD AND LAUNCH OUR SERVICE We need more money to continue implementing our business plan. We require near-term funding to continue building our CD Radio system. We believe we can fund our planned operations and the construction of our satellite and terrestrial system into the first quarter of 2000 from the proceeds of this offering and from our working capital at December 31, 1998, which includes the proceeds from our sale of 5,000,000 shares of Common Stock to Prime 66 Partners, L.P. for $100 million on November 2, 1998 and our sale of a new class of 9.2% Series A Junior Cumulative Convertible Preferred Stock to Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P., which we refer to as the 'Apollo Investors,' for $135 million on December 23, 1998. 12 The Apollo Investors have also granted us an option to sell them 650,000 shares of our 9.2% Series B Junior Cumulative Convertible Preferred Stock, par value $.001 per share, for $65 million. Subject to customary conditions and there not having occurred a material adverse change, we may exercise this option at any time before September 30, 1999. We refer to our 9.2% Series A Junior Preferred Stock and our 9.2% Series B Junior Preferred Stock together as the 'Junior Preferred Stock.' We currently do not have sufficient financing commitments to completely fund our preoperational capital requirements. We expect to satisfy the remainder of our funding requirements through the issuance of debt or equity securities or a combination of debt and equity securities. We cannot assure you that we will obtain additional financing on favorable terms or that we will do so on a timely basis. We estimate that we will need the following amounts for the following purposes: to develop and commence commercial operation of CD Radio by $1,138 million the end of the fourth quarter of 2000 to fund operations through the first full year of operations $ 100 million ending with the fourth quarter of 2001 Total through the first year of operations $1,238 million
We have or expect that we may have use of the following funds to develop and operate CD Radio: net funds raised through December 31, 1998 (including $115 $ 721 million million of debt which we must refinance or repay by the earlier of February 29, 2000 and ten days prior to the launch of our second satellite) funds from the sale of 9.2% Series B Junior Preferred Stock $ 63 million to the Apollo Investors, if we exercise our option, net of fees and expenses funds which Bank of America may, but is not required to, $ 106 million arrange for us ($225 million less $115 million to repay our existing bank credit facility, net of estimated fees and expenses) net proceeds from the sale of the units consisting of $ 110 million initial notes and warrants Total funds we may, or expect to be able to, access $1,000 million
After we give effect to the funds we have and the funds we expect to raise, we estimate that we will need an additional approximately $138 million to develop and commence commercial operation of CD Radio by the end of the fourth quarter of 2000 and an additional $100 million to fund our business through the first full year of operations. If Bank of America is unable to arrange a new credit facility, we will need to raise an additional $221 million to fund our operations through the end of the fourth quarter of 2000. We will require more money if there are delays, cost overruns, launch failure or other adverse developments. WE FACE MANY FINANCING CHALLENGES AND CONSTRAINTS We face many challenges and constraints in financing our development and operations, including those listed below. Our debt instruments limit our ability to incur indebtedness. The indenture governing the Senior Discount Notes (the 'Senior Discount Notes Indenture') limits, and the indenture for the notes we are offering will limit, our ability to incur additional indebtedness. In addition, we expect any future indebtedness will contain similar limits on our ability to incur additional indebtedness. We will have to satisfy a variety of conditions before we can obtain any syndicated bank borrowings. We entered into a credit agreement with Bank of America and other lenders in July 1998 under which Bank of America and the other lenders agreed to provide us a term loan facility of up to $115 million maturing on the earlier of February 29, 2000 and ten days prior to 13 the launch of our second satellite (the 'Tranche A Facility'). Bank of America has also agreed to attempt to arrange a syndicate of lenders to provide us with a second term loan facility of $225 million. To borrow the funds under the second term loan facility, we must first satisfy specified conditions, and negotiate, execute and deliver definitive loan documents. We intend to use a portion of the proceeds from this second term loan facility to repay the existing term loan facility and for other general corporate purposes. The second term loan facility would provide us with approximately $106 million of net additional funds after repayment of the existing term loan facility and the payment of fees and expenses. We have substantial near-term requirements for additional funds. We require substantial funds to construct and launch the satellites that will be part of our broadcast system. We are committed to pay a total of approximately $718 million under our Amended and Restated Contract with Loral (the 'Loral Satellite Contract') for the construction, launch and in-orbit delivery of three satellites and construction of our spare fourth satellite. Of this total, we must pay $438 million for the construction of satellites and $280 million for launch services. As of March 31, 1999, we had satisfied $261 million of the amount due to Loral. We have also entered into an amendment to the Loral Satellite Contract pursuant to which we will purchase $15 million of long-lead time parts for a fifth satellite. We started paying for the construction of the satellites in April 1997 and we must make further installments through December 2003. If we fail to secure the financing required to pay Loral on a timely basis, we risk: delays in launching our satellites and starting broadcasting operations; increases in the cost of building or launching our satellites or other activities necessary to put CD Radio into operation; a default on our commitments to Loral, our creditors or others; our inability to commence CD Radio service; and the forced discontinuance of our operations or the sale of our business. A delay in introducing our service could hinder our ability to raise additional financing. Any delay in implementing our business plan would hurt our ability to obtain the financing we need by adversely affecting our expected results of operations and increasing our cost of capital. Our ability to begin offering our CD Radio service at the end of the fourth quarter of 2000 depends on Loral delivering completed satellites before the launch dates and providing or obtaining launch services on a timely basis. A significant delay in the development, construction, launch or commencement of operation of our satellites would adversely affect our results of operations in a material way. Other delays in implementing our business plan could also materially adversely affect our results of operations. Several factors could delay us, including the following: obtaining additional authorizations from the FCC; coordinating the use of S-band radio frequency spectrum with Mexico; delays in or modifications to the design, development, technical specifications, construction or testing of our satellites, receivers or other aspects of the CD Radio system; delay in commercial availability of devices capable of receiving CD Radio; failure of our vendors to perform as anticipated; and a delayed or unsuccessful satellite launch or deployment. We have previously incurred some delays in implementing our business plan. During any period of delay, we would continue to need significant amounts of cash to fund capital expenditures, administrative and overhead costs, contractual obligations and debt service. Accordingly, any delay could materially increase the aggregate amount of funds we need to commence operations. Additional financing may not be available on favorable terms or at all during periods of delay. 14 WE ARE DEPENDENT UPON LORAL TO BUILD AND LAUNCH OUR SATELLITES Our business depends upon Loral successfully constructing and launching the satellites to transmit CD Radio. We are relying upon Loral to construct and to deliver these satellites in orbit on a timely basis. We cannot assure you that Loral will deliver the satellites or provide these launch services on a timely basis, if at all. If Loral fails to deliver functioning satellites in a timely manner, our business could be materially adversely affected. Although our agreement with Loral requires Loral to pay us penalties for late delivery, based on the length of the delay, these remedies may not adequately mitigate the damage any launch delays cause to our business. In addition, if Loral fails to deliver the designated launch services due to causes beyond its control, Loral will not be liable for the delay or the damages caused by the delay. While the satellites are under construction, Loral is at risk should anything happen to the satellites. In addition, Loral is responsible for making sure the satellites meet specific performance specifications at the time of launch (in the case of our first three satellites) or at the time of delivery to our ground storage location (in the case of our fourth satellite). However, we, and not Loral, will be at risk for anything that happens to the satellites at the time of launch and thereafter (in the case of our first three satellites) or at any time after delivery to our ground storage location (in the case of our fourth satellite). This means that if any satellite is destroyed during or after launch or if the fourth satellite is damaged or destroyed while in storage, Loral will not be responsible to us for the cost of replacing it. We depend on Loral to obtain access to available slots on launch vehicles and to contract with third-party launch service providers for the launch of our satellites. A launch service provider may postpone one or more of our launches for a variety of reasons, including: technical problems; a launch of a scientific satellite whose mission may be degraded by delay; the need to conduct a replacement launch for another customer; or a launch of another customer's satellite whose launch was postponed. Generally, Loral is not liable to us for a satellite or launch failure. However, if the first Proton launch vehicle used to launch our satellites fails, Loral will provide us with a free replacement launch. The timing of this replacement launch cannot be predicted, but in any event would not be before delivery of the fourth satellite. We also depend on Loral to ensure that the software to test the satellites before launch, to run the satellites and to track and control the satellites, will be capable of handling the potential problems that may arise beginning on January 1, 2000. These potential problems are known as 'The Year 2000 Issue.' The Year 2000 Issue is the result of computer programs being written using two digits (rather than four) to define a year, which could result in miscalculations or system failures resulting from recognition of a date occurring after December 31, 1999 as falling in the year 1900 (or another year in the 1900s) rather than the year 2000 or thereafter. While currently the above mentioned systems are not fully prepared to handle The Year 2000 Issue, Loral is aware of this condition and has assured us that all Loral systems will be year 2000 compliant before the critical date of January 1, 2000. WE ARE DEPENDENT ON LUCENT TO DESIGN AND DEVELOP CHIP SETS Our business depends upon Lucent successfully designing, developing and manufacturing commercial quantities of integrated circuits (or chip sets), which will be used in consumer electronic devices capable of receiving CD Radio's broadcasts. If Lucent fails to deliver commercial quantities of the chip sets in a timely manner, the costs of the chip set development work increases significantly or the price of the chip set is not low enough to support the introduction of consumer devices capable of receiving CD Radio, our business will be materially adversely affected. Lucent has agreed to use commercially reasonable efforts to deliver commercial quantities of the chip sets by June 2000. We have agreed to pay Lucent the cost of the development work 15 related to the chip sets, currently estimated to be approximately $27,000,000, which is approximately $18,000,000 more than originally estimated. We cannot assure you that: Lucent will be able to deliver commercial quantities of chip sets by June 2000; the cost to us of the chip set development work will not exceed $27,000,000; or Lucent will be able to establish a price for the chip sets which will be low enough to encourage and support the widespread introduction of consumer devices capable of receiving CD Radio. WE ARE NOT SURE THERE WILL BE A MARKET FOR CD RADIO Currently no one offers a commercial satellite radio service such as CD Radio in the United States. As a result, our proposed market is new and untested and we cannot reliably estimate the potential demand for this service or the degree to which our proposed service will meet that demand. We cannot assure you that there will be sufficient demand for CD Radio to enable us to achieve significant revenues or cash flow or profitable operations. CD Radio will achieve or fail to gain market acceptance depending upon factors beyond our control, including: the willingness of consumers to pay subscription fees to obtain satellite radio broadcasts; the cost, availability and consumer acceptance of devices capable of receiving CD Radio; our marketing and pricing strategies and those of our competitors; the development of alternative technologies or services; and general economic conditions. OUR PLANNED SYSTEM RELIES ON UNPROVEN APPLICATIONS OF TECHNOLOGY Our satellite system applies technology in new and unproven ways. CD Radio is designed to be broadcast from three satellites orbiting the Earth. Two of the three satellites will transmit the same signal at any given time to receivers that will receive signals through antennas. This design applies technology in new and unproven ways. Accordingly, we cannot assure you that the CD Radio system will work as planned. Some obstructions will adversely affect CD Radio reception. High concentrations of tall buildings and other obstructions, such as those found in large urban areas, and tunnels will block the signals from both transmitting satellites. We plan to install terrestrial repeating transmitters to rebroadcast CD Radio in some urban areas to mitigate this problem. However, some areas with impediments to satellite line-of-sight may still experience 'dead zones.' We cannot assure you that the CD Radio system will operate as planned with the technology we have developed. Our system has never been tested with orbiting satellites. We cannot assure you that the CD Radio system will function as intended until we test it with orbiting satellites and antennas and receivers suitable for commercial production. We have never done this kind of test because there are no commercial satellites in orbit capable of transmitting radio signals on S-band frequencies to the United States. In support of our application for our FCC license, we conducted a terrestrial simulation of our proposed radio service from November 1993 through November 1994. For the demonstration, we transmitted S-band signals to a prototype S-band radio and satellite dish antenna installed in a car to simulate specific transmission characteristics of our planned system. As part of the demonstration, the prototype radio received 30 channels of compact disc quality stereo music while the car was driven throughout the range. We have also successfully tested our system in San Francisco, where our terrestrial repeater network has been completed. SATELLITE LAUNCHES HAVE SIGNIFICANT RISKS We cannot assure you that the launches of our satellites will be successful. Satellite launches have significant risks, including launch failure, damage or destruction of the satellite during launch 16 and failure to achieve a proper orbit or operate as planned. The Loral Satellite Contract does not protect us against the risks inherent in satellite launches or in-orbit operations. Our three satellites are scheduled to be launched on Proton launch vehicles, which are built by Russian entities. The Proton family of launch vehicles has a 92% launch success rate based on its last 50 launches. Past experience, however, is not necessarily indicative of future performance. As part of our risk management program, we contracted with Loral for the construction of a fourth satellite that we will use as a ground spare. We also plan to obtain insurance covering a replacement launch to the extent required to cover risks Loral does not assume. If we need to launch our spare satellite, the start of our commercial operations would be delayed for a period of up to six months, which could materially adversely affect the demand for our services, our revenues and our results of operations. SATELLITES HAVE A LIMITED LIFE AND MAY FAIL IN ORBIT We expect that our satellites will last approximately 15 years, and that after this period their performance in delivering CD Radio will deteriorate. We cannot assure you, however, of the useful life of any particular satellite. Our operating results would be adversely affected if the useful life of our initial satellites is significantly shorter than 15 years. The useful lives of our satellites will vary and will depend on a number of factors, including: quality of construction; amount of fuel on board; durability of component parts; expected gradual environmental degradation of solar panels; random failure of satellite components, which could result in damage to or loss of a satellite; and in rare cases, damage or destruction by electrostatic storms or collisions with other objects in space. If one of our satellites fails on launch or in orbit and if we are required to launch our spare satellite, our operational timetable will be delayed for up to six months. If two or more of our satellites fail on launch or in orbit, our operational timetable could be delayed by at least 16 months. INSURANCE MAY NOT COVER ALL RISKS OF LAUNCHING AND OPERATING SATELLITES There are many potential risks to insure. Because our agreement with Loral does not protect us against launch vehicle failure, failure of a satellite to deploy correctly or failure of a satellite to operate as planned, we must purchase insurance to protect adequately against these risks. We cannot assure you that we will be able to purchase launch insurance or in-orbit insurance. The insurance premiums we pay may increase substantially upon any adverse change in insurance market conditions. Many risks we face may not be covered by insurance. Our insurance may not cover all of our losses, and may not fully reimburse us for the following: expenditures for a satellite which fails, totally or in part, upon launch; expenditures for a satellite which fails to perform to specifications after launch; damages from business interruption, loss of business and similar losses arising from satellite failures or launch delays; and losses for which there are deductibles, exclusions and conditions. 17 OUR TECHNOLOGY MAY BECOME OBSOLETE We will depend on technologies being developed by third parties to implement key aspects of our proposed system. These technologies may become obsolete. We may be unable to obtain more advanced technologies on a timely basis or on reasonable terms, or our competitors may obtain more advanced technologies and we may not have access to these technologies. RECEIVERS AND ANTENNAS ARE NOT YET AVAILABLE To receive the CD Radio service, a subscriber will need to purchase a device capable of receiving our broadcasts as well as an appropriate antenna. Although we have entered into agreements with Lucent to develop and manufacture chip sets that represent the essential element of the CD Radio receivers and our miniature satellite dish antennas, we cannot assure you that Lucent will succeed in this development effort. We have also entered into agreements with Delco and Recoton to design and develop devices capable of receiving CD Radio broadcasts and antennas for use with these devices. We cannot assure you that Delco and Recoton will succeed in their development efforts. No one currently manufactures devices capable of receiving CD Radio broadcasts and suitable antennas, and neither Delco nor Recoton has agreed to manufacture commercial quantities of these devices. We do not intend to manufacture or distribute CD Radio receivers and antennas ourselves. We have discussed the manufacture of CD Radio receivers and antennas for retail sale in the United States with several manufacturers, including Delco and Recoton. These discussions may not result in a binding commitment on the part of any manufacturer to produce, market and sell devices capable of receiving CD Radio broadcasts and suitable antennas in a timely manner and at a price that would permit the widespread introduction of CD Radio in accordance with our business plan. In addition, any manufacturers of devices capable of receiving CD Radio broadcasts and antennas may not produce them in sufficient quantities to meet anticipated consumer demand. Our business would be materially adversely affected if we cannot arrange for the timely development of these products for commercial sale at an affordable price and with sufficient retail distribution. Our FCC license requires that we design a receiver that is interoperable with the national satellite radio system being developed by the other existing licensee, XM Satellite Radio, Inc. ('XM'). Although we have made progress towards designing a receiver that is interoperable with the system XM is constructing, we cannot predict whether we will be able to satisfy this interoperability requirement because of the various technological challenges involved. Complying with this interoperability requirement also could make the devices capable of receiving CD Radio broadcasts and the related antenna more difficult and costly to manufacture. Accordingly, this interoperability requirement could delay the commercial introduction of these products or require that they be sold at higher prices. We may also be bound by this interoperability requirement for any person licensed by the FCC to provide a satellite-based digital audio radio service in the future. WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST CONVENTIONAL RADIO STATIONS, THE OTHER HOLDER OF AN FCC LICENSE TO PROVIDE THIS SERVICE OR OTHER POTENTIAL PROVIDERS OF THIS SERVICE We will be competing with established conventional (over the air) radio stations, which, unlike CD Radio: do not charge subscription fees; do not require users to purchase a separate receiver and antenna; often offer local information programming such as local news and traffic reports; and in the case of some FM stations, may begin to broadcast digital, compact disc quality signals before we start operations. In addition to direct competition from XM, we face the possibility of additional satellite broadcast radio competition: 18 if the FCC grants additional licenses for satellite-delivered radio services; if holders of licenses for other portions of the electromagnetic spectrum (currently licensed for other uses) obtain changes to their licenses; or if holders of licenses without FCC restrictions for other portions of the spectrum devise a method of broadcasting satellite radio. Finally, one or more competitors may design a satellite radio broadcast system that is superior to our system. The competitive factors listed above could materially adversely affect our results of operations. In addition, any delays in introducing our service also could place us at a competitive disadvantage relative to any competitor that begins operations before us. WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE RAPID GROWTH We expect to experience significant and rapid growth in the scope and complexity of our business as we proceed with the development of our satellite radio system. We do not employ sufficient staff to program our broadcast service, manage operations, control the operation of our satellites or handle sales and marketing efforts. Although we have hired experienced executives in these areas, we must hire many additional employees before we begin commercial operations of our service. This growth is likely to place a substantial strain on our management and operational resources. Our results of operations could be materially adversely affected if we fail to do any of the following: develop and implement effective management systems; hire and train sufficient personnel to perform all of the functions necessary to effectively provide our service; manage our subscriber base and business; or manage our growth effectively. WE ARE SUBJECT TO CONTINUING AND DETAILED REGULATION BY THE FCC Our FCC license is being challenged. On October 10, 1997, the FCC's International Bureau granted us an FCC license after we submitted a winning bid in an FCC auction. One of the low-bidders in the FCC auction applied to have the full FCC review the grant of our FCC license. The application requests that the FCC adopt restrictions on foreign ownership and overrule the granting of our FCC license on the basis of our ownership. If the FCC denies this application, the complaining party may appeal to the U.S. Court of Appeals. Because less than 25% of our voting stock is owned by non-U.S. persons, we believe the FCC will uphold the grant of our FCC license. We cannot predict the ultimate outcome of any proceedings relating to this application or any other proceedings that interested parties may file. Since December 29, 1997, there have been no developments in this matter. We need a modification to our FCC license before we can begin operation. In May 1998, we decided to increase the number of satellites in our system from two to three and to change the orbit of those satellites. To implement these changes, the FCC must approve changes to our FCC license. If the FCC were to deny our application to modify our license, we would be required to redesign our proposed system and modify our satellites, at a significant cost, and our commercial operations would be delayed. On December 11, 1998, we filed an application with the FCC for these changes. Although we believe that the FCC will approve our application for this necessary change, we cannot assure you that this will occur. XM and WCS Radio, Inc. have filed comments objecting to this modification of our FCC license. We cannot predict the time it will take the FCC to act on our application or any of these objections and we cannot be sure that the modification we have requested will be granted. We will need to renew our FCC license after eight years. The term of our FCC license with respect to each satellite is eight years, beginning on the date it is declared operational after it is inserted into orbit. When the term of our FCC license for each satellite expires, we must apply for 19 a renewal of the relevant license. If the FCC does not renew our FCC license, we would be forced to cease broadcasting CD Radio. We cannot assure you that we will obtain these renewals. We need FCC approval to operate our terrestrial repeating transmitters. Although we plan to install terrestrial repeating transmitters to rebroadcast CD Radio in some urban areas, the FCC has not yet established rules governing the application procedure for obtaining authorizations to construct and operate terrestrial repeating transmitters on a commercial basis. The FCC initiated a rulemaking on the subject in March 1997 and received several comments urging the FCC to consider placing restrictions on the ability to deploy terrestrial repeating transmitters. We cannot predict the outcome of this process. To install and operate our terrestrial repeating transmitters, we will also need to obtain the rights to use towers or the roofs of some structures. Our inability to install terrestrial repeaters in areas where we think we need them could adversely affect the quality of reception of CD Radio service. We cannot assure you that we can obtain these tower or roof rights on acceptable terms or in appropriate locations for the operation of CD Radio. The United States needs to complete frequency coordination with Mexico. To use our assigned spectrum, the United States government must complete a process of frequency coordination with Mexico. We cannot assure you that the United States government will be able to coordinate use of this spectrum with Mexico or do so in a timely manner. The United States and Canadian governments were required to complete a similar process and have done so. New devices may interfere with CD Radio broadcasts. The FCC has proposed regulations to allow a new type of lighting device that may generate radio energy in the part of the spectrum we intend to use. We believe the current proposed regulations for these devices do not contain adequate safeguards to prevent interference with services such as CD Radio. If the FCC fails to adopt adequate technical standards specifically applicable to these devices and if the use of these devices becomes commonplace, we could experience difficulties enforcing our rights. If the FCC fails to adopt adequate standards, the new devices could materially adversely affect reception of our broadcasts. Although we believe that the FCC will set adequate standards to prevent harmful interference, we cannot assure you that it will do so. We may be adversely affected by changing regulations. To provide CD Radio, we must retain our FCC license and obtain or retain other requisite approvals. Our ability to do so could be affected by changes in laws, FCC regulations, international agreements governing communications policy generally or international agreements relating specifically to CD Radio. In addition, the manner in which CD Radio would be offered or regulated could be affected by these changes. We may be adversely affected by foreign ownership restrictions. The Communications Act of 1934 restricts ownership in some broadcasters by foreigners. If these foreign ownership restrictions were applied to us, we would need further authorization from the FCC if our foreign ownership were to exceed 25%. The order granting our FCC license determined that, as a private carrier, those restrictions do not apply to us. However, the order granting our FCC license stated that our foreign ownership status under the Communications Act could be raised in a future proceeding. The pending appeal of the grant of our FCC license may bring the question of foreign ownership restrictions before the full FCC. We could be required to comply with public service regulations. The FCC has indicated that it may impose public service obligations on satellite radio broadcasters in the future, which could add to our costs or reduce our revenues. For example, the FCC could require broadcasters to set aside channels for educational programming. We cannot predict whether the FCC will impose public service obligations or the impact that any of these obligations would have on our results of operations. CONSUMERS MAY STEAL OUR SERVICE Consumers may steal the CD Radio signal. Although we plan to use encryption technology to mitigate signal piracy, we do not believe that this technology is infallible. Accordingly, we cannot assure you that we can eliminate theft of the CD Radio signal. Widespread signal theft could 20 reduce the number of motorists willing to pay us subscription fees and materially adversely affect our results of operations. OUR PATENTS MAY NOT BE SUFFICIENT TO PREVENT OTHERS FROM COPYING ELEMENTS OF OUR SYSTEM Although our U.S. patents cover various features of satellite radio technology, our patents may not cover all aspects of our system. Others may duplicate aspects of our system which are not covered by our patents without liability to us. In addition, competitors may challenge, invalidate or circumvent our patents. We may be forced to enforce our patents or determine the scope and validity of other parties' proprietary rights through litigation. In this event, we may incur substantial costs and we cannot assure you of success in this litigation. In addition, others may block us from operating our system if our system infringes their patents, their pending patent applications which mature into patents or their inventions developed earlier which mature into patents. Should we desire to license our technology, we cannot assure you that we can do so. Assuming we pay all necessary fees on time, the earliest expiration date on any of our patents is April 10, 2012. WE MAY NOT BE ABLE TO SATISFY A CHANGE OF CONTROL OFFER The indentures governing the notes and our Senior Discount Notes and the certificates of designations for our 10 1/2% Series C Preferred Stock, 9.2% Series A Junior Preferred Stock and 9.2% Series B Junior Preferred Stock contain provisions that apply to a change of control of our company. If someone triggers a change of control as defined in those instruments, we must offer to purchase those securities. If we have to make such an offer, we cannot be sure that we will have enough funds to pay for all the securities that holders could tender. If we fail to pay for the notes and the Senior Discount Notes in a change of control offer, we will be in default under the indentures for these notes and the holders of these notes and their trustees may demand that we prepay all amounts outstanding under these notes. If we fail to pay for the 10 1/2% Series C Preferred Stock in a change of control offer, the holders of a majority of this class of stock will be able to elect directors constituting at least 25% of our board of directors, up to a maximum of two directors. If we fail to pay for the 9.2% Series A Junior Preferred Stock and the 9.2% Series B Junior Preferred Stock in a change of control offer because of our obligations to other holders of our debt securities or preferred stock, we must use our best efforts to satisfy these obligations or to obtain permission to repurchase these classes of preferred stock. THE SECURITY FOR THE NOTES MAY NOT BE SUFFICIENT TO MAKE PAYMENTS ON THE NOTES Our obligations under the Senior Discount Notes Indenture and the Senior Discount Notes are, and our obligations under the indenture and the notes are secured by a pledge of the Pledged Stock. We cannot assure you that proceeds from the sale of the Pledged Stock will be sufficient to satisfy amounts due on the notes. Satellite CD Radio, Inc. conducts no business activities and its only asset is our FCC license. The notes are not secured by any lien on, or other security interest in, any of our other properties or assets or any properties or assets of Satellite CD Radio, Inc., except that during the first three years after the date the notes are issued, the notes are secured by a portfolio of U.S. government securities in an amount sufficient to pay the first six payments of interest on the notes. In addition, the indenture permits us to incur other secured indebtedness which may, in the future, be secured on an equal basis with the notes with respect to the Pledged Stock. If, upon a foreclosure on the Pledged Stock, the proceeds from the Pledged Stock are insufficient to satisfy the entire amount due on the notes and on the Senior Discount Notes, the claim by the holders of the notes against us for this deficiency would rank equally with the claims of the other general, unsubordinated creditors of CD Radio. We cannot assure you that the remaining assets of CD Radio would be sufficient to satisfy this deficiency. The trustee under the indenture may not exercise any rights with respect to the Pledged Stock upon the occurrence of an Event of Default (as defined in the indenture) if this action would 21 constitute, or result in any, assignment of our FCC license or any change of our control unless the prior approval of the FCC is first obtained. We cannot assure you that any required FCC approval can be obtained on a timely basis, or at all. CONTROL BY EXISTING STOCKHOLDERS As of May 31, 1999, our executive officers and directors beneficially owned or could vote approximately 19% of our outstanding common stock. In addition, as of that date, our executive officers and directors together with Prime 66 and the Apollo Investors beneficially owned or could vote approximately 47% of our outstanding common stock (assuming conversion of the Junior Preferred Stock). As a result of this concentration of ownership, these stockholders, if they choose to act in concert, may exert considerable influence over our management and policies. Similarly, some or all of these stockholders could delay, defer or prevent a change of control. THERE IS NO PUBLIC MARKET FOR THE NOTES Before the offering of the notes, there has been no public market for the notes and we do not intend to apply for the listing of the notes on any securities exchange or for quotation of the notes on The Nasdaq Stock Market, Inc. We have been advised by the initial purchasers that they presently intend to make a market in the exchange notes, as permitted by applicable laws and regulations. The initial purchasers are not obligated, however, to make a market in the exchange notes and any market making activity may be discontinued at any time without notice at the sole discretion of each initial purchaser. This market-making activity will be restricted by limitations imposed by the Securities Act and the Exchange Act, and may be limited during our exchange offer for the notes. We cannot assure you as to the liquidity of the public market for the exchange notes or that an active public market for the exchange notes will develop. If an active public market does not develop, the market price and liquidity of the exchange notes may be adversely affected. Please refer to the section in this prospectus entitled 'Plan of Distribution.' Historically, the market for non-investment grade debt has been affected by disruptions that have caused substantial volatility in the prices of securities similar to the exchange notes. We cannot assure you that any market for the exchange notes will not be affected by similar disruptions. THE ISSUANCE OF THE EXCHANGE NOTES MAY ADVERSELY AFFECT THE MARKET FOR THE INITIAL NOTES If initial notes are tendered for exchange and accepted in the exchange offer, the trading market for the untendered and tendered but unaccepted initial notes could be adversely affected. Please refer to the section in this prospectus entitled ' -- Your failure to participate in the exchange offer will have adverse consequences.' YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES The initial notes were not registered under the Securities Act or under the securities laws of any state and you may not resell them, offer them for resale or otherwise transfer them unless they are subsequently registered or resold under an exemption from the registration requirements of the Securities Act and applicable state securities laws. If you do not exchange your initial notes for exchange notes pursuant to this exchange offer, or if you do not properly tender your initial notes in this exchange offer, you will not be able to resell, offer to resell or otherwise transfer the initial notes unless they are registered under the Securities Act or unless you resell them, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act. In addition, you may no longer be able to obligate us to register the initial notes under the Securities Act. 22 SOME PERSONS WHO PARTICIPATE IN THE EXCHANGE OFFER MUST DELIVER A PROSPECTUS IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES Based on certain no-action letters issued by the staff of the Commission, we believe that you may offer for resale, resell or otherwise transfer the exchange notes without compliance with the registration and prospectus delivery requirements of the Securities Act. However, in some instances described in this prospectus under 'The Exchange Offer,' you will remain obligated to comply with the registration and prospectus delivery requirements of the Securities Act to transfer your exchange notes. In these cases, if you transfer any exchange note without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from registration of your exchange notes under the Securities Act, you may incur liability under this act. We do not and will not assume, or indemnify you against, this liability. HOLDERS OF EXCHANGE NOTES WILL BE TAXED ON ORIGINAL ISSUE DISCOUNT The exchange notes will be deemed to be issued at a substantial discount from their principal amount. Consequently, holders of exchange notes generally will be required to include amounts in gross income for United States federal income tax purposes in advance of receipt of the cash payments to which this income is attributable. If the exchange notes are treated as 'applicable high yield discount obligations,' our deductions with respect to the original issue discount on the exchange notes will be either deferred until we make the related payments or possibly, in part, disallowed. Please refer to the section in this prospectus entitled 'Certain United States Federal Income Tax Considerations' for a more detailed discussion of the United States federal income tax consequences to holders of the purchase, ownership and disposition of the exchange notes and of the possible deferral or disallowance (in part) of original issue discount deductions to us. If a bankruptcy case is commenced by or against us under the United States Bankruptcy Code after the issuance of the exchange notes, the claim of a holder of exchange notes may be limited to an amount equal to the sum of (1) the initial public offering price for the notes and (2) that portion of the original issue discount that is not deemed to constitute 'unmatured interest' for purposes of the United States Bankruptcy Code. Any original issue discount that was not amortized as of the date of the commencement of this bankruptcy filing would constitute 'unmatured interest.' 23 USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the exchange notes in exchange for the initial notes. We are making this exchange solely to satisfy our obligations under our registration rights agreement. In consideration for issuing the exchange notes, we will receive initial notes in aggregate value equal to the value of the exchange notes. SOURCES AND USES OF FUNDS BY CD RADIO The following table describes the estimated sources and uses of funds by CD Radio from its inception through the end of the fourth quarter of 2000, when CD Radio is expected to commence commercial operations. Assuming the availability of the funds committed or identified to date, we anticipate that we will require approximately an additional $138 million to finance additional expenses before the commencement of operations. We anticipate additional funding requirements of $100 million to fund our operations through the first full year of operations. The projection of total sources and total uses of funds is forward looking and could vary, perhaps substantially, from actual results, due to events outside our control, including unexpected costs and unforeseen delays. Please refer to the section in this prospectus entitled 'Management's Discussion and Analysis of Financial Condition and Results of Operations -- Special Note Regarding Forward Looking Statements.' PRE-OPERATIONAL PERIOD SOURCES OF FUNDS
(IN MILLIONS) ------------- Net Funds Committed or Identified to Date: Vendor and bank financing(1)....................... $ 269 Senior Discount Notes.............................. 117 Preferred Stock(2)................................. 250 Common Stock and Warrants(3)....................... 191 Option for sale of Preferred Stock(4).............. 63 Proceeds of the initial notes offering............. 110 ------ Funds to date................................. 1,000 Future funds(5)......................................... 138 ------ Total pre-operational sources................. $1,138 ------ ------
USES OF FUNDS
(IN MILLIONS) ------------- FCC License............................................. $ 83 Loral Satellite Contract(6): Satellites......................................... 453 Launch services.................................... 280 Insurance............................................... 30 Ground segment(7)....................................... 113 Operating and other cash expenses(8).................... 179 ------ Total pre-operational uses.................... $1,138 ------ ------
(footnotes on next page) 24 (footnotes from previous page) (1) Consists of (a) our existing credit facility provided by Bank of America and other lenders in an aggregate principal amount of up to $115 million, (b) $50 million of vendor financing provided by Loral and (c) an additional credit facility Bank of America may (but is not obligated to) arrange for us, net of approximately $6 million of expenses. Our existing credit facility matures on the earlier of February 29, 2000 and ten days prior to the launch of our second satellite. We have also entered into an agreement with Bank of America under which Bank of America has agreed to attempt to arrange a syndicate of lenders to provide a second term loan facility in the aggregate principal amount of $225 million. Bank of America has not committed to provide these loans and we cannot assure you that these loans will be arranged or the terms of these loans will be acceptable to us. See 'Description of Certain Indebtedness -- Vendor Financing' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources.' (2) Includes (a) net proceeds of approximately $121 million from the issuance of 5,400,000 shares of 5% Preferred Stock in a private placement and (b) net proceeds of approximately $129 million from the issuance of 1,350,000 shares of our 9.2% Series A Junior Preferred Stock to the Apollo Investors. (3) Includes (a) an aggregate of $22 million raised before the award of our FCC license, (b) $24.5 million of net proceeds from the sale of 1,905,488 shares of Common Stock to Loral Space & Communications Ltd. in August 1997, (c) $46.4 million of net proceeds from the sale of 3,050,000 shares of Common Stock in a public offering in November 1997 and (d) $98 million of net proceeds from the sale of 5,000,000 shares of Common Stock to Prime 66 in November 1998. (4) The Apollo Investors have granted us an option, expiring September 30, 1999, to sell them a total of 650,000 shares of 9.2% Series B Junior Preferred Stock for $65 million, which is expected to result in net proceeds to us of $63 million. (5) We currently expect to satisfy our future funding requirements through the issuance of additional debt and/or equity securities in the public or private markets. If Bank of America is unable to arrange a new credit facility, we will need to raise an additional $221 million to fund our operations through the end of the fourth quarter of 2000. (6) This amount includes $15 million of long-lead time parts for a fifth satellite. As of March 31, 1999, we had incurred none of this amount. (7) Includes (a) an estimated $57 million for the construction and development of our National Broadcast Studio, which includes costs associated with the acquisition of programming, the purchase of tracking, telemetry and control equipment and the construction of two earth stations in South America by Loral Skynet, and (b) $56 million for terrestrial repeaters. (8) Includes (a) cumulative historical cash operating expenses through March 31, 1999 of approximately $62 million including $25.7 million of expenses resulting primarily from our termination of our launch agreement with Arianespace, and (b) projected operating and other capital expenses, including operation of our terrestrial repeater network, pre-operational marketing expenses, expenses relating to the development of receivers and other general and administrative expenses from January 1, 1999 through the end of the pre-operational period of $129 million. 25 CAPITALIZATION The following table sets forth the cash and capitalization of CD Radio as of March 31, 1999 (1) on a historical basis; and (2) as adjusted for the sale of the units consisting of initial notes and warrants after deducting the fees of the initial purchasers and other estimated expenses.
AS OF MARCH 31, 1999 -------------------------- ACTUAL AS ADJUSTED ------ ----------- (IN THOUSANDS) Cash, cash equivalents and marketable securities, at $208,227 $318,927 market(1)................................................. -------- -------- -------- -------- Restricted investments(2)................................... $ -- $ 79,300 -------- -------- -------- -------- Debt obligations: Short-term notes payable............................... $ 79,814 $ 79,814 -------- -------- -------- -------- Long-term obligations Deferred satellite payments, long-term................. 32,132 32,132 15% Senior Secured Discount Notes due 2007............. 161,707 161,707 14 1/2% Senior Secured Notes due 2009.................. -- 168,618 -------- -------- Total long-term debt obligations.................. 193,839 362,457 -------- -------- 10 1/2% Series C Convertible Preferred Stock................ 161,169 161,169 9.2% Series A Junior Cumulative Convertible Preferred Stock..................................................... 140,788 140,788 Stockholders' Equity Common Stock, at par value, $0.001 per share(3)........ 23 23 Warrants(3)............................................ -- 31,382 Additional paid-in capital............................. 142,433 142,433 Accumulated deficit.................................... (82,113) (82,113) -------- -------- Total capitalization.............................. $556,139 $756,139 -------- -------- -------- --------
- ------------ (1) Marketable securities consist of fixed income securities with a maturity at the time of purchase of greater than three months. (2) Consists of the securities held by the trustee for the benefit of the holders of the notes. (3) All capitalization information excludes: (a) options outstanding as of March 31, 1999 to purchase 4,408,850 shares of Common Stock, (b) warrants issuable as of March 31, 1999 to purchase 2,784,322 shares of Common Stock and (c) warrants issued to Ford to purchase 4,000,000 shares of our Common Stock. 26 SELECTED HISTORICAL FINANCIAL DATA The selected consolidated financial data for CD Radio shown below as of and for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 are derived from CD Radio's respective audited consolidated financial statements. The financial information as of and for the three months ended March 31, 1998 and 1999 is derived from the unaudited consolidated financial statements incorporated by reference into this prospectus. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, that are necessary for a fair presentation of the financial position and results of operations for these periods. You should read the selected consolidated financial data together with the Consolidated Financial Statements, the related notes and the information contained in this prospectus under the heading 'Management's Discussion and Analysis of Financial Condition and Results of Operations.'
THREE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------------------- ------------------- 1994 1995 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Operating revenues.................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- Net loss(1)........................... (4,065) (2,107) (2,831) (4,737) (48,396) (5,838) (10,444) Preferred stock dividends............. -- -- -- (2,338) (19,380) (4,781) (7,330) Preferred stock deemed dividends(2)... -- -- -- (51,975) (11,676) -- (2,256) Accretion of dividends in connection with the issuance of warrants on preferred stock..................... -- -- -- -- (6,501) (4,275) (74) Net loss applicable to common stockholders........................ (4,065) (2,107) (2,831) (59,050) (85,953) (14,894) (20,104) Per common share: Net loss (basic and diluted).......... (0.48) (0.23) (0.29) (0.41) (2.70) (0.36) (0.45) Preferred stock dividend.............. -- -- -- (0.20) (1.08) (0.30) (0.31) Preferred stock deemed dividend....... -- -- -- (4.47) (0.65) -- (0.10) Accretion of dividends in connection with the issuance of warrants on preferred stock..................... -- -- -- -- (0.36) (0.27) (0.01) Net loss applicable to common stockholders........................ (0.48) (0.23) (0.29) (5.08) (4.79) (0.93) (0.87) Weighted average common shares outstanding (basic and diluted)..... 8,398 9,224 9,642 11,626 17,932 16,049 23,220 BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents............. $ 3,400 $ 1,800 $ 4,584 $ 900 $204,753 $160,794 $162,057 Marketable securities, at market(3)... -- -- -- 169,482 60,870 -- 46,170 Working capital....................... 2,908 1,741 4,442 170,894 180,966 161,429 104,489 Total assets.......................... 3,971 2,334 5,065 323,808 643,880 336,855 662,846 Short-term notes payable.............. -- -- -- -- 70,863 -- 79,814 Deferred satellite payments........... -- -- -- -- 31,324 -- 32,132 Long-term debt........................ -- -- -- 131,387 153,033 150,508 161,707 10 1/2% Series C Preferred Stock...... -- -- -- 176,025 156,755 115,323 161,169 9.2% Series A Preferred Stock......... -- -- -- -- 137,755 -- 140,788 Deficit accumulated during the development stage................... (13,598) (15,705) (18,536) (23,273) (71,669) (29,110) (82,113) Stockholders' equity.................. 3,431 1,991 4,898 15,980 77,953 70,845 60,343 Book value per common share........... 0.37 0.21 0.48 1.00 3.36 4.41 2.60
- ------------ (1) Included in the 1998 net loss of ($48,396) is ($25,682) of special charges related primarily to the termination of certain launch and orbit related contracts required when we decided to enhance our satellite delivery system to include a third in-orbit satellite. (2) The deemed dividend in 1997 relates to the discount feature associated with our 5% Delayed Convertible Preferred Stock and the deemed dividend in 1998 relates primarily to the conversion feature associated with our 9.2% Series A Junior Cumulative Convertible Preferred Stock. We computed these deemed dividends in accordance with the Commission's position on accounting for preferred stock which is convertible at a discount to the market price. (3) Marketable securities consist of fixed income securities with a maturity at the time of purchase of greater than three months. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This prospectus contains some forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of some events could differ materially from those projected in the forward-looking statements due to a number of factors, including those described under 'Risk Factors' and elsewhere in this prospectus. See 'Special Note Regarding Forward Looking Statements' below. OVERVIEW CD Radio was organized in May 1990 and is in its development stage. Our principal activities to date have included technology development, obtaining regulatory approval for the CD Radio service, commencement of construction of four satellites, acquisition of content for our programming, strategic planning, market research, recruitment of our management team and securing financing for working capital and capital expenditures. We do not expect to generate any revenues from operations until the first quarter of 2001, at the earliest, and we expect that positive cashflow from operations will not be generated until the third quarter 2001, at the earliest. In addition, we require additional capital to complete development and commence commercial operations of CD Radio. We cannot assure you that we will ever commence operations, that we will attain any particular level of revenues or that we will achieve profitability. For further information about these risks, please refer to the section of this prospectus entitled 'Risk Factors.' Upon commencing commercial operations, we expect our primary source of revenues to be monthly subscription fees. We currently anticipate that our subscription fee will be approximately $9.95 per month to receive CD Radio broadcasts, with a one time, modest activation fee per subscriber. In addition, we expect to derive additional revenues from directly selling or bartering advertising time on our non-music channels. We do not intend to manufacture the consumer electronic devices necessary to receive CD Radio and thus will not receive any revenues from their sale. Although we hold patents covering some of the technology which may be used in these consumer electronic devices, we expect to license our technology to manufacturers at no charge. We expect that the operating expenses associated with commercial operations will consist primarily of marketing, sales, programming, maintenance of the satellite and broadcasting system and general and administrative costs. Costs to acquire programming are expected to include payments to build and maintain an extensive music library and royalty payments for broadcasting music (calculated based on a percentage of revenues). Marketing, sales, general and administrative costs are expected to consist primarily of advertising costs, salaries of employees, rent and other administrative expenses. As of June 17, 1999, we had 55 employees and we expect to have approximately 150 employees by the time we commence commercial operations. In addition to funding initial operating losses, we require funds for working capital, interest and financing costs on borrowings and capital expenditures in the near term. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31, 1998 We recorded net losses of $10,444,000 for the three months ended March 31, 1999 and $5,838,000 for the three months ended March 31, 1998. Our total operating expenses were $11,875,000 for the three months ended March 31, 1999 and $2,333,000 for the three months ended March 31, 1998. Engineering design and development costs were $6,911,000 for the three months ended March 31, 1999 and $379,000 for the three months ended March 31, 1998, respectively. Engineering costs increased in the 1999 quarter primarily due to payments to Lucent in connection with the chip set development effort and payments to consumer electronic manufacturers in connection with receiver development efforts. 28 General and administrative expenses increased for the three months ended March 31, 1999 to $4,964,000 from $1,954,000 for the three months ended March 31, 1998. General and administrative expenses increased due to the occupancy of our new offices and broadcast studios and the growth of our management team and the workforce necessary to develop and commence the broadcast of CD Radio. The major components of general and administrative expenses in the 1999 quarter were salaries and employment related costs (28%), rent and occupancy costs (30%) and legal and regulatory fees (15%), while in the 1998 quarter the major components were salaries and employment related costs (27%), rent and occupancy costs (5%), and legal and regulatory fees (14%). The remaining portion of general and administrative expenses (27% in the 1999 quarter and 54% in the 1998 quarter) consists of other costs such as insurance, market research, consulting, travel, depreciation and supplies, with none of these amounts exceeding 10% of the total. The increase of interest and investment income to $2,864,000 for the three months ended March 31, 1999, from $2,318,000 in the three months ended March 31, 1998, was the result of a higher average balances of cash and marketable securities during the first quarter of 1999. We obtained the additional cash and marketable securities from the stock sales during the fourth quarter of 1998. Interest expense, net of capitalized interest, was $1,433,000 in the 1999 quarter compared with $5,823,000 in the 1998 quarter and capitalized interest was $10,127,000 in the 1999 quarter compared with $277,000 in the 1998 quarter. Gross interest expense was $11,560,000 in the 1999 quarter and $6,100,000 in the 1998 quarter. This increase was primarily due to interest expense on the short-term notes payable and the deferred satellite payments, neither of which were outstanding in the 1998 quarter. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997 We recorded net losses of $48,396,000 ($2.70 per share) for the year ended December 31, 1998 and $4,737,000 ($.41 per share) for the year ended December 31, 1997. Our total operating expenses were $39,079,000 in 1998 and $6,865,000 in 1997. Excluding the special charges recorded in the second quarter of 1998 totaling $25,682,000 which related primarily to the termination of certain launch and orbit related contracts required when we decided to enhance our satellite delivery system to include a third in-orbit satellite, we recorded net losses of $22,714,000 and operating costs of $13,397,000 in 1998. Legal, consulting and regulatory fees increased to $4,064,000 in 1998 from $3,236,000 in 1997. The increase in the level of expenditures was primarily the result of greater consulting expenses due to the accelerated execution of our business plan. Consulting fees were generated primarily in connection with the technical aspects of our business plan, such as satellite construction, chip set design and terrestrial repeater network build-out. The major components of legal, consulting and regulatory fees in the 1998 period were legal (48%), consulting (50%) and regulatory (2%), while in the 1997 period the major components were legal (51%), consulting (44%) and regulatory (5%). Research and development costs were $22,000 in 1998, compared with $57,000 in 1997. This level of research and development cost is the result of our completing the majority of these activities in 1994. Other general and administrative expenses increased to $9,311,000 in 1998 from $3,572,000 in 1997. General and administrative activities have grown as we continue to expand our management team and the workforce necessary to develop and commence the broadcast of CD Radio. The major components of other general and administrative costs in 1998 were salaries and employment related costs (51%) and rent and occupancy costs (24%), while in the 1997 period the major components were salaries and employment related costs (57%) and rent and occupancy costs (11%). The increase in the percentage of the total costs related to rent and occupancy was due to our taking possession of the premises where our National Broadcast Studio is being constructed. The remaining portion of other general and administrative costs (25% in 1998 and 32% in 1997) consists of other costs such as insurance, market research, travel, depreciation and supplies, with no amount exceeding 10% of the total. 29 Interest and investment income increased to $7,250,000 in 1998 from $4,074,000 in 1997. The increase was the result of a higher average investment balance throughout 1998 than 1997. The higher average investment balance was due to the completion of the sales of stock to both Prime 66 and the Apollo Investors in 1998 and the unexpended proceeds from our 1997 securities offerings. Interest expense, net of capitalized interest, was $14,272,000 in 1998 and $1,946,000 in 1997. This increase was due to interest expense accruing on our Senior Discount Notes issued in November 1997. Although we recorded a net loss, we recorded $2,295,000 of income tax expense in 1998, which is related to our being a 'start-up' company for income tax purposes and the fact that the interest expense on our Senior Discount Notes is deductible only when paid. YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996 We recorded net losses of $4,737,000 ($.41 per share) for the year ended December 31, 1997 and $2,831,000 ($.29 per share) for the year ended December 31, 1996. Our total operating expenses were $6,865,000 for the year ended December 31, 1997 and $2,930,000 for the year ended December 31, 1996. Legal, consulting and regulatory fees increased for the year ended December 31, 1997 to $3,236,000 from $1,582,000 for the year ended December 31, 1996. These levels of expenditures are the result of increased activity since winning the auction for our FCC license in April 1997, and in connection with our public offerings of Common Stock and units consisting of Senior Discount Notes and warrants to purchase Senior Discount Notes and the exchange offer for our 5% Preferred Stock. The major components of legal, consulting and regulatory fees in 1997 were legal (51%), consulting (44%) and regulatory (5%), while in 1996 the major components were legal (48%), consulting (38%) and regulatory (14%). Research and development costs were $57,000 for the year ended December 31, 1997 and $117,000 for the year ended December 31, 1996. We completed the majority of these activities in 1994. Other general and administrative expenses increased for the year ended December 31, 1997 to $3,572,000 from $1,231,000 for the year ended December 31, 1996. General and administrative expenses are expected to continue to increase as we continue to develop our business. The major components of other general and administrative costs in 1997 were salaries and employment related costs (57%) and rent and occupancy costs (11%), while in 1996 the major components were salaries and employment related costs (50%) and rent and occupancy costs (22%). The remaining portion of other general and administrative costs (32% in 1997 and 28% in 1996) consists of other costs such as insurance, market research, travel, depreciation and supplies, with no amount exceeding 10% of the total. The increase in interest and investment income to $4,074,000 for the year ended December 31, 1997, from $112,000 in the year ended December 31, 1996, was the result of a higher average investment balance during 1997. The investments on hand were primarily obtained from the debt and equity offerings completed in 1997. Interest expense increased for the year ended December 31, 1997 to $1,946,000 from $13,000 for the year ended December 31, 1996. The increase is the result of the issuance of the units consisting of Senior Discount Notes and warrants to purchase Senior Discount Notes in November 1997. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1999, we had a total of cash, cash equivalents and marketable securities of $208,227,000 and working capital of $104,489,000 compared with cash, cash equivalents and marketable securities of $265,623,000 and working capital of $180,966,000 at December 31, 1998. The decrease in these balances was primarily the result of payments for satellite construction, launch vehicles and services, payments under our agreement with Lucent and other engineering 30 agreements and other operating expenses exceeding interest and investment income during the period. Funding Requirements. We require near-term funding to continue building our CD Radio system. We believe we can fund our planned operations and the construction of our satellite system into the first quarter of 2000 from the proceeds of this offering and from our working capital. We estimate that we will require approximately $1,138 million to develop and commence commercial operations by the end of the fourth quarter of 2000. After giving effect to the offering of units, consisting of initial notes and warrants, we have raised, will have access to or will have identified sources for approximately $1,000 million (which includes $115 million of debt that must be repaid by the earlier of February 29, 2000 and ten days prior to the launch of our second satellite), leaving anticipated additional cash needs of approximately $138 million to fund our operations through the fourth quarter of 2000. If Bank of America is unable to arrange a new credit facility, we will need to raise an additional $221 million to fund our operations through the end of the fourth quarter of 2000. We anticipate additional cash requirements of approximately $100 million to fund our operations through the first full year of commercial operations. We expect to finance the remainder of our funding requirements through the future issuance of debt or equity securities, or a combination of debt and equity securities. To build and launch the satellites necessary for the operations of CD Radio we entered into the Loral Satellite Contract. The Loral Satellite Contract provides for Loral to construct, launch and deliver three satellites in-orbit and checked-out, to construct for us a fourth satellite for use as a ground spare and to become our launch services provider. We are committed to make aggregate payments of approximately $718 million under the Loral Satellite Contract. We also intend to enter into an amendment to the Loral Satellite Contract pursuant to which we will purchase $15 million of long-lead time parts for a fifth satellite. As of December 31, 1998, $221 million of this obligation had been satisfied. Under the Loral Satellite Contract, with the exception of a payment made to Loral in March 1993, payments are made in installments commencing in April 1997 and will end in December 2003. Approximately half of these payments are contingent upon Loral meeting specified milestones in the construction of our satellites. If there is a satellite or launch failure, we will be required to pay Loral the deferred amount for the affected satellite no later than 120 days after the date of the failure. If we elect to put one of our first three satellites into ground storage, rather than having it shipped to the launch site, the deferred amount for that satellite will become due within 60 days of this election. We also will require funds for working capital, interest on borrowings, acquisition of programming, financing costs and operating expenses until some time after the commencement of commercial operations of CD Radio. We expect our interest expense will increase significantly when compared to our 1998 interest expense as a result of the issuance of the notes we are offering; however, our Senior Discount Notes, which represent a substantial portion of our planned indebtedness, will not require cash payments of interest until June 2003. In addition, a portion of the net proceeds of this offering will be used to purchase a portfolio of U.S. government securities in an amount sufficient to pay the first six payments of interest on the notes we are offering. We cannot assure you that we will be able to obtain additional financing on favorable terms, or at all, or that we will be able to do so in a timely fashion. Our Senior Discount Notes Indenture, the indenture governing the notes and the Tranche A Facility contain, and documents governing any indebtedness incurred in the future are expected to contain, provisions limiting our ability to incur additional indebtedness. If additional financing were not available on a timely basis, we would be required to delay satellite and/or launch vehicle construction to conserve cash to fund continued operations, which would cause delays in the commencement of operations and increase costs. The amount and timing of our actual cash requirements will depend upon numerous factors, including costs associated with the construction and deployment of our satellite system and the rate of growth of our business after commencing service, costs of financing and the possibility of unanticipated costs. Additional funds would be required if there are delays, cost overruns, 31 unanticipated expenses, launch failures, launch services or satellite system change orders, or any shortfalls in estimated levels of operating cash flow. Sources of Funding. To date, we have funded our capital needs through the issuance of debt and equity. As of March 31, 1999, we had received a total of $441 million in equity capital. $192 million of our equity capital was received in 1997 as a result of the issuance of 5,400,000 shares of 5% Preferred Stock, resulting in net proceeds of $121 million, and 4,955,488 shares of Common Stock, resulting in net proceeds of $71 million. A total of 1,905,488 shares of Common Stock were sold to Loral Space & Communications, Ltd. in August 1997 and 3,050,000 shares of Common Stock were sold to the public in November 1997. On November 2, 1998, we sold an additional 5,000,000 shares of Common Stock to Prime 66 resulting in net proceeds of $98 million and on December 23, 1998, we sold 1,350,000 of 9.2% Series A Junior Preferred Stock to the Apollo Investors resulting in net proceeds of $129 million, and the Apollo Investors granted us an option to sell them an additional 650,000 shares of the 9.2% Series B Junior Preferred Stock for an estimated net proceeds of $63 million. As long as there has been no material adverse change to our business, management or financial condition, we may exercise our option to require the Apollo Investors to purchase the 9.2% Series B Junior Preferred Stock at any time before September 30, 1999. In May 1999, we received net proceeds of approximately $190 million from the issuance of 200,000 units, each consisting of $1,000 aggregate principal amount of the initial notes and three warrants, each to purchase 3.65 shares of our common stock. We invested approximately $79.3 million of these net proceeds in a portfolio of U.S. government securities, which we pledged as security for the payment in full of interest on the notes through May 15, 2002. In November 1997, we received net proceeds of $116 million from the issuance of 12,910 units, each consisting of $20,000 aggregate principal amount at maturity of Senior Discount Notes and a warrant to purchase additional Senior Discount Notes with an aggregate principal amount at maturity of $3,000. All warrants were exercised in 1997. The aggregate value at maturity of the Senior Discount Notes is $297 million. The Senior Discount Notes mature on November 15, 2007 and the first cash interest payment is due in June 2003. The indenture governing the notes and the Senior Discount Notes Indenture contain some limitations on our ability to incur additional indebtedness. The notes and the Senior Discount Notes are secured by a pledge of the stock of Satellite CD Radio Inc., our subsidiary that holds our FCC license. On July 28, 1998, we entered into the Tranche A Facility with a group of financial institutions (the 'Lenders'), including Bank of America as agent and a lender, under which the Lenders agreed to provide us a term loan facility in an aggregate principal amount of up to $115 million (the term loans under the Tranche A Facility, the 'Tranche A Loans'). The proceeds of the Tranche A Loans are being used to fund a portion of the progress payments required to be made by us under the Loral Satellite Contract for the purchase of launch services and to pay interest, fees and other expenses related to the Tranche A Facility. The Tranche A Loans are due on the earlier of February 29, 2000 and ten days prior to the launch of our second satellite. As of March 31, 1999, we had borrowed $79.8 million under the Tranche A Facility; substantially all of which was used to make progress payments under the Loral Satellite Contract. In connection with the Tranche A Facility, Loral agreed with Bank of America that at maturity of the Tranche A Loans (including maturity as a result of an acceleration), upon the occurrence of a bankruptcy of CD Radio or upon the occurrence of an event of default by Loral under its agreement with Bank of America, Loral will repurchase from the Lenders the Tranche A Loans at a price equal to the principal amount of the Tranche A Loans plus accrued and unpaid interest. In exchange for providing this credit support, Loral receives a fee from us equal to 1.25% per annum of the outstanding amount of the Tranche A Loans from time to time. We have also entered into an agreement with Bank of America under which Bank of America has agreed to attempt to arrange a syndicate of lenders to provide a term loan facility (the 'Tranche B Facility') for us in the aggregate principal amount of $225 million (the term loans under the Tranche B Facility, the 'Tranche B Loans'). It is anticipated that a portion of the proceeds of the Tranche B Loans would be used to repay amounts outstanding under the 32 Tranche A Facility and for other general corporate purposes. Bank of America has not committed to provide the Tranche B Loans. The closing of the Tranche B Facility is expected to be conditioned on the satisfaction of specific significant conditions and there is no assurance that these Tranche B Loans will be arranged or the terms of these Tranche B Loans will be acceptable to us. If we are unable to close the Tranche B Facility, we will seek to repay the Tranche A Loans from the proceeds of the sale of debt securities, equity securities, or a combination of debt and equity securities. The Junior Preferred Stock is convertible into shares of Common Stock at a price of $30 per share. The Junior Preferred Stock is callable by us beginning November 15, 2001 if the current market price, as defined in the Certificate of Designation of the Junior Preferred Stock, of our Common Stock exceeds $60 per share for a period of 20 consecutive trading days, and in all events will be callable beginning November 15, 2003 at a price of 100% and must be redeemed by us on November 15, 2011. Dividends on the Junior Preferred Stock are payable-in-kind or cash annually, at our option. Holders of the Junior Preferred Stock have the right to vote, on an as-converted basis, on matters in which the holders of our Common Stock have the right to vote. Loral has agreed to defer a total of $50 million of the payments under the Loral Satellite Contract originally scheduled for payment in 1999. These deferred amounts bear interest at 10% per annum and all interest on these deferred amounts will accrue until December 2001, at which time interest will be payable quarterly in cash. The principal amounts of the deferred payments under the Loral Satellite Contract are required to be repaid in six installments between June 2002 and December 2003. As collateral security for these deferred payments, we have agreed to grant Loral a security interest in our terrestrial repeater network. OTHER MATTERS -- THE YEAR 2000 ISSUE The Year 2000 Issue will test the capability of business processes to function correctly. We have undertaken an effort to identify and mitigate The Year 2000 Issue in our information systems, product, suppliers and facilities. Our approach to The Year 2000 Issue can be separated into four phases: (1) define/measure -- identify and inventory possible sources of Year 2000 Issues; (2) analyze -- determine the nature and extent of Year 2000 Issues and develop project plans to address those issues; (3) improve -- execute project plans and perform a majority of the testing; and (4) control -- complete testing, continue monitoring readiness and complete necessary contingency plans. The first three phases of the program have been completed for a substantial majority of our mission-critical activities. Management plans to have nearly all significant information systems and facilities through the control phase of the program by mid-1999. We have also communicated with our significant vendors and suppliers to determine the extent to which we are vulnerable to the failure of these parties to remedy Year 2000 Issues. We can give no assurance that failure to address the Year 2000 Issues by third parties on whom our systems and business processes rely would not have a material adverse effect on our operations or financial condition. The total Year 2000 Issue remediation expenditures are expected to be approximately $100,000 of which 25% was spent by March 31, 1999. Substantially all of the remainder is expected to be spent in 1999. The activities involved in the Year 2000 effort necessarily involve estimates and projections of activities and resources that will be required in the future. These estimates and projections could change as work progresses. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS The following cautionary statements identify important factors that could cause our actual results to differ materially from those projected in the forward looking statements made in this prospectus. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward looking. These statements are often, but not always, made through the use of words or phrases such as 'will likely result,' 'are expected to,' 'will continue,' 'is anticipated,' 'estimated,' 'intends,' 'plans,' 'projection' and 33 'outlook.' Accordingly, these statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed in them. Any forward looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus, and particularly the risk factors described under 'Risk Factors' in this prospectus. Among the significant factors that have a direct bearing on our results of operations are: the potential risk of delay in implementing our business plan; increased costs of construction and launch of necessary satellites; risk of launch failure; unproven market and unproven applications of technology; our dependence on Loral and Lucent; unavailability of receivers and antennas; and our need for additional financing. These and other factors are discussed in 'Risk Factors' and elsewhere in this prospectus. Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward looking statements made by us or on our behalf, you should not place undue reliance on any of these forward looking statements. Further, any forward looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward looking statement or statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess with any precision the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward looking statements. 34 BUSINESS We are building a digital quality radio service with up to 100 channels to be broadcast directly from satellites to vehicles. CD Radio will be broadcast throughout the continental United States, over a frequency band, the 'S-band,' that will augment traditional AM and FM radio bands. We hold one of only two licenses issued by the FCC to build, launch and operate a national satellite radio broadcast system. Under our FCC license, we have the exclusive use of a 12.5 MHz portion of the S-band for this purpose. Our service, which will be primarily for motorists, will offer 50 channels of commercial-free, digital quality music programming and up to 50 channels of news, sports, talk and entertainment programming. We have entered into a contract with Loral for the construction, launch and in-orbit delivery of three satellites beginning in January 2000. We currently expect to commence CD Radio broadcasts in the fourth quarter of 2000, at a subscription price of $9.95 per month. As an entertainment company, we intend to design and originate programming on each of our 50 commercial-free music channels. Each channel will be operated as a separate radio station, with a distinct format. Some of the music channels will offer continuous music while others will have program hosts, depending on the type of music programming. CD Radio will offer the following range of music categories: Symphonic Chamber Music Opera Top of the Charts 50's Hits 60's Hits 70's Hits 80's Hits 90's Hits Soft Rock Love Songs Singers & Songs Beautiful Instruments Broadway's Best Big Band/Swing Classic Jazz Contemporary Jazz NAC Jazz New Age Soul Ballads Contemporary R&B Classic Soul Hits R&B Oldies Rap/Hip Hop Dance Tropical Latin Jazz Boleros Latin Contemporary Merengue Cumbia Mexicana TexMex Rock en Espanol Country Hits Modern Country Classic Country Folk Rock Alternative Rock I Alternative Rock II Classic Rock I Classic Rock II Album Rock Hard Rock/Metal Blues Reggae World Beat Gospel Contemporary Christian Children's Entertainment Programming on our non-music channels will be provided by third parties, and to date we have entered into programming agreements with content providers for 25 of these channels, including Bloomberg News Radio, C-SPAN, Sports Byline USA, National Public Radio, Public Radio International, Classic Radio, Hispanic Radio Network, World Radio Network, Speedvision Radio and Outdoor Life Radio. A majority of our non-music channels will contain advertising, which will augment our subscription revenue. These channels will include news and talk shows and special interest programming directed to a diverse range of groups, including sports enthusiasts, Hispanic listeners, truck drivers and campers. Our music and non-music channels will be broadcast from our National Broadcast Studio in Rockefeller Center in New York City. The National Broadcast Studio will contain our corporate headquarters, our music library, facilities for programming origination, programming personnel and program hosts, as well as facilities to transmit programming to our orbiting satellites, to activate or deactivate service to subscribers and to perform the tracking, telemetry and control of the satellites. 35 On June 15, 1999, we announced an agreement with Ford Motor Company which anticipates Ford manufacturing, marketing and selling vehicles that include receivers capable of receiving the CD Radio broadcasts. As part of this agreement, Ford will be entitled to participate in a portion of the revenues derived by us from new Ford vehicles equipped to receive CD Radio broadcasts. In addition, we will reimburse Ford for specific costs of equipping these Ford vehicles to receive CD Radio broadcasts and we have granted Ford warrants to purchase 4,000,000 shares of our common stock at an exercise price of $30 per share. Ford may exercise these warrants based upon the number of Ford vehicles equipped to receive CD Radio broadcasts that Ford elects to manufacture, and these warrants are fully exercisable upon 4,000,000 of these vehicles being manufactured. We have entered into an agreement with Lucent for the development and manufacture of a chip set that represents the essential element of consumer electronics devices which are capable of receiving CD Radio. On March 29, 1999, Lucent delivered to us completed system engineering documents, completing Phase I of the work under the agreement. CD Radio Inc. was incorporated in the state of Delaware as Satellite CD Radio, Inc. on May 17, 1990. On December 7, 1992, we changed our name to CD Radio Inc., and we formed a wholly owned subsidiary, Satellite CD Radio, Inc., that is the holder of our FCC license. Our executive offices are located at 1221 Avenue of the Americas, New York, New York 10020, our telephone number is (212) 584-5100 and our internet address is cdradio.com. The information on our website is not part of this prospectus. PROGRESS TO DATE AND SIGNIFICANT DEVELOPMENT MILESTONES The following chart lists our past and projected development milestones. We cannot assure you that we will be able to meet any of our projections for 1999 or 2000, including completion of our satellite launches or commencement of commercial operations in the fourth quarter of 2000 as planned. See 'Risk Factors.' 1990: CD Radio Inc. incorporated Proposed that FCC create satellite radio service and filed license application 1991: Conducted stationary service simulation Conducted nationwide focus groups 1992: Radio spectrum allocated for satellite radio service 1993: Contracted with Loral for satellite construction Conducted additional nationwide focus groups 1994: Completed initial public offering of our Common Stock 1995: Completed Loral satellite design Designed proprietary miniature satellite dish antenna Obtained patents for portions of our broadcast system 1996: Designed radio card adapter
36 1997: Obtained one of only two national satellite radio broadcasting licenses from the FCC Commenced construction of our three satellites Recruited key programming, marketing and financial management team Completed strategic sale of $25 million of Common Stock to Loral Space & Communications, Ltd. Completed additional debt and equity financings, raising $315 million 1998: Expanded from 50 planned broadcast channels to 100 broadcast channels Ordered fourth satellite and expanded Loral's role to provide in-orbit system delivery Obtained $50 million of vendor financing from Loral Obtained $115 million of financing from Bank of America and other lenders Signed agreement with Lucent to design, develop and manufacture chip sets Obtained additional patents for portions of our broadcast system Signed programming agreements with content providers for 16 non-music channels Constructed terrestrial repeater network in San Francisco Completed sale of $100 million of Common Stock to Prime 66 Completed sale of $135 million of 9.2% Series A Junior Preferred Stock to Apollo Investors Began construction of National Broadcast Studio Hired various key employees 1999: Signed agreement with Recoton to design and develop an FM modulated receiver, radio card and antenna Signed agreement with Delco to design, develop and manufacture three-band receivers and antennas Signed agreement with Ford for factory installation of CD Radio receivers in new Ford vehicles Completed sale of $200 million of units consisting of initial notes and warrants Lucent completes system architecture and receiver specifications Complete construction of National Broadcast Studio Commence design and construction of customer transaction management system Commence nationwide rollout of terrestrial repeater network Select additional non-music content providers 2000: Commence and complete satellite launches Commence production of devices capable of receiving CD Radio Complete nationwide terrestrial repeater rollout Finalize non-music channel content Test markets Begin commercial operations in fourth quarter
THE CD RADIO SERVICE CD Radio will offer motorists: (1) a wide choice of finely focused music and non-music formats; (2) nearly seamless signal coverage throughout the continental United States; and (3) commercial-free music programming. Wide Choice Of Programming. CD Radio will offer subscribers a broad range of programming formats and significant depth within each format. Each of our 50 music channels will have a distinctive format, such as opera, reggae, classic jazz and children's entertainment, intended to cater to specific subscriber tastes. In most markets, radio broadcasters target their programming to broad audience segments and therefore offer limited formats. Even in the largest metropolitan markets 37 many of our planned formats are unavailable. Additionally, we will provide news, sports and talk programming that is generally not available on conventional radio. 'Seamless' Signal Coverage. CD Radio will be available throughout the continental United States, enabling listeners almost always to be within its broadcast range. We expect that our nearly seamless signal will appeal to motorists who frequently travel long distances, including truck drivers and recreational vehicle owners, as well as commuters and others who outdrive the range of their preferred FM radio broadcasts. In addition, we expect that our broadcasts will appeal to the 45 million consumers who live in areas that currently receive only a small number of FM stations. Commercial-Free Music Programming. CD Radio will provide 50 channels of commercial-free music programming. Our market research indicates that a principal complaint of radio listeners concerning conventional broadcast radio is the frequency of commercials. Because CD Radio, unlike commercial AM and FM stations, will be a subscription service, our music channels will not contain commercials. Our research indicates that there is a significant market for music and other radio programming such as news, talk and sports delivered through advanced radio technology. While television technology has advanced steadily -- from black and white to color, from broadcast to cable and satellite, and from ordinary to high-definition television -- the last major advance in radio technology was the introduction of FM broadcasts. CD Radio is primarily a service for motorists. The Yankee Group, a market research organization, estimates that there will be approximately 200 million registered private motor vehicles in the United States by the end of 1999. CD Radio will initially target a number of demographic groups among the drivers of these vehicles, including 110 million commuters, 34 million of whom spend over one hour commuting daily; 45 million Americans who live in markets served by five or fewer radio stations; three million truck drivers; three million owners of recreational vehicles; and 28 million persons of Hispanic origin. According to Arbitron, in 1996, despite the fact that almost all vehicles contained either a cassette or compact disc player, 87% of automobile commuters listened to the radio an average of 50 minutes a day while commuting. According to the Radio Advertising Bureau, each week radio reaches approximately 95% of all Americans over the age of 12, with the average listener spending more than three hours per weekday and more than five hours per weekend listening to the radio. More than 40% of all radio listening is done in cars. In addition, in 1998, approximately 79% of total radio listening was to FM stations, which primarily provides music programming, as compared with AM stations which devote a greater proportion of their programming to talk and news. We believe that our ability to offer a wide variety of musical and non-musical formats simultaneously throughout the continental United States will enable us to tap significant unmet consumer demand for specialized programming. The economics of the existing advertiser supported radio industry dictate that conventional radio stations generally program for the greatest potential audience. Even in the largest metropolitan areas, station formats are limited. Nearly half of all commercial radio stations in the United States offer one of only three formats: country, adult contemporary and news/talk, and the next three most prevalent formats account for another 30% of all commercial radio stations. Although niche music categories such as classical, jazz, rap, gospel, oldies, soundtracks, new age music, children's programming and others accounted for approximately 33% of sales of recorded music in 1998, these formats generally are unavailable on existing radio stations in many markets. Even in New York City, the nation's largest radio market, there are no radio stations devoted solely to such programming as opera, blues, chamber music, soundtracks, reggae and many others. CD Radio's wide choice of formats is expected to appeal to the large number of currently underserved listeners. Furthermore, CD Radio's ability to offer a number of channels devoted to each genre will enable subscribers to listen to a wider range of music within their preferred format. The limited coverage area of conventional radio broadcasting means that listeners often travel beyond the range of any single station. Unlike conventional FM stations, which have an average range of only approximately 30 miles before reception fades, CD Radio's system is designed to 38 cover the entire continental United States, enabling listeners to enjoy virtually seamless coverage. Our ability to broadcast nationwide will also allow us to serve currently underserved radio markets. We also believe that CD Radio will have a competitive advantage over conventional radio stations because our music channels will be commercial-free. In contrast, conventional radio stations interrupt their broadcasts with up to 18 minutes of commercials in every hour of music programming, and most stations also frequently interrupt programming with news, promotional announcements, public service announcements and miscellaneous information. We believe that consumers dislike frequent commercial interruptions and that 'station surfing' to avoid them is common. PROGRAMMING We intend to offer 50 channels of commercial-free, all-music programming and up to 50 additional channels of other formats, such as all-news, all-sports and all-talk programming. Each music channel will have a distinctive format, intended to cater to specific subscriber tastes. We believe that 50 music channels will enable us to 'superserve' our subscribers with a greater range of choice of content within their preferred format than is currently offered by terrestrial radio, even in the most widely broadcast formats. We expect that the initial subscription fee for CD Radio, which will entitle subscribers to receive all CD Radio channels, will be $9.95 per month. We have recruited nine full-time and eleven consulting basis program managers from the recording, broadcasting and entertainment industries to manage the development of daily programming for each CD Radio music channel and intend to recruit additional program managers. To be accessible to these industries, we are building our National Broadcast Studio in Rockefeller Center in New York City. Program managers also will coordinate our continuing market research to measure audience satisfaction, refine channel definitions and themes and select program hosts for those channels that have hosts. Music programming will be selected from our music library. We intend to create an extensive music library which will consist of a deep range of recorded music in each genre broadcast. We have begun to acquire recordings for our music library. Through March 31, 1999, we had acquired approximately 400,000 titles, across a broad range of music genres. We expect that our music library will consist of approximately 2,000,000 titles when we commence commercial broadcasts of CD Radio. We expect to update our music library with new recordings as they are released, and in some cases, we will seek to acquire recordings that are no longer commercially available. In addition to our music channels, we expect to offer up to 50 channels of news, sports and talk programming, most of which will include commercial advertising. We generally do not intend to produce programming for our non-music channels, and will obtain this programming from various third party content providers. To date, we have entered into agreements for a total of 25 channels with content providers including Bloomberg News Radio, C-SPAN, Sports Byline USA, National Public Radio, Public Radio International, Classic Radio, Hispanic Radio Network, World Radio Network, Wisdom Channel, Speedvision Radio and Outdoor Life Radio. In connection with our music programming, we will be required to negotiate and enter into royalty arrangements with performing rights societies, such as the American Society of Composers, Authors and Publishers ('ASCAP'), Broadcast Music, Inc. ('BMI') and SESAC, Inc. ('SESAC'). These organizations collect royalties and distribute them to songwriters and music publishers. Copyright users negotiate a fee with these organizations based on a percentage of advertising and/or subscription revenues. If the parties cannot reach agreement with ASCAP or BMI, special judicial rate setting procedures are available under antitrust consent decrees that govern these organizations. SESAC is not bound by a consent decree or a special judicial rate setting mechanism. Broadcasters currently pay a combined total of 4% of their revenues to the music performing rights societies. We also will be required to negotiate similar arrangements with the owners of the copyrights in sound recordings under the Digital Performance Right in Sound 39 Recordings Act of 1995 (the 'Digital Recordings Act'). The determination of some of the royalty arrangements with the owners of sound recording copyrights under the Digital Recordings Act were previously subject to arbitration proceedings. In 1998, the Copyright Office reviewed the results of this arbitration and set the royalty rate at 6.5% of the licensee's 'gross revenues resulting from residential services in the United States' including subscription fees, advertising and time share revenues. We believe that we will be able to negotiate royalty arrangements with the music performing rights organizations and the owners of sound recording copyrights, but we cannot assure you as to the terms of the royalty arrangements ultimately negotiated or established by arbitration or judicial rate setting. MARKETING AND DISTRIBUTION We plan to offer a high quality broadcast service with targeted music formats, nearly seamless signal coverage throughout the continental United States, commercial-free music programming and digital quality fidelity. Our marketing strategy for CD Radio has three interrelated components: (1) creating consumer awareness of CD Radio, (2) generating subscriptions to CD Radio and (3) generating purchases of consumer electronic devices capable of receiving CD Radio broadcasts. We believe that the introduction of CD Radio will have high news value, which we expect will result in significant national and local publicity before and during the initial launch of the service. In addition, we plan to engage in extensive marketing, advertising and promotional activities to create consumer awareness of CD Radio. This includes an ongoing major advertising campaign funded principally by us, together with expected manufacturer and retailer cooperative advertising. A major national umbrella campaign will utilize a full mix of media, including network and cable television, radio, print and billboard. We intend to focus our initial efforts on a number of demographic groups that we believe represent potential target markets for CD Radio, including commuters, niche music listeners, Hispanic listeners, sports enthusiasts, truck drivers, recreational vehicle owners and consumers in areas with sparse radio coverage. We also intend to aggressively target early adopters of new technologies, who we believe are likely to have a high level of interest in CD Radio. Commuters. Of the 110 million commuters, we have identified 34 million as highly addressable by virtue of their commute times averaging over one hour daily. To reach these commuters, we plan to purchase radio advertising spots on stations with frequent traffic reports, purchase outdoor billboard advertising on long commute roads and place inserts in gasoline credit card bills. Niche Music Listeners. Niche music categories, such as classical, jazz, rap, gospel, soundtracks, oldies and children's programming, constitute approximately 30% of the market for recorded music sales. To reach niche music listeners, we intend to work with the recording industry to include print material about CD Radio inside niche music compact disc packaging, place print advertising in specialty music magazines targeted to niche music listeners and members of fan clubs, conduct direct mailings to specialized music mailing lists of record clubs and sponsor and advertise at certain music events. Hispanic Market. Currently there are approximately 28 million Spanish-speaking Americans, many of whom have limited access to Spanish language radio, and this population group is growing rapidly and is expected to reach 36 million by 2005. We intend to broadcast a number of music and non-music channels that will cater to the Hispanic market. We plan to purchase local television spots on Spanish speaking channels and place advertising in national Spanish language magazines and local Spanish language newspapers. Sports Enthusiasts. Many fans of various sports are unable to receive broadcasts of interest to them because events are broadcast only within limited regional areas. We intend to broadcast a number of channels containing this sports programming. We plan to purchase advertising on national and regional cable television sports channels, in sports magazines and in the sports sections of newspapers. Truck Drivers. According to the U.S. Department of Transportation, there are approximately three million professional truck drivers in the United States, of whom approximately 1.1 million 40 are long-distance haulers. We intend to place sampling displays at truck stops and to advertise in publications and on Internet sites which cater to truck drivers. Recreational Vehicle Owners. There are approximately three million recreational vehicles in the United States. We plan to advertise in magazines targeted to recreational vehicle enthusiasts, conduct direct mailings targeted to these individuals and place sampling displays at recreational vehicle dealerships. Sparse Radio Zones. More than 45 million people aged 12 and over live in areas with such limited radio station coverage that the areas are not monitored by Arbitron. We believe that of these people, approximately 22 million people receive five or fewer FM stations, 1.6 million receive only one FM station and at least one million people receive no FM stations. To reach these consumers, we plan to utilize local newspaper and target direct mailings to music enthusiasts in these areas. We expect that FM modulated receivers and three-band receivers will be sold through electronics superstores as well as independent autosound retailers and that radio cards will be sold through electronics superstores, mass merchants and direct marketing channels, such as the Internet. SUBSCRIPTION AND BILLING We intend to contract out our customer care functions to a national customer service and telemarketing provider. Access to our customer service center will be via our toll-free number, (888) CD RADIO. Operators at our customer care center will have the ability to access our separate billing services center for various functions, including customer activation, billing inquiries, program service changes and address changes. When appropriate, operators will also refer technical problems to either a CD Radio help desk, or to the appropriate equipment manufacturer. We intend to automate customer care functions where appropriate, either through interactive voice response technology (IVR), or through our Web site. We expect to pay our customer service provider based on transaction and call volume. We also intend to contract out our customer billing and activation function to a national billing services company. This billing center will receive requests from our separate customer care center for actions such as radio activations, deactivations, program service changes, and billing inquiries. This billing center will handle all other customer processing operations, including remittance processing, collections, interfacing to credit/debit card clearing houses, and fulfillment processing. We expect that a large percentage of our subscribers will pay using a credit card. However, our customer billing system will also have the capability to do direct invoicing. There will be a modest one-time activation fee to cover subscriber sign-up costs. The billing software application and database will be customized to handle our unique requirements, including interfacing and exchanging of information with automobile manufacturers, automobile dealers and consumer electronic retailers, and employing special techniques to address the challenge of activating and deactivating receivers. We expect to pay our billing services company based on transaction volumes. THE CD RADIO DELIVERY SYSTEM The CD Radio satellite system is designed to provide seamless signal coverage throughout the continental United States. This means that listeners will almost always be within the broadcast range of CD Radio, unlike current FM radio broadcasts, which have an average range of only approximately 30 miles. The CD Radio system is designed to provide clear reception in most areas despite variations in terrain, buildings and other obstructions. The system is designed to enable motorists to receive CD Radio in all outdoor locations where the vehicle has an unobstructed line-of-sight with one of our satellites or is within range of one of our terrestrial repeating transmitters. The portion of the S-band located between 2320 MHz and 2345 MHz has been allocated by the FCC exclusively for national satellite radio broadcasts, and will augment traditional AM and FM radio bands. This portion of the spectrum was selected because there are virtually no other 41 users of this frequency band in the United States, thus minimizing potential signal interference. In addition, this frequency band is relatively immune to weather related attenuation, which is not the case with higher frequencies. We plan to use 12.5 MHz of bandwidth in the 7060-7072.5 MHz band (or some other suitable frequency) for uplink transmissions to our satellites. Downlink transmission from the satellites to subscribers' will use 12.5 MHz of bandwidth in the 2320.0-2332.5 MHz frequency band. In May 1998, we expanded our system from 50 planned broadcast channels to up to 100 channels. As part of that expansion, we announced our plan to change the orbital location of our satellites from geostationary orbits over the equator to inclined elliptical orbits. This modification will allow our satellites to maximize the time spent over the continental United States, which will permit us to fully utilize the bandwidth allocated to us by the FCC. Each satellite will travel in a figure eight pattern extending above and below the equator, and will spend approximately 16 hours per day north of the equator. A satellite north of the equator will serve the United States at a better elevation angle than a geostationary satellite over the equator. At any given time, two of our three satellites will operate from the portion of the orbit north of the equator while the third satellite will not broadcast as it traverses the portion of the orbit south of the equator. CD Radio is designed to broadcast the same signals from two of the three satellites. This design involves new applications of technology that have not been deployed and we cannot assure you that the CD Radio system will work as planned. The CD Radio delivery system will consist of three principal components: (1) the satellites; (2) the receivers; and (3) the National Broadcast Studio. THE SATELLITES Satellite Design. Our satellites are of the Loral FS-1300 model series. This family of satellites has a history of reliability with a total of 275 years in-orbit operation time. The satellites are designed to have a useful life of approximately 15 years. To ensure the durability of our satellites, we have selected components and subsystems that have a demonstrated track record on operational FS-1300 satellites, such as N-STAR, INTELSAT VII and TELSTAR. In addition, a full series of ground tests will be performed on each of our satellites before launch to detect assembly defects and avoid premature satellite failure. Our satellites will utilize a three-axis stabilized design. Each satellite will contain an active attitude and position control subsystem; a telemetry, command and ranging subsystem; a thermal control subsystem and an electrical power subsystem. Power will be supplied by silicon solar arrays and, during eclipses, by nickel-hydrogen batteries. Each satellite after deployment will be approximately 81 feet long, 19 feet wide and 17 feet tall. Our satellites will incorporate a design which will act essentially as a 'bent pipe,' relaying received signals directly to the ground. Our satellites will not contain on-board processors. All of our processing operations will be on the ground where they are accessible for maintenance and continuing technological upgrade without the need to launch replacement satellites. High Elevation Angles. We plan to place our satellites in orbits that extend over North America to provide very high signal elevation angles and thereby mitigate service interruptions which can result from signal blockage and fading. Each of our two transmitting satellites will broadcast the same signal. Memory Buffer. Our transmission design incorporates the use of a memory buffer chip contained within the receiver. Each memory buffer chip is designed to store signals and to mitigate service interruptions which can result from signal blockage and fading. As with any wireless broadcast service, we expect to experience occasional 'dead zones' where the service from our satellites will be interrupted by nearby tall buildings, elevations in topography, tree clusters, highway overpasses and similar obstructions; however, in most of these places, we expect that subscribers will continue to receive a signal from their receiver's memory buffer. 42 Terrestrial Repeaters. In some areas with high concentrations of tall buildings, such as urban cores and in tunnels, signals from our satellites will be blocked and reception will be adversely affected. In these urban areas, we plan to install terrestrial repeating transmitters to rebroadcast our satellite signals, increasing the availability of service. The FCC has not yet established rules governing these terrestrial repeaters, and we cannot predict the outcome of the FCC's current rulemaking on this subject. We also will need to obtain the rights to use towers or the roofs of some structures where the repeaters will be installed. We cannot assure you that we can obtain these tower or roof rights on acceptable terms or in all appropriate locations. During 1998, we completed the construction and testing of our terrestrial repeater network in San Francisco on an experimental basis. During 1999, we expect to enter into various agreements for site acquisition, site design and site construction services related to our terrestrial repeater network and expect to acquire substantially all necessary sites and commence construction at many of these sites. In addition, in 1999 we expect to enter into agreements with vendors to purchase the broadcast equipment necessary to operate our terrestrial repeater network. Satellite Construction and Launch Services. In March 2, 1993, we entered into a contract with Loral to build three satellites, two of which we intended to launch and one of which we intended to keep in reserve as a spare. Under the contract, we had an option to order a fourth satellite on preset price and delivery terms. We notified Loral of the exercise of this option in March 1998. On July 28, 1998, as a result of an evaluation of the advantages of a three-satellite orbital configuration, we and Loral entered into the Loral Satellite Contract. Under the Loral Satellite Contract, Loral has agreed to construct, launch and deliver our three satellites, in-orbit and checked-out, to construct for us a fourth satellite for use as a ground spare and to become our launch services provider. Our four satellites are currently under construction. All of the components of our first satellite have been substantially completed. The main structure, or bus, for our first satellite has been fully integrated and is undergoing testing. All of the components of our second satellite are either substantially complete or undergoing final testing before integration. All of the subsystems for our third and fourth satellites are also under construction. Each of our satellites is scheduled to be launched on Proton launch vehicles. Loral has scheduled the launch of our first satellite for January 2000, the launch of our second satellite in March 2000, the launch of our third satellite by May 2000 and has agreed to deliver our fourth satellite to a designated ground storage site by August 2000. Loral expects to deliver all three of our satellites in-orbit and checked-out by June 30, 2000. We cannot assure you, however, that Loral will be able to meet this schedule. It is a default under the Loral Satellite Contract if (1) we fail to maintain a minimum net worth, (2) we fail to have sufficient funds or committed financing to pay our obligations on a timely basis or (3) there occurs an event of default under our existing credit agreement with Bank of America and other lenders. Title to our first, second and third satellites will pass to us at the time these satellites are delivered to us in-orbit and checked out. Risk of loss for our first, second and third satellites will pass to us at the time of launch. Title and risk of loss for our fourth satellite will pass to us at the time this satellite is shipped to the ground storage site designated by us. Each satellite is warranted to be in accordance with the performance specifications contained in the Loral Satellite Contract and free from defects in materials and workmanship. Loral's warranties will expire at the time of launch or, in the case of our fourth satellite, two years from the date of delivery to the ground storage site. If there is a delay in the construction of the satellites that is caused by us, the Loral Satellite Contract provides that the terms of the contract will be equitably adjusted. Following the launch of each satellite, Loral will conduct an in-orbit performance verification. If this testing shows that a satellite is not meeting the satellite performance specifications contained in the Loral Satellite Contract, we and Loral have agreed to negotiate an equitable reduction in the final payment to be made by us for the affected satellite. Satellite launches have significant risks, including destruction or damage of the satellite during launch or failure to achieve proper orbital placement. Although past experience is not necessarily indicative of future performance, the Proton family of Russian-built launch vehicles has a 92% 43 launch success rate based on its last 50 launches. There is no assurance that the launches of our satellites will be successful. Satellites also may fail to achieve a proper orbit in some instances or be damaged in space. Loral will not bear the risk of loss for either a satellite or launch vehicle failure. However, Loral will provide a free launch if there is a failure of the first Proton launch vehicle which is used to launch one of our satellites. In that event, we would attempt to launch the spare satellite that we are having constructed. See 'Risk Factors -- We Are Dependent Upon Loral to Build and Launch Our Satellites' and ' -- Satellite Launches Have Significant Risks.' We are relying upon Loral to arrange for the timely launch of our satellites. Failure of Loral to arrange to launch the satellites in a timely manner could materially adversely affect our business. Loral will not be liable for indirect or consequential damages or lost revenues or profits resulting from late delivery or other defaults. If Loral fails to deliver the three satellites in-orbit and checked out by July 31, 2000 or fails to deliver the fourth satellite to its storage site by September 30, 2000, it may be liable for specific late delivery penalties. We cannot assure you that these remedies will adequately mitigate any damage to our business caused by launch delays. After reaching agreement with Loral to provide launch services, we terminated our prior launch services agreement with Arianespace S.A. ('Arianespace') and terminated the related vendor financing with a subsidiary of Arianespace. As a result of these terminations, we incurred a liability of approximately $18 million. We expensed this item, together with approximately $7 million of related capitalized and other costs, in the second quarter of 1998. Risk Management and Insurance. Three custom-designed, fully dedicated satellites are required to broadcast all 100 planned channels of CD Radio. Our agreement with Loral includes a free relaunch if there is a failure of the first Proton launch vehicle used to launch one of our satellites. We intend to insure against other contingencies, including a failure during launch caused by factors other than the launch vehicle and failure of launch vehicles other than the first Proton. If we are required to launch our spare satellite due to a launch failure, our operational timetable would be delayed for up to six months. The launch or in-orbit failure of two satellites would require us to arrange for additional satellites to be built and could delay the commencement or continuation of our operations by at least 16 months. See 'Risk Factors -- We Are Dependent Upon Loral to Build and Launch Our Satellites' and ' -- Satellite Launches Have Significant Risks.' Once properly deployed and operational, the historical risk of premature total satellite failure has been less than 1% for U.S. geosynchronous commercial communication satellites. Before the launch of our first satellite, we intend to purchase insurance covering launch risks and in-orbit failure during the first five years of operation for each of our satellites. Before the expiration of this insurance, we intend to evaluate the need for in-orbit insurance for the remainder of the estimated useful life of each satellite. After we have launched our satellites and begun to generate revenues, we will evaluate the need for business interruption insurance. Satellites are designed to minimize the adverse effects of transmission component failure through the incorporation of redundant components which activate automatically or by ground command upon failure. If multiple component failures occur, and the supply of redundant components is exhausted, the satellite generally will continue to operate, but at reduced capacity. In that event, signal quality may be preserved by reducing the number of channels broadcast until a replacement satellite can be launched. Alternatively, the number of broadcast channels may be preserved by reducing the signal quality until a replacement satellite can be launched. THE RECEIVERS We expect consumers will receive CD Radio initially by purchasing specially designed radio receivers for their existing vehicles and later through a new generation of three-band radios installed in new vehicles by one or more major automotive manufacturers. The market for new radio receivers installed in existing vehicles (which is commonly referred to as the 'aftermarket') is approximately 7 to 8 million units annually. In the automotive aftermarket, we expect that CD Radio subscribers will initially have the choice of one of three different receiving devices for their cars -- an FM modulated receiver, a three-band receiver and a radio card. These devices, 44 along with CD Radio satellite antennas, are expected to be manufactured and distributed by a number of consumer electronics manufacturers. All CD Radio receivers will have a visual display that will indicate the channel and format selected, as well as the title, recording artist and album title of the musical selection being played. Although we do not intend to manufacture or distribute FM modulated receivers, three-band receivers, radio cards or antennas, in the early years of our service their availability will be critical to us because they will be the only means by which to receive CD Radio. These three CD Radio receivers will offer customers a range of options in price, ease-of-installation and quality. FM Modulated Receivers. The CD Radio FM modulated receiver (which we call the Satellite Audio System) will be usable in all vehicles which have an FM radio, or approximately 95% of all U.S. vehicles. Each FM modulated receiver will operate with a device that will be approximately the size of a 35mm camera, and will be mounted either in the vehicle's trunk, behind the dashboard or under a seat. Each FM modulated receiver will interface with a vehicle's existing radio through the FM antenna input. The CD Radio data display, as well as the controls for changing channels, will be contained in a small remote control which will either be wired or wireless. We expect the retail price of this FM modulated receiver, with a hard-wired satellite antenna and professional installation, will be approximately $299. We anticipate that FM modulated receivers will be sold through electronics superstores as well as independent autosound retailers. FM modulation technology is widely used in the autosound industry for the integration of automobile compact disc changers, which typically interface with the player unit through the FM antenna input and, like the CD Radio FM modulated receiver, are controlled through a remote control. Approximately 700,000 FM modulated compact disc changers were sold in the United States in 1998. Three-Band Receivers. To address consumers who replace their vehicle's sound system, we expect there will be available a receiver capable of receiving AM, FM and CD Radio broadcasts. In appearance, this three-band receiver will be nearly identical to existing aftermarket car stereos and will permit the user to listen to AM, FM, or CD Radio with the push of a button. Like existing conventional radios, a number of these three-band receivers may also incorporate cassette or compact disc players. The receiver apparatus will include a 'CD Radio Ready' head-unit, which will accept the direct output of the receiver device. We expect the retail price of these CD Radio-ready receivers, including the receiver device, antenna and professional installation, will retail for approximately $150 more than similar receivers which are not capable of receiving CD Radio broadcasts. We anticipate that three-band receivers, including the head unit and the receiver device, will be sold through electronic superstores as well as independent autosound retailers. Our long-term objective is to promote the adoption of three-band receivers as standard equipment in all automobiles sold in the United States. Radio Cards. CD Radio's wireless adapter, or radio card, will not require professional installation and will be usable by all vehicles in the United States equipped with a cassette player, which represents approximately 65% of all vehicles on the road. Each radio card will include two components -- the radio card adapter, which will insert into existing cassette slots, and a wireless version of the CD Radio satellite antenna. The radio card will be designed so that it can be removed by pushing the cassette player's 'eject' button. A subscriber will be able to move a radio card from car to car, assuming a subscriber purchases a separate antenna to receive our service. A subscriber will simply attach the adhesive antenna to a vehicle and insert the radio card to receive CD Radio. The wireless satellite antenna will easily adhere to a vehicle's rear widow using a high adhesive backing. The wireless satellite antenna will be mounted on a small base housing a solar recharging battery and microwatt transmitter that will relay CD Radio's broadcasts to the vehicle's radio card. Wireless satellite dish antennas will also be sold separately, so that consumers will be able to receive CD Radio in a vehicle that has a wireless satellite antenna attached to it simply by moving a radio card. 45 We expect the retail price of the radio card, including the wireless satellite antenna, will be approximately $199. The radio card will be sold though electronics superstores, mass merchant type stores and direct marketing channels, such as the Internet. Lucent Agreement. Each CD Radio receiving device will employ a custom designed chip set presently being developed by Lucent. This chip set is the essential element of all CD Radio receivers, and performs all of the digital signal processing of CD Radio's broadcasts. On April 28, 1998, we entered into an agreement with Lucent to develop and manufacture this chip set. On February 2, 1999, we amended and restated this agreement with Lucent. Lucent has agreed to use commercially reasonable efforts to deliver commercial quantities of the chip set by June 2000. We have agreed to pay Lucent the cost of the development work related to the chip sets, currently estimated to be approximately $27,000,000. Approximately half of the expected payments to Lucent are dependent upon satisfactory completion of designated development milestones. Under our original agreement with Lucent, we had expected Lucent to deliver chip sets by December 1999 and had expected to pay approximately $9,000,000, as the costs of the chip set development. The design and development of the chip sets has required more engineering resources than originally estimated. The additional amounts paid to Lucent will be used to pay costs of these additional engineering resources. We cannot assure you that Lucent will be able to deliver chip sets within the time frame described above. In addition, the cost to us of the chip set development work could exceed $27,000,000. On March 29, 1999, Lucent delivered to us completed system engineering documents, completing the first phase of the work under the agreement. We expect Lucent to deliver the plans and specifications for the chip set in the third quarter of 1999. Lucent has agreed to repay all the costs of the chip set development work, through discounted chip set prices, after commercial production of the chip set has begun. Delco Agreement. On March 29, 1999, we entered into an agreement with Delco to design, develop and manufacture three-band receivers (including the related receiver device) and satellite antennas for sale to major automotive manufacturers. Delco is the world's largest producer of audio systems for original automotive equipment and is a leader in mobile communications technology. We have agreed to pay Delco, when specified development milestones are completed, specific costs relating to designing and manufacturing prototypes of this three-band receiver and antenna. Delco has agreed to use commercially reasonable efforts to complete the design and development work and have three band receivers and antennas available for sale to automobile manufacturers by March 2001. We cannot assure you that Delco will be able to design and develop these three-band receivers and antennas. In addition, although we expect that Delco will manufacture and sell substantial quantities of three-band receivers and antennas, Delco is not required to manufacture specified quantities under this agreement. Recoton Agreement. On February 23, 1999, we entered into an agreement with Recoton to design and develop specifications for the FM modulated receiver (including the receiver device) and the radio card, and manufacture prototypes of each. Recoton, the owner of the Jensen, Advent, AR/Acoustic Research and Interact brands, is a worldwide manufacturer and distributer of consumer electronic products, and is the third largest producer of aftermarket car stereos sold in the U.S. As part of this agreement, we also agreed to deliver to Recoton plans and specifications for a hard-wired satellite antenna, which we have separately developed. Recoton has agreed to manufacture prototypes of this hard-wired satellite antenna for use with FM modulated receivers and to use commercially reasonable efforts to design and develop a wireless satellite antenna for use with radio cards. We have agreed to pay Recoton, when specified development milestones are completed, specific costs relating to designing and manufacturing prototypes of the FM modulated receiver, the radio card, the hard-wired satellite antenna and the wireless satellite antenna. Recoton has agreed to deliver to us plans and specifications for the FM modulated receiver, the radio card and the wireless satellite antenna within 90 business days after Lucent delivers to us plans and specifications for the chip set (which we expect will be in the third quarter of 1999). Similarly, Recoton has agreed to deliver to us prototypes of the FM modulated receiver, the radio card, the hard-wired satellite antenna and the wireless satellite antenna within 90 business days after Lucent delivers to us prototypes of the chip set (which we expect will be in the second quarter of 2000). 46 We cannot assure you that Recoton will be able to design and develop the FM modulated receiver, the radio card or the wireless satellite antenna or that Recoton will be able to manufacture prototypes of the FM modulated receiver, the radio card, the hard-wired satellite antenna or the wireless satellite antenna. As part of our agreement with Recoton, Recoton has also agreed to negotiate with us in good faith an agreement to manufacture, market and sell substantial quantities of FM modulated receivers, radio cards, three-band receivers, hard-wired satellite antennas and wireless satellite antennas which are capable of receiving CD Radio broadcasts using Recoton's distribution network and under our brand name. These negotiations with Recoton are in an early stage and we cannot assure you that we will be able to complete a manufacturing and marketing agreement with Recoton. Recoton has one of the largest distribution systems for automotive consumer electronics with more than 1,000 retail customers, which Recoton believes have more than 30,000 outlets in the United States and Canada. None of the CD Radio receivers or antennas is currently available, and other than Delco and Recoton, we are not aware of any manufacturer currently developing these products. We have commenced discussions with several other manufacturers regarding manufacturing receivers and antennas for retail sale in the United States. We cannot assure you that these discussions will result in a binding commitment by any manufacturer to produce receivers and antennas in a timely manner so as to permit the widespread introduction of CD Radio in accordance with our business plan or that sufficient quantities of receivers and antennas will be available to meet anticipated consumer demand. Failure to have at least one manufacturer develop and widely market receivers and antennas at affordable prices, or to develop and widely market these products upon the launch of CD Radio, would have a material adverse effect on our business. In addition, our FCC license depends on us certifying that our system includes a receiver design that will permit end users to access the system of the other licensee. We may also be bound by with this interoperability requirement for any person licensed by the FCC to provide a satellite digital audio radio service in the future. In addition to our agreement with Ford, we are currently in discussions with several other automobile manufacturers to include CD Radio reception capability either as standard or optional equipment in new cars. We do not expect CD Radio reception capability to be included in new vehicles before January 2001, at the earliest. Our long-term objective is to promote the adoption of three-band radios as standard equipment in all automobiles sold in the United States. To reduce fraud, each CD Radio receiver will contain a security circuit with an electronically encoded identification number. After verification of subscriber billing information, we will transmit a digital signal to activate the receiver's CD Radio capability. This feature will help us protect against piracy of CD Radio's broadcasts. Through this feature, we will directly (via satellite) deactivate receivers of subscribers who are delinquent in paying the monthly subscription fee. THE NATIONAL BROADCAST STUDIO We will originate up to 100 channels of programming from our National Broadcast Studio in Rockefeller Center in New York City. The National Broadcast Studio will house our corporate headquarters, our music library, facilities for programming origination, programming personnel and program hosts, as well as facilities to transmit programming to our orbiting satellites, to activate or deactivate service to subscribers and to perform the tracking, telemetry and control of the satellites. Programming will be originated at the National Broadcast Studio and transmitted to our satellites for broadcast to CD Radio subscribers. We expect that our broadcast transmissions will be uplinked to our satellites at frequencies in the 7060-7072.5 MHz band. The satellites will receive and convert the signal to the 2320.0-2332.5 MHz band. The satellites then will broadcast the signal to the United States, at a power level sufficient to enable its receipt directly by subscribers. Service-related commands also will be relayed from the National Broadcast Studio to our satellites for retransmission to subscribers' receivers. These service-related commands include those required to (1) initiate and suspend subscriber service, (2) change the encryption parameters 47 in receivers to reduce piracy and (3) activate receiver displays to show program related information. Tracking, telemetry and control of our orbiting satellites also will be performed from the National Broadcast Studio. These activities will include routine stationkeeping, such as satellite orbital adjustments and monitoring of the satellites. Loral Skynet is designing, developing, integrating, installing and testing our tracking, telemetry and command facilities. Loral Skynet also will provide back-up tracking, telemetry and command capabilities from its facility in Hawley, Pennsylvania. As part of our tracking, telemetry and command facilities, Loral Skynet is constructing for us two earth stations in Quito, Ecuador, and Utibe, Panama. These earth stations, which will be operated by Loral Skynet, will permit us to continuously communicate with our satellites. DEMONSTRATIONS OF THE CD RADIO SYSTEM In support of our application for our FCC license, we conducted a demonstration of our proposed radio service from November 1993 through November 1994. The demonstration involved the transmission of S-band signals to a prototype S-band radio and satellite dish antenna installed in a car to simulate some of the transmission characteristics of our planned system. Because there are no commercial satellites in orbit capable of transmitting S-band frequencies to the United States, we constructed a terrestrial simulation of our planned system. For this purpose, we selected a test range covering several kilometers near Washington, D.C. which included areas shadowed by buildings, trees and overpasses. We placed S-band transmitters on the rooftops of a number of tall buildings in such a way as to simulate the signal power and angle of arrival of satellite transmissions to be used for our proposed service. We also modified the standard factory installed sound system of an automobile to create a radio receiving AM, FM and S-band signals, and integrated our satellite dish antenna into the car roof. The demonstrations included the reception of 30 channels of compact disc quality stereo music by the prototype radio while the car was driven throughout the test range. We have also successfully tested our system in San Francisco, where construction of our terrestrial repeater network has been completed. Before testing with orbiting satellites, antennas and receivers suitable for commercial production, we cannot assure you that the CD Radio system will function as intended. See 'Risk Factors -- Our Planned System Relies on Unproven Applications of Technology.' COMPETITION We expect to face competition from two principal sources: (1) conventional AM/FM radio broadcasting, including, when available, terrestrial digital radio broadcasting; and (2) XM, the other holder of an FCC license to provide a satellite-based digital audio radio service. XM recently announced that it had entered into an exclusive agreement with General Motors Corporation, which has a significant equity interest in XM's parent company, under which GM would install devices capable of receiving XM's signal beginning in 2001 In addition, XM has obtained a total of $250 million of financing from GM, Hughes Electronics Corporation (a GM subsidiary) and several other investors. The AM/FM radio broadcasting industry is very competitive. Radio stations compete for listeners and advertising revenues directly with other radio stations within their markets on the basis of a variety of factors, including program content, on-air talent, transmitter power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other radio stations in the market. Many of our radio broadcasting competitors have substantially greater financial resources than we do. Unlike CD Radio, the radio industry has a well established market for its services and generally offers 'free' broadcast reception paid for by commercial advertising rather than by a subscription fee. In addition, some AM and FM stations, such as National Public Radio, offer programming without commercial interruption. Many radio stations also offer information programming of a local nature, such as local news or traffic reports, which we may be unable to offer. CD Radio will compete with conventional radio stations on the basis of its targeted programming formats, nearly seamless signal coverage, freedom from advertising and digital quality sound, features which are largely unavailable on conventional broadcast radio. 48 Currently, radio stations broadcast by means of analog signals, as opposed to digital transmission. We believe, however, that within several years, terrestrial broadcasters may be able to place digital audio broadcasts into the bandwidth occupied by current AM and FM stations and simultaneously transmit both analog and digital signals on the AM and FM bands. The limited bandwidth assigned to AM stations will result in lower quality digital signals than can be broadcast by FM stations. As a result, we expect that the use of this technology will permit digital AM sound quality to approach monaural FM sound quality and permit digital FM broadcasts to approach compact disc sound quality. To receive these digital AM/FM broadcasts, listeners will need to purchase new digital radios which currently are not commercially available. While the development of digital broadcasting would eliminate one of the advantages of CD Radio over FM radio, we do not believe it would affect broadcasters' ability to address the other advantages of CD Radio. In addition, we view the growth of terrestrial digital broadcasting as a positive force that would encourage listeners to replace existing radios and thereby facilitate the introduction of receivers capable of receiving CD Radio broadcasts. Although some existing satellite operators currently provide music programming to customers at fixed locations, these operators are incapable of providing CD Radio-type service to vehicles as a result of some or all of the following reasons: (1) these operators do not broadcast on radio frequencies suitable for reception in a mobile environment; (2) CD Radio-type service requires fully dedicated satellites; (3) CD Radio-type service requires a custom satellite system design; and (4) CD Radio-type service requires regulatory approvals, which existing satellite operators do not have. The FCC could also grant new licenses that would enable additional competitors to broadcast satellite radio. Finally, there are many portions of the electromagnetic spectrum that are currently licensed for other uses and some other portions for which licenses have been granted by the FCC without restriction as to use, and we cannot assure you that these portions of the spectrum could not be utilized for satellite radio broadcasting in the future. Although any of these licensees would face cost and competition barriers, we cannot assure you that there will not be an increase in the number of competitors in the satellite radio industry. TECHNOLOGY AND PATENTS We have been granted U.S. patents on various features of satellite radio technology. We cannot assure you, however, that any U.S. patent issued to us will cover our actual commercialized technology or will not be circumvented by others, or that if challenged would be held to be valid. We have filed patent applications covering CD Radio system technology in Argentina, Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, South Korea, Mexico, the Netherlands, Spain, Switzerland and the United Kingdom, and been granted patents in a number of these countries. We cannot assure you that additional foreign patents will be awarded to us or, if any of these patents are granted, that the laws of foreign countries where we receive patents will protect our proprietary rights to our technology to the same extent as the laws of the United States. Although we believe that obtaining patent protection may provide benefits, we do not believe that our business is dependent on obtaining patent protection or successfully defending any of the patents that may be obtained against infringement by others. Some of our know-how and technology is not the subject of U.S. patents. To protect our rights, we require some of our employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you, however, that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information if there is any unauthorized use or disclosure. In addition, our business may be adversely affected by competitors who independently develop competing technologies. Our proprietary technology was principally developed by Robert D. Briskman, CD Radio's co-founder, and was assigned and belongs to us. We believe that we are the sole owner of the technology covered by our issued patents. We cannot assure you, however, that third parties will not bring suit against us for patent infringement or for declaratory judgment to have our patents declared invalid. On January 12, 1999, we filed a lawsuit against XM in the United States District 49 Court for the Southern District of New York. The lawsuit alleges patent infringement by XM of our U.S. Patent Nos. 5,319,673, 5,485,485 and 5,592,471. See ' -- Legal Proceedings.' If a dispute arises concerning our patents, trade secrets or know-how, litigation might be necessary to enforce our patents, to protect our trade secrets or know-how or litigation may occur to determine the scope of the proprietary rights of others. This litigation could result in substantial cost to, and diversion of effort by, us, and adverse findings in any proceeding could subject us to significant liabilities to third parties, require us to seek licenses from third parties or otherwise adversely affect our ability to successfully develop and market CD Radio. GOVERNMENT REGULATION As an operator of a privately owned satellite system, we are regulated by the FCC under the Communications Act. The FCC is the government agency with primary authority in the United States over satellite radio communications. We currently must comply with regulation by the FCC principally with respect to (1) the licensing of our satellite system; (2) preventing interference with or to other users of radio frequencies; and (3) compliance with rules that the FCC has established specifically for United States satellites and rules that the FCC has established for providing a satellite radio service. On May 18, 1990, we proposed that the FCC establish a satellite radio service and applied for an FCC license. On March 3, 1997, the FCC adopted rules for the national satellite radio broadcast service (the 'FCC Licensing Rules'). Pursuant to the FCC Licensing Rules, an auction was held among the applicants on April 1 and 2, 1997. We were a winning bidder for one of two FCC licenses with a bid of approximately $83 million. XM was the other winning bidder for an FCC license with a bid of $89 million. After payment of the full amount by us, on October 10, 1997, the FCC's International Bureau issued us a license to place two satellites in a geostationary orbit. Our FCC license was effective immediately; however, for a period of 30 days following the grant of the FCC license, those parties that had filed comments or petitions to deny in connection with our application for an FCC license were entitled to petition the International Bureau to reconsider its decision to grant the FCC license to us or request review of the decision by the full FCC. An application for review by the FCC was filed by one of the low-bidding applicants in the auction. This petition requests, among other things, that the FCC adopt restrictions on foreign ownership, which were not applied in the license issued to us by the FCC's International Bureau on October 10, 1997 (the 'IB Order'), and, on the basis of our ownership, overrule the IB Order. Since December 1997, there have been no further developments concerning this petition. Although we believe the FCC will uphold the IB Order, we cannot predict the ultimate outcome of any proceedings relating to this petition or any other proceeding that may be filed. If this petition is denied, the complaining party may file an appeal with the U.S. Court of Appeals which must find that the decision of the FCC was not supported by substantial evidence, or was arbitrary, capricious or unlawful to overturn the grant of our FCC license. Under the FCC Licensing Rules, we are required to meet specific progress milestones. We are required to begin satellite construction within one year of the grant of our FCC license; to launch and begin operating our first satellite within four years; and to begin operating our entire system within six years. The IB Order states that failure to meet these milestones will render our FCC license null and void. On May 6, 1997, we notified the FCC that we had begun construction on the first of our satellites. On March 27, 1997, a third party requested reconsideration of the FCC Licensing Rules, seeking, among other things, that the time period allotted for these milestones be shortened. To date, the FCC has not responded to the petition for reconsideration. We cannot predict the outcome of this petition. In 1998, we decided to increase the number of satellites in our system from two to three and modify our orbits from geostationary to inclined, elliptical geosynchronous, requiring modification of our FCC license. On December 11, 1998, we filed an application with the FCC for this modification. Although we believe that the FCC will approve our application for this change, we cannot assure you that this will occur. XM and WCS Radio Inc. have filed comments opposing our application with the FCC. We cannot predict the time it will take the FCC to act on our 50 application. Failure of the FCC to approve the requested modification to our license in a timely fashion would have a material adverse effect on our business, financial condition and prospects. The term of our FCC license for each satellite is eight years, commencing from the time each satellite is declared operational after having been inserted into orbit. Upon the expiration of the term with respect to each satellite, we will be required to apply for a renewal of the relevant FCC license. Although we anticipate that, absent significant misconduct on our part, the FCC licenses will be renewed in due course to permit operation of our satellites for their useful lives, and that a license would be granted for any replacement satellites, we cannot assure you of this renewal or grant. The spectrum allocated by the FCC for satellite radio in the United States is used in Canada and Mexico for terrestrial microwave links, mobile telemetry and other purposes. In September 1998, the United States government and Canada reached an agreement to coordinate the use of this spectrum. Under the rules adopted by the FCC on March 3, 1997 for the national satellite radio broadcast service, the United States government must still coordinate the United States' use of this spectrum with the Mexican government before our satellites may become operational. The FCC Licensing Rules require that both ourselves and XM successfully complete detailed frequency coordination with existing operations in Mexico, and the IB Order conditions our FCC license on this coordination. Although the United States government has begun this coordination process with Mexico, we cannot assure you that we will be able to coordinate the use of this spectrum with Mexican operators or will be able to do so in a timely manner. To operate our satellites, we also will have to obtain a license from the FCC to operate our uplink facility. Normally, this approval is sought after issuance of an FCC license. Although we cannot assure you that these licenses will be granted, we do not expect difficulties in obtaining a feeder link frequency and ground station approval in the ordinary course. In the future, any assignments or transfers of control of our FCC license must be approved by the FCC. We cannot assure you that the FCC would approve any of these transfers or assignments. The CD Radio system is designed to permit CD Radio to be received by motorists in all outdoor locations where the vehicle has an unobstructed line-of-sight with one of our satellites. In some areas with high concentrations of tall buildings, such as urban cores, or in tunnels, signals from our satellites will be blocked and reception will be adversely affected. In these cases, we plan to install terrestrial repeating transmitters to broadcast CD Radio. The FCC has not yet established rules governing the application procedure for obtaining authorizations to construct and operate terrestrial repeating transmitters. A rulemaking on the subject was initiated by the FCC on March 3, 1997. The deadline for the public to file comments was June 13, 1997 and the deadline for filing reply comments was June 27, 1997. Several comments were received by the FCC that sought to cause the FCC to consider placing restrictions on our ability to deploy our terrestrial repeating transmitters. The repeaters we have constructed in San Francisco are operating under temporary experimental licenses. We cannot predict the outcome, or the timing of, these FCC proceedings. In addition, in connection with the installation and operation of our terrestrial repeating transmitters, we need to obtain the rights to use towers or the roofs of some structures where the transmitters will be installed. We cannot assure you that we can obtain these tower or roof rights on acceptable terms or in appropriate locations for the operation of CD Radio. The IB Order conditions our FCC license on us certifying that our system includes a receiver design that will permit end users to access XM's system. We have made progress towards developing a receiver which is interoperable with the satellite digital audio radio system XM is constructing. However, because of the various technological challenges involved in designing an interoperable receiver, we cannot predict whether we will be able to satisfy this interoperability requirement. Complying with this interoperability requirement could make the devices capable of receiving CD Radio broadcasts and the related antenna more difficult and costly to manufacture. Accordingly, this interoperability requirement could delay the commercial introduction of these products or require that they be sold at higher prices. 51 The FCC has proposed to update regulations for a new type of lighting device that may generate radio energy in the part of the spectrum to be used by us. The devices would be required to comply with FCC rules that prohibit these devices from causing harmful interference to an authorized radio service such as CD Radio. However, unless the FCC adopts adequate technical standards specifically applicable to these devices, it may be difficult for us to enforce our rights if the use of these devices were to become commonplace. We believe that the currently proposed FCC rules must be strengthened to assure protection of our spectrum. The FCC's failure to adopt adequate standards could have a material adverse effect on reception of our broadcasts. We believe that the FCC will set adequate standards to prevent harmful interference, although we cannot assure you that it will do so. Our business operations as currently contemplated may require a variety of permits, licenses and authorizations from governmental authorities other than the FCC, but we have not identified any permit, license or authorization that we believe could not be obtained in the ordinary course of business. The Communications Act prohibits the issuance of a license to a foreign government or a representative of a foreign government, and contains limitations on the ownership of common carrier, broadcast and some other radio licenses by non-U.S. citizens. We are regulated as a private carrier, not a common carrier, by the FCC. As such, the IB Order determined that we are not bound by the foreign ownership provisions of the Communications Act. The FCC has before it a petition to apply the foreign ownership rules to digital audio radio services, but has not acted on that petition or indicated that it is likely to do so in the near future. As a private carrier, we are free to set our own prices and serve customers according to our own business judgment, without economic regulation. The foregoing discussion reflects the application of current communications law, FCC regulations and international agreements to our proposed service in the United States. Changes in law, regulations or international agreements relating to communications policy or to matters affecting specifically the services proposed by us could adversely affect our ability to retain our FCC license and obtain or retain other approvals required to provide CD Radio or the manner in which our proposed service would be regulated. Further, actions of the FCC may be reviewed by federal courts and we cannot assure you that if challenged, these actions would be upheld. PERSONNEL As of June 17, 1999, we had 55 employees and 14 part time consultants. By commencement of operations, we expect to have approximately 150 employees. The extent and timing of the increase in staffing will depend on the availability of qualified personnel and other developments in our business. None of our employees is represented by a labor union, and we believe that our relationship with our employees is satisfactory. LEGAL PROCEEDINGS On January 12, 1999, we filed a lawsuit against XM in the United States District Court for the Southern District of New York. The lawsuit alleges patent infringement by XM of our U.S. Patent Nos. 5,319,673, 5,485,485 and 5,592,471. We are seeking, among other things, an injunction against infringement by XM by any manufacture, use, offer for sale or sale within the scope of any claim of U.S. Patents Nos. 5,319,673, 5,485,485 and 5,592,471. On March 1, 1999, XM answered our complaint in this lawsuit, denying our allegations and asserting affirmative defenses. Both XM and ourselves have requested that the other produce specific documents and answer interrogatories and this process is proceeding. While we believe that we should prevail in this lawsuit, we cannot assure you that the Court will rule in our favor. Except as described above, we are not a party to any material litigation. 52 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and directors are described below. Our directors stand for election annually.
NAME AGE POSITION(S) WITH CD RADIO ---- --- ------------------------- David Margolese........................... 41 Chairman, Chief Executive Officer and Director Robert D. Briskman........................ 66 Executive Vice President, Engineering and Director Andrew J. Greenebaum...................... 37 Senior Vice President and Chief Financial Officer Ira H. Bahr............................... 36 Senior Vice President, Marketing Joseph S. Capobianco...................... 49 Senior Vice President, Content Patrick L. Donnelly....................... 37 Senior Vice President, General Counsel and Secretary Lawrence F. Gilberti(1)(2)................ 48 Director Joseph V. Vittoria(1)(2).................. 63 Director Ralph V. Whitworth(1)(2).................. 43 Director
- ------------ (1) Member of the Audit Committee. (2) Member of the Compensation Committee. DAVID MARGOLESE has served as Chairman and Chief Executive Officer since August 1993, and as a director since August 1991. Before his involvement with CD Radio, Mr. Margolese proposed and co-founded Cantel Inc., Canada's national cellular telephone carrier, which was acquired by Rogers Communications Inc. in 1989, and Canadian Telecom Inc., a radio paging company, serving as that company's president until the company's sale in 1987. ROBERT D. BRISKMAN is CD Radio's co-founder and has served as Executive Vice President, Engineering, and as a director since October 1991. Before 1986, during his twenty-two year career at Communications Satellite Corporation, a satellite communications company, he was responsible for the engineering and implementation of numerous major satellite systems, including ITALSAT, ARABSAT and CHINASAT. Mr. Briskman was one of the early engineers hired at NASA in 1959, and received the APOLLO Achievement Award for the design and implementation of the Unified S-Band System. He is past chairman of the IEEE Standards Board, past president of the Aerospace and Electronics Systems Society and served on the industry advisory council to NASA. He is the Telecommunications Editor of McGraw Hill's Encyclopedia of Science and Technology and is a recipient of the IEEE Centennial Medal. ANDREW J. GREENEBAUM has served as Senior Vice President and Chief Financial Officer since August 1997. From August 1989 to August 1997, he held a variety of senior management positions with The Walt Disney Company, a diversified international entertainment corporation. From March 1996 to August 1997, Mr. Greenebaum was Vice President, Corporate Finance, in charge of corporate and project finance. From May 1995 to March 1996, he was Director, Strategic Planning. From October 1992 to May 1995, he was Director, Corporate Finance. IRA H. BAHR has served as Senior Vice President, Marketing, since October 1998. From June 1998 to October 1998, Mr. Bahr was Vice President, Marketing. Previously, Mr. Bahr held senior management positions at BBDO New York, a worldwide advertising agency. From 1992 through 1998, Mr. Bahr was Senior Vice President and Worldwide Account Director in charge of the agency's relationship with Federal Express. In that role, he planned, managed and executed FedEx advertising and promotional programs around the world and worked closely with FedEx executive management in developing long term business and branding strategies. JOSEPH S. CAPOBIANCO has served as Senior Vice President, Content, since April 1997. From 1981 to April 1997, he was an independent consultant providing programming, production, marketing and strategic planning consulting services to media and entertainment companies, 53 including Home Box Office, a cable television service and a subsidiary of Time Warner Entertainment Company, L.P., and ABC Radio. From May 1990 to February 1995, he served as Vice President of Programming at Music Choice, which operates a 40-channel music service available to subscribers to DIRECTV, and is partially owned by Warner Music Group Inc., Sony Entertainment Inc. and EMI. PATRICK L. DONNELLY has served as Senior Vice President, General Counsel and Secretary since May 1998. From June 1997 to May 1998, he was Vice President and Deputy General Counsel of ITT Corporation, a hotel, gaming and entertainment corporation that was acquired by Starwood Hotels & Resorts Worldwide, Inc. in February 1998. From October 1995 to June 1997, he was Assistant General Counsel of ITT Corporation. Before October 1995, Mr. Donnelly was an associate at the law firm of Simpson Thacher & Bartlett. LAWRENCE F. GILBERTI has been a director of CD Radio since September of 1993 and served as its Secretary from November 1992 until May 1998. Since December 1992, he has been the Secretary and sole director of, and from December 1992 to September 1994 was the President of, Satellite CD Radio, Inc., our subsidiary which holds our FCC license. Mr. Gilberti is of counsel to the law firm of Reed Smith Shaw & McClay LLP and has provided legal services to CD Radio since 1992. From August 1994 to May 1998, Mr. Gilberti was a partner in the law firm of Fischbein Badillo Wagner & Harding; and from 1987 to August 1994, was an attorney with the law firm of Goodman Phillips & Vineberg. JOSEPH V. VITTORIA has been a director of CD Radio since April 1998. Since 1997, Mr. Vittoria has served as Chairman and Chief Executive Officer of Travel Services International, Inc., a travel services distributor, and as a member of the Board of Overseers of Columbia Business School. From September 1987 to February 1997, Mr. Vittoria was the Chairman and Chief Executive Officer of Avis Inc., one of the world's largest rental car companies, and served as its President and Chief Operating Officer during the prior five years. During that time, Mr. Vittoria was responsible for creating the Avis Employee Stock Ownership Plan and for the sale of Avis to HFS Incorporated in 1996. RALPH V. WHITWORTH has been a director of CD Radio since March 1994. Mr. Whitworth has been a principal and managing member at Relational Investors, LLC, a private investment company, since March 1996. Since April 1998, he has been Chairman of Apria Healthcare Group Inc., a home-health company. In January 1997, Mr. Whitworth became a partner of Batchelder & Partners, Inc., a financial advisory firm. From August 1988 to December 1996, he was President of Whitworth and Associates, a Washington, D.C.-based consulting firm. Mr. Whitworth was President of United Shareholders Association, a shareholders' association, from its founding in 1986 to 1993. Mr. Whitworth is also a director of Waste Management, Inc. and Wilshire Technologies Inc. 54 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Gilberti, a director, is of counsel to the law firm of Reed Smith Shaw & McClay LLP and has provided legal services to us since 1992. Under an agreement dated October 21, 1992, we retained Batchelder & Partners, Inc. ('Batchelder') to provide financial consulting services. We agreed to terminate the agreement with Batchelder on November 30, 1997; however, the parties agreed that the termination would not affect our obligations with respect to some transactions entered into within 24 months of the termination date. In January 1997, Mr. Whitworth became a partner in Batchelder. In the fiscal year ended December 31, 1998, Mr. Whitworth, as a partner in Batchelder, received $205,149 from the total fees we paid to Batchelder. We provided options to purchase our shares of common stock to Batchelder and on December 29, 1997, Mr. Whitworth received a portion of these as an option to purchase 17,800 shares of our common stock at an exercise price of $6.25. This option is exercisable for a period of 10 years from the date of grant. In connection with the sale in May 1999 of the units consisting of the initial notes and warrants, we paid Batchelder a fee of $2,000,000 and Mr. Whitworth received $ of this amount. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding beneficial ownership of CD Radio's Common Stock as of May 31, 1999 by (1) each stockholder known by CD Radio to be the beneficial owner of more than 5% of the outstanding Common Stock, (2) each director of CD Radio, (3) each executive officer of CD Radio and (4) all directors and executive officers as a group. Except as otherwise indicated, we believe that the beneficial owners of the Common Stock listed below, based on information furnished by these owners, have sole investment and voting power with respect to these shares, except as otherwise provided by community property laws where applicable.
NUMBER OF SHARES PERCENT OF TOTAL NAMES AND ADDRESS OF OF COMMON STOCK COMMON STOCK BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2) ----------------------------------- ------------------ --------------------- David Margolese(3) ...................................... 5,975,293% 17.6% Prime 66 Partners, L.P.(4) .............................. 5,066,700 14.9% 201 Main Street Suite 3200 Fort Worth, Texas 76102 Apollo Investment Fund IV, L.P.(5) ...................... 4,500,000 13.3% Apollo Overseas Partners IV, L.P. Two Manhattanville Road Purchase, New York 10577 Everest Capital Master Fund, L.P.(6)(7) ................. 4,256,299 12.5% Everest Capital Limited c/o Morgan Stanley & Co. Incorporated One Pierpont Plaza 10th Floor Brooklyn, New York 11201 Darlene Friedland(8) .................................... 2,834,500 8.3% 1210 Wolseley Road Point Piper 2027 Sydney, Australia Loral Space & Communications Ltd.(9) .................... 1,905,488 5.6% 600 Third Avenue New York, New York 10016 Robert D. Briskman(10) .................................. 193,190 * Lawrence F. Gilberti(11) ................................ 50,000 * Joseph V. Vittoria(12) .................................. 26,667 * Ralph V. Whitworth(13) .................................. 67,800 * Joseph S. Capobianco(14) ................................ 42,791 *
(table continued on next page) 55 (table continued from previous page)
NUMBER OF SHARES PERCENT OF TOTAL NAMES AND ADDRESS OF OF COMMON STOCK COMMON STOCK BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2) ----------------------------------- ------------------ --------------------- Ira H. Bahr(15) ......................................... 8,571 * Patrick L. Donnelly(16) ................................. 35,130 * Andrew J. Greenebaum(17) ................................ 59,661 * All Executive Officers and Directors as a Group (9 persons)(18) ....................................... 6,459,103 19.0%
- ------------ * Less than 1% (1) This table is based upon information supplied by directors, officers and principal stockholders. Percentage of ownership is based on shares of Common Stock outstanding on May 31, 1999. Unless otherwise indicated, the address of the beneficial owner is that of CD Radio. (2) Determined as provided by Rule 13d-3 under the Exchange Act. Under this rule, a person is deemed to be the beneficial owner of securities that can be acquired by this person within 60 days from the date of determination upon the exercise of options, and each beneficial owner's percentage ownership is determined by assuming that options that are held by this person (but not those held by any other person) and that are exercisable within 60 days from the date of determination have been exercised. (3) Includes 793 shares of Common Stock acquired under CD Radio's 401(k) Plan and 1,540,000 shares of Common Stock issuable under stock options that are exercisable within 60 days. Under a voting trust agreement (the 'Voting Trust Agreement') entered into by Darlene Friedland, as grantor, David Margolese, as trustee, and CD Radio, Mr. Margolese has the power to vote in his discretion all shares of Common Stock owned or acquired in the future by Darlene Friedland and some of her affiliates (2,834,500 shares as of May 31, 1999) until November 20, 2002. Does not include 960,000 shares issuable under stock options that are not exercisable within 60 days. (4) This information is based upon the Schedule 13D dated November 12, 1998 filed by Prime 66 Partners, L.P. with the Commission. (5) Represents 1,350,000 shares of 9.2% Series A Junior Preferred Stock which entitles the holder to vote as if the shares had been converted to Common Stock. Each share of 9.2% Series A Junior Preferred Stock is entitled to three and one-third votes per share. This information is based upon the Schedule 13D dated December 23, 1998 filed by the Apollo Investors with the Commission. (6) Represents 57,711 shares of Common Stock and shares of Common Stock issuable upon conversion of 442,545 shares of Series C Preferred Stock. This information is based upon the Schedule 13D dated December 15, 1998 filed by Everest Capital Limited with the Commission. (7) Includes shares of Common Stock issuable under warrants to purchase 1,740,000 shares of Common Stock at a purchase price of $50 per share. These warrants are exercisable from June 15, 1998 through and including June 15, 2005. (8) Under the Voting Trust Agreement, David Margolese has the power to vote in his discretion all shares of Common Stock owned or acquired by Darlene Friedland and some of her affiliates (2,834,500 shares as of May 31, 1999) until November 26, 2002. (9) This information is based on the Schedule 13D dated August 14, 1997 filed by Loral Space & Communications Ltd. with the Commission. (10) Includes 690 shares of Common Stock acquired under CD Radio's 401(k) Plan and 192,500 shares of Common Stock issuable under stock options exercisable within 60 days. Does not include 57,500 shares issuable under stock options that are not exercisable within 60 days. (11) Represents 50,000 shares of Common Stock issuable under stock options exercisable within 60 days. (footnotes continued on next page) 56 (footnotes continued from previous page) (12) Represents 26,667 shares of Common Stock issuable under stock options exercisable within 60 days. Does not include 13,333 shares of Common Stock issuable under stock options that are not exercisable within 60 days. (13) Represents 67,800 shares of Common Stock issuable under stock options exercisable within 60 days. (14) Includes 291 shares of Common Stock acquired under CD Radio's 401(k) Plan and 42,500 shares of Common Stock issuable under stock options exercisable within 60 days. Does not include 57,500 shares of Common Stock issuable under stock options that are not exercisable within 60 days. (15) Includes 321 shares of Common Stock acquired under CD Radio's 401(k) Plan, 6,250 shares of Common Stock issuable under stock options exercisable within 60 days and 2,000 shares of Common Stock owned by Mr. Bahr. Does not include 93,750 shares of Common Stock issuable under stock options that are not exercisable within 60 days. (16) Includes 130 shares of Common Stock acquired under CD Radio's 401(k) Plan and 35,000 shares of Common Stock issuable under stock options exercisable within 60 days. Does not include 75,000 shares issuable under stock options that are not exercisable within 60 days. (17) Includes 661 shares of Common Stock acquired under CD Radio's 401(k) Plan and 59,000 shares of Common Stock issuable under stock options exercisable within 60 days. Does not include 166,000 shares of Common Stock issuable under stock options not exercisable within 60 days. (18) Includes 2,019,717 shares of Common Stock issuable under stock options exercisable within 60 days. Does not include 1,423,083 shares issuable under stock options that are not exercisable within 60 days. VOTING TRUST AGREEMENT We are party to a Voting Trust Agreement by and among Darlene Friedland, as grantor, and David Margolese, as the voting trustee. The following is a summary of the material provisions of the Voting Trust Agreement. The complete text of the Voting Trust Agreement is filed with the Commission as an exhibit to the registration statement covering the exchange notes. The Voting Trust Agreement provides for the establishment of a trust (the 'Trust') into which there were deposited all of the shares of Common Stock owned by Mrs. Friedland on August 26, 1997 and into which any shares of Common Stock acquired by Mrs. Friedland, her spouse Robert Friedland, any member of either of their immediate families or any entity directly or indirectly controlled by Mrs. Friedland, her spouse or any member of their immediate families (the 'Friedland Affiliates') between August 26, 1997 and the termination of the Trust must also be deposited. The Trust will terminate on November 26, 2002. The Voting Trust Agreement does not restrict the ability of Mrs. Friedland or any of the Friedland Affiliates to sell, assign, transfer or pledge any of the shares of Common Stock deposited into the Trust, nor does it prohibit Mrs. Friedland or the Friedland Affiliates from purchasing additional shares of Common Stock, provided those shares are deposited in the Trust, as described above. Under the Voting Trust Agreement, the trustee has the power to vote shares of Common Stock held in the Trust in relation to any matter upon which the holders of these shares of Common Stock would have a right to vote, including without limitation the election of directors. For so long as David Margolese remains trustee of the Trust, he may exercise these voting rights in his discretion. Any successor trustee or trustees of the Trust must vote as follows: on the election of directors, the trustee(s) must vote the entire number of shares of Common Stock held by the Trust, with the number of shares of Common Stock voted for each director (or nominee for director) determined by multiplying the total number of votes held by the Trust by a fraction, the numerator of which is the number of votes cast for this 57 director by other stockholders of CD Radio and the denominator of which is the sum of the total number of votes represented by all shares casting any votes in the election of directors; if the matter under Delaware law or the Amended and Restated Certificate of Incorporation or the Amended and Restated Bylaws of CD Radio requires at least an absolute majority of all outstanding shares of Common Stock of CD Radio to be approved, the trustee(s) must vote all of the shares of Common Stock in the Trust in the same manner as the majority of all votes that are cast for or against the matter by all other stockholders of CD Radio; and on all other matters, including without limitation any amendment of the Voting Trust Agreement for which a stockholder vote is required, the trustee(s) must vote all of the shares in the Trust for or against the matter in the same manner as all votes that are cast for or against the matter by all other stockholders of CD Radio. The Voting Trust Agreement may not be amended without the prior written consent of CD Radio, acting by unanimous vote of the Board of Directors, and approval of CD Radio's stockholders, acting by the affirmative vote of two-thirds of the total voting power of CD Radio, except in limited circumstances where amendments to the Voting Trust Agreement must comply with applicable law. 58 THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER We are offering to exchange our exchange notes for a like aggregate principal amount of our initial notes. The exchange notes that we propose to issue in this exchange offer will be substantially identical to our initial notes except that, unlike our initial notes, the exchange notes will have no transfer restrictions or registration rights. You should read the description of the exchange notes in the section in this prospectus entitled 'Description of the Notes.' We reserve the right in our sole discretion to purchase or make offers for any initial notes that remain outstanding following the expiration or termination of this exchange offer and, to the extent permitted by applicable law, to purchase initial notes in the open market or privately negotiated transactions, one or more additional tender or exchange offers or otherwise. The terms and prices of these purchases or offers could differ significantly from the terms of this exchange offer. In addition, nothing in this exchange offer will prevent us from exercising our right to discharge our obligations on the initial notes by depositing certain securities with the trustee and otherwise. EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION This exchange offer will expire at 5:00 p.m., New York City time, on , 1999, unless we extend it in our reasonable discretion. The expiration date of this exchange offer will be at least 20 business days after the commencement of the exchange offer in accordance with Rule 14e-1(a) under the Exchange Act. We expressly reserve the right to delay acceptance of any initial notes, extend or terminate this exchange offer and not accept any initial notes that we have not previously accepted if any of the conditions described below under ' -- Conditions to the Exchange Offer' have not been satisfied or waived by us. We will notify the exchange agent of any extension by oral notice promptly confirmed in writing or by written notice. We will also notify the holders of the initial notes by mailing an announcement or by a press release or other public announcement communicated before 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date unless applicable laws require us to do otherwise. We also expressly reserve the right to amend the terms of this exchange offer in any manner. If we make any material change, we will promptly disclose this change in a manner reasonably calculated to inform the holders of our initial notes of the change including providing public announcement or giving oral or written notice to these holders. A material change in the terms of this exchange offer could include a change in the timing of the exchange offer, a change in the exchange agent and other similar changes in the terms of this exchange offer. If we make any material change to this exchange offer, we will disclose this change by means of a post-effective amendment to the registration statement which includes this prospectus and will distribute an amended or supplemented prospectus to each registered holder of initial notes. In addition, we will extend this exchange offer for an additional five to ten business days as required by the Exchange Act, depending on the significance of the amendment, if the exchange offer would otherwise expire during that period. We will promptly notify the exchange agent by oral notice, promptly confirmed in writing, or written notice of any delay in acceptance, extension, termination or amendment of this exchange offer. 59 PROCEDURES FOR TENDERING INITIAL NOTES PROPER EXECUTION AND DELIVERY OF LETTERS OF TRANSMITTAL To tender your initial notes in this exchange offer, you must use one of the three alternative procedures described below: (1) Regular delivery procedure: Complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal. Have the signatures on the letter of transmittal guaranteed if required by the letter of transmittal. Mail or otherwise deliver the letter of transmittal or the facsimile together with the certificates representing the initial notes being tendered and any other required documents to the exchange agent on or before 5:00 p.m., New York City time, on the expiration date. (2) Book-entry delivery procedure: Send a timely confirmation of a book-entry transfer of your initial notes, if this procedure is available, into the exchange agent's account at The Depository Trust Company in accordance with the procedures for book-entry transfer described under ' -- Book-Entry Delivery Procedure' below, on or before 5:00 p.m., New York City time, on the expiration date. (3) Guaranteed delivery procedure: If time will not permit you to complete your tender by using the procedures described in (1) or (2) above before the expiration date, comply with the guaranteed delivery procedures described under ' -- Guaranteed Delivery Procedure' below. The method of delivery of the initial notes, the letter of transmittal and all other required documents is at your election and risk. Instead of delivery by mail, we recommend that you use an overnight or hand-delivery service. If you choose the mail, we recommend that you use registered mail, properly insured, with return receipt requested. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. You should not send any letters of transmittal or initial notes to us. You must deliver all documents to the exchange agent at its address provided below. You may also request your broker, dealer, commercial bank, trust company or nominee to tender your initial notes on your behalf. Only a holder of initial notes may tender initial notes in this exchange offer. A holder is any person in whose name initial notes are registered on our books or any other person who has obtained a properly completed bond power from the registered holder. If you are the beneficial owner of initial notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your notes, you must contact that registered holder promptly and instruct that registered holder to tender your notes on your behalf. If you wish to tender your initial notes on your own behalf, you must, before completing and executing the letter of transmittal and delivering your initial notes, either make appropriate arrangements to register the ownership of these notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. You must have any signatures on a letter of transmittal or a notice of withdrawal guaranteed by: (1) a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., (2) a commercial bank or trust company having an office or correspondent in the United States, or (3) an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Exchange Act, unless the initial notes are tendered: (1) by a registered holder or by a participant in The Depository Trust Company whose name appears on a security position listing as the owner, who has not completed the box entitled 'Special Issuance Instructions' or 'Special Delivery Instructions' on the letter of 60 transmittal and only if the exchange notes are being issued directly to this registered holder or deposited into this participant's account at The Depository Trust Company, or (2) for the account of a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934. If the letter of transmittal or any bond powers are signed by: (1) The recordholder(s) of the initial notes tendered: the signature must correspond with the name(s) written on the face of the initial notes without alteration, enlargement or any change whatsoever. (2) A participant in The Depository Trust Company: the signature must correspond with the name as it appears on the security position listing as the holder of the initial notes. (3) A person other than the registered holder of any initial notes: these initial notes must be endorsed or accompanied by bond powers and a proxy that authorize this person to tender the initial notes on behalf of the registered holder, in satisfactory form to us as determined in our sole discretion, in each case, as the name of the registered holder or holders appears on the initial notes. (4) Trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity: these persons should so indicate when signing. Unless waived by us, evidence satisfactory to us of their authority to so act must also be submitted with the letter of transmittal. BOOK-ENTRY DELIVERY PROCEDURE Any financial institution that is a participant in The Depository Trust Company's systems may make book-entry deliveries of initial notes by causing The Depository Trust Company to transfer these initial notes into the exchange agent's account at The Depository Trust Company in accordance with The Depository Trust Company's procedures for transfer. To effectively tender notes through The Depository Trust Company, the financial institution that is a participant in The Depository Trust Company will electronically transmit its acceptance through the Automatic Tender Offer Program. The Depository Trust Company will then edit and verify the acceptance and send an agent's message to the exchange agent for its acceptance. An agent's message is a message transmitted by The Depository Trust Company to the exchange agent stating that The Depository Trust Company has received an express acknowledgment from the participant in The Depository Trust Company tendering the notes that this participation has received and agrees to be bound by the terms of the letter of transmittal, and that we may enforce this agreement against this participant. The exchange agent will make a request to establish an account for the initial notes at The Depository Trust Company for purposes of the exchange offer within two business days after the date of this prospectus. A delivery of initial notes through a book-entry transfer into the exchange agent's account at The Depository Trust Company will only be effective if an agent's message or the letter of transmittal or a facsimile of the letter of transmittal with any required signature guarantees and any other required documents is transmitted to and received by the exchange agent at the address indicated below under ' -- Exchange Agent' on or before the expiration date unless the guaranteed delivery procedures described below are complied with. DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. GUARANTEED DELIVERY PROCEDURE If you are a registered holder of initial notes and desire to tender your notes, and (1) these notes are not immediately available, (2) time will not permit your notes or other required documents to reach the exchange agent before the expiration date or (3) the procedures for book- 61 entry transfer cannot be completed on a timely basis and an agent's message delivered, you may still tender in this exchange offer if: (1) you tender through a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Exchange Act, (2) on or before the expiration date, the exchange agent receives a properly completed and duly executed letter of transmittal or facsimile of the letter of transmittal, and a notice of guaranteed delivery, substantially in the form provided by us, with your name and address as holder of the initial notes and the amount of notes tendered, stating that the tender is being made by that letter and notice and guaranteeing that within three business days after the expiration date the certificates for all the initial notes tendered, in proper form for transfer, or a book-entry confirmation with an agent's message, as the case may be, and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent, and (3) the certificates for all your tendered initial notes in proper form for transfer or a book-entry confirmation as the case may be, and all other documents required by the letter of transmittal are received by the exchange agent within three business days after the expiration date. ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Your tender of initial notes will constitute an agreement between you and us governed by the terms and conditions provided in this prospectus and in the related letter of transmittal. We will be deemed to have received your tender as of the date when your duly signed letter of transmittal accompanied by your initial notes tendered, or a timely confirmation of a book-entry transfer of these notes into the exchange agent's account at The Depository Trust Company with an agent's message, or a notice of guaranteed delivery from an eligible institution is received by the exchange agent. All questions as to the validity, form, eligibility, including time of receipt, acceptance and withdrawal of tenders will be determined by us in our sole discretion. Our determination will be final and binding. We reserve the absolute right to reject any and all initial notes not properly tendered or any initial notes which, if accepted, would, in our opinion or our counsel's opinion, be unlawful. We also reserve the absolute right to waive any conditions of this exchange offer or irregularities or defects in tender as to particular notes. Our interpretation of the terms and conditions of this exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of initial notes must be cured within such time as we shall determine. We, the exchange agent or any other person will be under no duty to give notification of defects or irregularities with respect to tenders of initial notes. We and the exchange agent or any other person will incur no liability for any failure to give notification of these defects or irregularities. Tenders of initial notes will not be deemed to have been made until such irregularities have been cured or waived. The exchange agent will return without cost to their holders any initial notes that are not properly tendered and as to which the defects or irregularities have not been cured or waived as promptly as practicable following the expiration date. If all the conditions to the exchange offer are satisfied or waived on the expiration date, we will accept all initial notes properly tendered and will issue the exchange notes promptly thereafter. Please refer to the section of this prospectus entitled ' -- Conditions to the Exchange Offer' below. For purposes of this exchange offer, initial notes will be deemed to have been accepted as validly tendered for exchange when, as and if we give oral or written notice of acceptance to the exchange agent. 62 We will issue the exchange notes in exchange for the initial notes tendered pursuant to a notice of guaranteed delivery by an eligible institution only against delivery to the exchange agent of the letter of transmittal, the tendered initial notes and any other required documents, or the receipt by the exchange agent of a timely confirmation of a book-entry transfer of initial notes into the exchange agent's account at The Depository Trust Company with an agent's message, in each case, in form satisfactory to us and the exchange agent. If any tendered initial notes are not accepted for any reason provided by the terms and conditions of this exchange offer or if initial notes are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or non-exchanged initial notes will be returned without expense to the tendering holder, or, in the case of initial notes tendered by book- entry transfer procedures described above, will be credited to an account maintained with the book-entry transfer facility, as promptly as practicable after withdrawal, rejection of tender or the expiration or termination of the exchange offer. By tendering into this exchange offer, you will irrevocably appoint our designees as your attorney-in-fact and proxy with full power of substitution and resubstitution to the full extent of your rights on the notes tendered. This proxy will be considered coupled with an interest in the tendered notes. This appointment will be effective only when, and to the extent that we accept your notes in this exchange offer. All prior proxies on these notes will then be revoked and you will not be entitled to give any subsequent proxy. Any proxy that you may give subsequently will not be deemed effective. Our designees will be empowered to exercise all voting and other rights of the holders as they may deem proper at any meeting of note holders or otherwise. The initial notes will be validly tendered only if we are able to exercise full voting rights on the notes, including voting at any meeting of the note holders, and full rights to consent to any action taken by the note holders. WITHDRAWAL OF TENDERS Except as otherwise provided in this prospectus, you may withdraw tenders of initial notes at any time before 5:00 p.m., New York City time, on the expiration date. For a withdrawal to be effective, you must send a written or facsimile transmission notice of withdrawal to the exchange agent before 5:00 p.m., New York City time, on the expiration date at the address provided below under ' -- Exchange Agent' and before acceptance of your tendered notes for exchange by us. Any notice of withdrawal must: (1) specify the name of the person having tendered the initial notes to be withdrawn, (2) identify the notes to be withdrawn, including, if applicable, the registration number or numbers and total principal amount of these notes, (3) be signed by the person having tendered the initial notes to be withdrawn in the same manner as the original signature on the letter of transmittal by which these notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to permit the trustee for the initial notes to register the transfer of these notes into the name of the person having made the original tender and withdrawing the tender, (4) specify the name in which any of these initial notes are to be registered, if this name is different from that of the person having tendered the initial notes to be withdrawn, and (5) if applicable because the initial notes have been tendered though the book-entry procedure, specify the name and number of the participant's account at The Depository Trust Company to be credited, if different than that of the person having tendered the initial notes to be withdrawn. We will determine all questions as to the validity, form and eligibility, including time of receipt, of all notices of withdrawal and our determination will be final and binding on all parties. 63 Initial notes that are withdrawn will be deemed not to have been validly tendered for exchange in this exchange offer. The exchange agent will return without cost to their holders all initial notes that have been tendered for exchange and are not exchanged for any reason, as promptly as practicable after withdrawal, rejection of tender or expiration or termination of this exchange offer. You may retender properly withdrawn initial notes in this exchange offer by following one of the procedures described under ' -- Procedures for Tendering Initial Notes' above at any time on or before the expiration date. CONDITIONS TO THE EXCHANGE OFFER We will complete this exchange offer only if: (1) there is no action or proceeding instituted or threatened in any court or before any governmental agency or body that in our judgment would reasonably be expected to prohibit, prevent or otherwise impair our ability to proceed with this exchange offer, (2) there is no change in the laws and regulations which, in our judgment, would reasonably be expected to impair our ability to proceed with this exchange offer, (3) there is no change in the current interpretation of the staff of the Commission which permits resales of the exchange notes, (4) there is no stop order issued by the Commission or any state securities authority suspending the effectiveness of the registration statement which includes this prospectus or the qualification of the indenture for our exchange notes under the Trust Indenture Act of 1939 and there are no proceedings initiated or, to our knowledge, threatened for that purpose, and (5) we obtain all governmental approvals that we deem in our sole discretion necessary to complete this exchange offer. These conditions are for our sole benefit. We may assert any one of these conditions regardless of the circumstances giving rise to it and may also waive any one of them, in whole or in part, at any time and from time to time, if we determine in our reasonable discretion that it has not been satisfied, subject to applicable law. We will not be deemed to have waived our rights to assert or waive these conditions if we fail at any time to exercise any of them. Each of these rights will be deemed an ongoing right which we may assert at any time and from time to time. If we determine that we may terminate this exchange offer because any of these conditions is not satisfied, we may: (1) refuse to accept and return to their holders any initial notes that have been tendered, (2) extend the exchange offer and retain all notes tendered before the expiration date, subject to the rights of the holders of these notes to withdraw their tenders, or (3) waive any condition that has not been satisfied and accept all properly tendered notes that have not been withdrawn or otherwise amend the terms of this exchange offer in any respect as provided under the section in this prospectus entitled ' -- Expiration Date; Extensions; Amendments; Termination.' ACCOUNTING TREATMENT We will record the exchange notes at the same carrying value as the initial notes as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes. We will amortize the costs of the exchange offer and the unamortized expenses related to the issuance of the exchange notes over the term of the exchange notes. 64 EXCHANGE AGENT We have appointed United States Trust Company of New York as exchange agent for this exchange offer. You should direct all questions and requests for assistance on the procedures for tendering and all requests for additional copies of this prospectus or the letter of transmittal to the exchange agent as follows: By mail: United States Trust Company of New York P.O. Box 844 Cooper Station New York, NY 10276-0844 Attention: Corporate Trust Services By hand/overnight delivery: United States Trust Company of New York 770 Broadway, 13th Floor New York, NY 10003 Attention: Corporate Trust Services Facsimile Transmission: (212) 780-0592 Confirm by Telephone: (800) 548-6565 Attention: Corporate Trust Services FEES AND EXPENSES We will bear the expenses of soliciting tenders in this exchange offer, including fees and expenses of the exchange agent and trustee and accounting, legal, printing and related fees and expenses. We will not make any payments to brokers, dealers or other persons soliciting acceptances of this exchange offer. However, we will pay the exchange agent reasonable and customary fees for its services and will reimburse the exchange agent for its reasonable out-of-pocket expenses in connection with this exchange offer. We will pay all transfer taxes, if any, applicable to the exchange of initial notes in accordance with this exchange offer. However, tendering holders will pay the amount of any transfer taxes, whether imposed on the registered holder or any other persons, if: (1) certificates representing exchange notes or initial notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the notes tendered, (2) tendered initial notes are registered in the name of any person other than the person signing the letter of transmittal, or (3) a transfer tax is payable for any reason other than the exchange of the initial notes in this exchange offer. If you do not submit satisfactory evidence of the payment of any of these taxes or of any exemption from this payment with the letter of transmittal, we will bill you directly the amount of these transfer taxes. YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES The initial notes were not registered under the Securities Act or under the securities laws of any state and you may not resell them, offer them for resale or otherwise transfer them unless they are subsequently registered or resold under an exemption from the registration requirements of the Securities Act and applicable state securities laws. If you do not exchange your initial notes for exchange notes in accordance with this exchange offer, or if you do not properly tender your 65 initial notes in this exchange offer, you will not be able to resell, offer to resell or otherwise transfer the initial notes unless they are registered under the Securities Act or unless you resell them, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act. In addition, you will not necessarily be able to obligate us to register the initial notes under the Securities Act. DESCRIPTION OF THE NOTES The notes were issued under an indenture dated as of May 15, 1999 between the Company, as issuer, and United States Trust Company of New York, as trustee (the 'Trustee'), a copy of which is filed as an exhibit to the registration statement relating to this exchange offer. The following summary of some provisions of the indenture does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the notes and the indenture, including the definitions of some terms contained in it and those terms made part of the indenture by reference to the Trust Indenture Act. For definitions of some capitalized terms used in the following summary, see ' -- Certain Definitions.' In this description, the word 'Company' refers only to CD Radio Inc. and not to any of its subsidiaries. GENERAL The notes will be limited to $200,000,000 aggregate principal amount and will mature on May 15, 2009. We will pay interest on each note at the rate set forth on the cover page hereof from May 18, 1999 or from the most recent interest payment date to which interest has been paid or duly provided for, payable in cash on May 15 and November 15 of each year, commencing November 15, 1999, until we have paid or duly provided for the payment of the principal of such note to the Person in whose name the note (or any predecessor note) is registered at the close of business on the May 1 or November 1 next preceding such interest payment date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. We will pay the principal of, premium, if any, on and interest on the notes, and holders may exchange and transfer the notes, at our office or agency in The City of New York maintained for such purposes (which initially will be the office of the Trustee). However, at our option, we may pay interest by check mailed to the address of the Person entitled thereto as shown on the security register. We will issue the notes only in fully registered form without coupons. We will not charge holders any fee in connection with any registration of transfer or exchange or redemption of notes, but we may require payment in certain circumstances of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. RANKING The notes will rank equal in right of payment with all of our existing and future unsubordinated obligations, including the Senior Discount Notes, and senior in right of payment to all of our existing and future obligations expressly subordinated in right of payment to the notes. Under the indenture, we and our subsidiaries are entitled to incur, subject to significant conditions and limitations, additional indebtedness, including indebtedness secured by the issued and outstanding stock of Satellite CD Radio, Inc. As of March 31, 1999, on a pro forma basis after giving effect to the sale of the units consisting of initial notes and warrants, we would have had $474 million in aggregate principal amount of indebtedness outstanding (including the notes) which ranked equal in right of payment with the notes, all of which was secured. We currently have no subordinated obligations outstanding. 66 In addition, the notes will be effectively subordinated to all existing and future obligations of our subsidiaries. As of March 31, 1999, our subsidiaries had no liabilities outstanding. SECURITY The exchange notes will be secured by a first priority perfected security interest in all the issued and outstanding common stock of Satellite CD Radio, Inc., our wholly owned subsidiary (the 'Pledged Stock'), on an equal basis with holders of the Senior Discount Notes pursuant to the Pledge Agreement. We are entitled to incur additional secured financing as set forth in 'Certain Covenants -- Limitation on Indebtedness.' Any such secured financing with respect to the Pledged Stock must be secured on an equal basis with the holders of the notes. As of March 31, 1999, approximately $162 million of indebtedness secured by the Pledged Stock was outstanding. So long as no Event of Default has occurred and is continuing, we are entitled to exercise all voting rights with respect to the Pledged Stock, provided that we cast no vote that is inconsistent with the provisions of the indenture. Upon the occurrence of an Event of Default, the collateral agent under the Pledge Agreement is entitled, subject to the provisions of an intercreditor agreement between the Trustee and the trustee of the Senior Discount Notes and subject as well to the satisfaction of any regulatory requirements, to vote the Pledged Stock or realize upon and sell or otherwise dispose of all or any part of the Pledged Stock and will apply the proceeds of any sale or disposition, first to the payment of costs and expenses of sale, second to amounts due the collateral agent, third to the payment of all amounts due and unpaid on the notes and, if an event of default has occurred in connection with the Senior Discount Notes or with any other indebtedness secured by the Pledged Stock, the Senior Discount Notes or such other indebtedness, on an equal and ratable basis, finally, any surplus to us. Regulatory considerations may affect the collateral agent's ability to exercise rights with respect to the Pledged Stock upon the occurrence of an Event of Default. In particular, the Trustee under the indenture is not entitled to exercise any rights with respect to the Pledged Stock upon the occurrence of an Event of Default if such action would constitute or result in any assignment of our FCC License or any change of control (whether as a matter of law or fact) of the Company unless the prior approval of the FCC is first obtained. We cannot assure you that any such required FCC approval can be obtained on a timely basis, or at all. In addition, at the time we issued the initial notes, we applied approximately $79.3 million of the net proceeds of this offering to purchase, and we pledged to the Trustee in escrow for the benefit of the holders of the notes, the Pledged Securities to provide for payment in full of the first six scheduled interest payments due on the notes. The Pledged Securities were pledged by us to the Trustee for the benefit of the holders of the notes pursuant to the Collateral Pledge Agreement and will be held by the Trustee in the Pledge Account. Immediately prior to each interest payment date on the notes from November 15, 1999, through May 15, 2002, we may either deposit with the Trustee, from funds otherwise available to us, cash sufficient to pay the interest scheduled to be paid on such date or we may direct the Trustee to release from the Pledge Account proceeds sufficient to pay interest then due. In the event that we exercise the former option, we may thereafter direct the Trustee to release to us proceeds or Pledged Securities from the Pledge Account in like amount, provided that the balance remaining in such Pledge Account is sufficient to pay all scheduled interest through May 15, 2002. Interest earned on the Pledged Securities will be added to the Pledge Account. In the event that the funds or Pledged Securities held in the Pledge Account exceed the amount sufficient, in the opinion of a nationally recognized firm of independent public accountants selected by us, to provide for payment in full of the first six scheduled interest payments due on the notes (or, in the event an interest payment or payments have been made, an amount sufficient to provide the 67 payment in full of any interest payments remaining, up to and including the sixth scheduled interest payment), the Trustee will release to us at our request any such excess amount. Under the Collateral Pledge Agreement, assuming that we make the first six scheduled interest payments on the notes in a timely manner, all of the Pledged Securities will have been released from the Pledge Account, and the notes will thereafter not be secured by the Pledged Securities. Except as set forth above, the notes are not secured by any lien on, or other security interest in, any other properties or assets of the Company or Satellite CD Radio, Inc. SINKING FUND The notes will not be entitled to the benefit of any sinking fund. REDEMPTION Except as set forth below, we are not entitled to redeem the notes at our option prior to May 15, 2004. On and after May 15, 2004, we will be entitled to redeem all or a part of the notes at our option, on not less than 30 nor more than 60 days' prior notice, at the redemption prices (expressed as percentages of principal amount) set forth below, together with accrued interest, if any, to the redemption date, if redeemed during the 12-month period beginning on May 15 of the years indicated below (subject to the right of holders of record on relevant record dates to receive interest due on a relevant interest payment date):
REDEMPTION YEAR PRICE ---- ----- 2004..................................................... 107.250% 2005..................................................... 104.833% 2006..................................................... 102.417% 2007 and thereafter...................................... 100.000%
In addition, at any time or from time to time prior to May 15, 2002, we are entitled to redeem up to a maximum of 35% of the original aggregate principal amount of the notes with the net proceeds of one or more equity offerings at a redemption price (expressed as a percentage of principal amount on the redemption date) of 114.50% plus accrued interest to the redemption date; provided, however, that immediately after giving effect to such redemption, at least 65% of the original aggregate principal amount of the notes remains outstanding; provided further, however, that notice of such redemption shall be given within 60 days of the closing of such equity offering. If at any time we are redeeming less than all the notes, the Trustee will select the particular notes to be redeemed not more than 60 days prior to the redemption date by such method as the Trustee shall deem fair and appropriate. We will send a notice of redemption by mail, first-class postage prepaid, at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address. If we are redeeming any note in part only, notice of redemption relating to such note will identify the portion of the principal amount thereof to be redeemed. We will issue a new note in a principal amount equal to the unredeemed portion thereof in the name of the holder thereof upon cancellation of the original note. On and after any redemption date, interest will cease to accrue on notes or portions thereof called for redemption and accepted for payment. CERTAIN COVENANTS LIMITATION ON INDEBTEDNESS The Company will not, and will not permit any Restricted Subsidiary to, create, assume, issue, guarantee or in any manner become directly or indirectly liable for or with respect to the payment 68 of, or otherwise incur (collectively, to 'incur'), any Indebtedness, except for Permitted Indebtedness; provided, however, that the Company will be permitted to incur Indebtedness and a Restricted Subsidiary will be permitted to incur Acquired Indebtedness if, in either case, after giving pro forma effect to such incurrence (including the application of the net proceeds therefrom), the ratio of (1) Total Consolidated Indebtedness to (2) Adjusted Consolidated Operating Cash Flow for the latest four fiscal quarters for which consolidated financial statements of the Company are available preceding the date of such incurrence, taken as a whole, would be greater than zero and less than or equal to 4.0 to 1.0. LIMITATION ON RESTRICTED PAYMENTS The Company will not make, and will not permit any Restricted Subsidiary to make, directly or indirectly, any of the following: (1) the declaration or payment of any dividend or any other distribution on Capital Stock of the Company or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company (other than dividends or distributions payable solely in Qualified Capital Stock of the Company or in options, warrants or other rights to purchase Qualified Capital Stock of the Company); (2) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company (other than any such Capital Stock owned by the Company or a Restricted Subsidiary) or any affiliate of the Company (other than any Restricted Subsidiary); (3) the making of any principal payment on, or the repurchase, redemption, defeasance or other acquisition or retirement for value of, prior to any scheduled principal payment, sinking fund payment or maturity, any Subordinated Indebtedness (other than any Subordinated Indebtedness held by a Restricted Subsidiary); or (4) the making of any Investment (other than a Permitted Investment) in any Person (such payments or other actions described in (but not excluded from) clauses (1) through (4) are collectively referred to as 'Restricted Payments'), unless, in each case: (A) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Restricted Payment; (B) immediately after giving effect to such Restricted Payment, the Company would be able to incur at least $1.00 of Indebtedness (other than Permitted Indebtedness) under the proviso of the 'Limitation on Indebtedness' covenant; and (C) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments declared or made on or after November 26, 1997 would not exceed an amount equal to the sum of (a) the difference between (x) the Cumulative Available Cash Flow determined at the time of such Restricted Payment and (y) 150% of the cumulative Consolidated Interest Expense of the Company determined for the period commencing on November 26, 1997 and ending on the last day of the latest fiscal quarter for which consolidated financial statements of the Company are available preceding the date of such Restricted Payment plus (b) the aggregate Net Cash Proceeds received by the Company from the issue or sale (other than to any Restricted Subsidiary) of Qualified Capital Stock of the Company after January 1, 1998, plus 69 (c) the aggregate Net Cash Proceeds received after November 26, 1997 by the Company from the issuance or sale (other than to any Restricted Subsidiary) of debt securities or Redeemable Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company, together with the aggregate Net Cash Proceeds received by the Company at the time of such conversion or exchange, plus (d) to the extent not otherwise included in the Consolidated Operating Cash Flow of the Company, an amount equal to the sum of (i) the net reduction in Investments (other than the Permitted Investments) in any Person resulting from the payment in cash of dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary after November 26, 1997 from such Person and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that in the case of (i) or (ii) above, the foregoing sum shall not exceed the aggregate amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary, minus (e) the sum of 80% of the outstanding principal amount of the Notes and all Indebtedness incurred pursuant to clause 1(b) of the definition of Permitted Indebtedness. For purposes of determining the amount expended for Restricted Payments, property other than cash shall be valued at its Fair Market Value. The provisions of this covenant will not prohibit, so long as, with respect to clauses (2) through (8) below, no Default or Event of Default shall have occurred and be continuing: (1) the payment of any dividend or other distribution within 60 days after the date of declaration thereof if at such date of declaration such payment complied with the provisions of the Indenture, and such payment will be deemed to have been paid on the date of declaration for purposes of the calculation in the foregoing paragraph; (2) the purchase, redemption, retirement or other acquisition of any shares of Capital Stock of the Company in exchange for, or out of the Net Cash Proceeds of a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of, shares of Qualified Capital Stock of the Company; (3) the purchase, redemption, retirement, defeasance or other acquisition or retirement for value of Subordinated Indebtedness made by exchange for, or out of the Net Cash Proceeds of a substantially concurrent issue or sale (other than to a Restricted Subsidiary) of, Qualified Capital Stock of the Company; (4) the purchase of (a) any Subordinated Indebtedness at a purchase price not greater than 101% of the principal amount or accreted value thereof, as the case may be, together with accrued interest, if any, in the event of a Change of Control in accordance with provisions similar to the 'Purchase of Notes upon a Change of Control' covenant or (b) any Preferred Stock of the Company at a purchase price not greater than 101% of the liquidation preference thereof, together with accrued dividends, if any, in the event of a Change of Control in accordance with provisions similar to the 'Purchase of Notes upon a Change of Control' covenant; provided, however, that, in each case, prior to such purchase the Company has made the Change of Control Offer as provided in such covenant with respect to the Notes and has purchased all Notes validly tendered for payment in connection with such Change of Control Offer; (5) the purchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Indebtedness in exchange for, or out of the Net Cash Proceeds of a substantially concurrent incurrence (other than to a Restricted Subsidiary) of, new Subordinated Indebtedness so long as (a) the principal amount of such new Subordinated Indebtedness does not exceed the principal amount (or, if such Subordinated Indebtedness being refinanced provides for an 70 amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) of the Subordinated Indebtedness being so purchased, redeemed, defeased, acquired or retired, plus the lesser of the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Subordinated Indebtedness being refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing, plus, in either case, the amount of expenses of the Company incurred in connection with such refinancing, (b) such new Subordinated Indebtedness is subordinated to the Notes to the same extent as such Subordinated Indebtedness so purchased, redeemed, defeased, acquired or retired and (c) such new Subordinated Indebtedness has an Average Life longer than the Average Life of the Notes and a final Stated Maturity of principal later than the Stated Maturity of principal of the Notes; (6) the purchase of any Subordinated Indebtedness at a purchase price not greater than 100% of the principal amount or accreted value thereof, as the case may be, together with accrued interest, if any, following an Asset Sale in accordance with provisions similar to the 'Limitation on Sale of Assets' covenant; provided, however, that prior to making any such purchase the Company has made the Excess Proceeds Offer as provided in such covenant with respect to the Notes and has purchased all Notes validly tendered for payment in connection with such Excess Proceeds Offer; (7) the payment of cash dividends on outstanding shares of Series C Preferred Stock of the Company out of the Net Cash Proceeds of a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of Common Stock of the Company; and (8) any other Restricted Payments in an aggregate amount not to exceed $15.0 million. In determining the amount of Restricted Payments permissible under this covenant, amounts expended pursuant to clauses (1), (2), (3), (4), (6), (7) and (8) above shall be included as Restricted Payments. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES The Company will not permit any Restricted Subsidiary to issue any Capital Stock (other than to the Company or a Restricted Subsidiary); and any Person (other than the Company or a Restricted Subsidiary) to own any Capital Stock of any Restricted Subsidiary; provided, however, that this covenant shall not prohibit (1) the issuance or sale of all, but not less than all, of the issued and outstanding Capital Stock of any Restricted Subsidiary owned by the Company or any Restricted Subsidiary in compliance with the other provisions of the Indenture; or (2) the ownership by directors of directors' qualifying shares or the ownership by foreign nationals of Capital Stock of any Restricted Subsidiary, to the extent mandated by applicable law. LIMITATION ON LIENS The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind, other than Permitted Liens, on or with respect to any of its property or assets, including any shares of stock or Indebtedness of any Restricted Subsidiary, whether owned at the date of the Indenture or thereafter acquired, or any income, profits or proceeds therefrom, or assign or otherwise convey any right to receive income thereon, unless 71 in the case of any Lien securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Lien; and in the case of any other Lien, the Notes are equally and ratably secured; PURCHASE OF NOTES UPON A CHANGE OF CONTROL If a Change of Control shall occur at any time, then each holder of Notes will have the right to require that the Company purchase such holder's Notes, in whole or in part in integral multiples of $1,000 principal amount, at a purchase price (the 'Change of Control Purchase Price') in cash in an amount equal to 101% of the principal amount of such Notes as of the date of purchase, plus accrued and unpaid interest, if any, to the date of purchase (the 'Change of Control Purchase Date'), pursuant to the offer described below (the 'Change of Control Offer') and the other procedures set forth in the Indenture. Within 15 days following any Change of Control, the Company will notify the Trustee thereof and give written notice of such Change of Control to each holder of Notes by first-class mail, postage prepaid, at the address of such holder appearing in the security register, stating, among other things, the purchase price and the purchase date, which will be a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed, or such later date as is necessary to comply with requirements under the Exchange Act or any applicable securities laws or regulations; that any Note not tendered will continue to accrue interest; that, unless the Company defaults in the payment of the purchase price, any Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Purchase Date; and certain other procedures that a holder of Notes must follow to accept a Change of Control Offer or to withdraw such acceptance. The Company will have no obligation to purchase any Notes in a Change of Control Offer if no Notes are tendered by the holders thereof. If a Change of Control Offer is made, we cannot assure you that we will have available funds sufficient to pay the Change of Control Purchase Price for all the Notes that might be delivered by holders of the Notes seeking to accept the Change of Control Offer. Our failure to make or consummate the Change of Control Offer or pay the Change of Control Purchase Price when due would result in an Event of Default and would give the Trustee and the holders of the Notes the rights described under ' -- Events of Default.' One of the events that constitutes a Change of Control under the Indenture is the disposition of 'all or substantially all' of our assets. This term has not been interpreted under New York law (which is the governing law of the Indenture) to represent a specific quantitative test. Therefore, if holders of the Notes elect to require us to purchase the Notes and we elect to contest such election, we can not assure you how a court interpreting New York law would interpret the phrase. The existence of a holder's right to require us to purchase such holder's Notes upon a Change of Control may deter a third party from acquiring the Company in a transaction that constitutes a Change of Control. The definition of 'Change of Control' in the Indenture is limited in scope. The provisions of the Indenture may not afford holders of notes the right to require us to purchase such Notes in the event of a highly leveraged transaction or certain transactions with our management or our affiliates, including a reorganization, restructuring, merger or similar transaction involving the Company (including, in certain circumstances, an acquisition of the Company by management or its affiliates) that may adversely affect holders of the Notes, if such transaction is not a transaction defined as a Change of Control. See ' -- Certain Definitions' for the definition of 'Change of 72 Control.' A transaction involving our management or our affiliates, or a transaction involving a recapitalization of the Company, would result in a Change of Control only if it is the type of transaction specified by such definition. The Company will comply to the extent applicable with the requirements of the tender offer rules, including Rule 14e-1 under the Exchange Act, and any other applicable securities laws and regulations in connection with a Change of Control Offer. LIMITATION ON SALE-LEASEBACK TRANSACTIONS The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into any sale-leaseback transaction involving any of its assets or properties whether now owned or hereafter acquired, whereby the Company or a Restricted Subsidiary sells or transfers such assets or properties and then or thereafter leases such assets or properties or any part thereof or any other assets or properties which the Company or such Restricted Subsidiary, as the case may be, intends to use for substantially the same purpose or purposes as the assets or properties sold or transferred. The foregoing restriction does not apply to any sale-leaseback transaction if: the lease is for a period, including renewal rights, of not in excess of three years; the transaction is solely between the Company and any Restricted Subsidiary or solely between Restricted Subsidiaries; or the Company or such Restricted Subsidiary, within 12 months after the sale or transfer of any assets or properties is completed, applies an amount not less than the net proceeds received from such sale in accordance with paragraph (b) of the 'Limitation on Sale of Assets' covenant described below. LIMITATION ON SALE OF ASSETS (a) The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, engage in any Asset Sale unless: (1) the consideration received by the Company or such Restricted Subsidiary for such Asset Sale is not less than the Fair Market Value of the shares or assets sold (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution); and (2) the consideration received by the Company or the relevant Restricted Subsidiary in respect of such Asset Sale consists of at least 80% cash or Cash Equivalents. (b) If the Company or any Restricted Subsidiary engages in an Asset Sale, the Company is entitled to use the Net Cash Proceeds thereof within 12 months after the later of such Asset Sale or the receipt of such Net Cash Proceeds: (1) to permanently repay or prepay any then outstanding Pari Passu Indebtedness; (2) to invest in any one or more businesses, capital expenditures or other tangible assets of the Company or any Restricted Subsidiary, in each case, engaged, used or useful in the CD Radio Business (or enter into a legally binding agreement to do so within 6 months); or (3) to invest in properties or assets that replace the properties and assets that are the subject of such Asset Sale (or enter into a legally binding agreement to do so within 6 months). If any such legally binding agreement to invest such Net Cash Proceeds is terminated, then the Company is entitled, within 90 days of such termination or within 12 months of such Asset Sale, whichever is later, to apply or invest such Net Cash Proceeds as provided in clause (1), (2) or (3) (without regard to the parenthetical contained in clause (2) or (3)) above. The amount of such Net Cash Proceeds not so used as set forth above in this paragraph (b) constitutes 'Excess Proceeds.' 73 (c) When the aggregate amount of Excess Proceeds exceeds $10.0 million the Company will (i) comply with the provisions of Section 1016(c) of the Senior Discount Notes Indenture that require the Company to make an offer to purchase Senior Discount Notes, if applicable, and (ii) within 30 business days after the completion of such offer, or if such provisions are not applicable, within 30 days after the time Excess Proceeds exceed $10.0 million, make an offer to purchase (an 'Excess Proceeds Offer') from all holders of Notes and, if the Company so elects, from holders of Pari Passu Indebtedness, on a pro rata basis, in accordance with the procedures set forth below, the maximum principal amount of Notes and, if applicable, such Pari Passu Indebtedness that may be purchased with the Excess Proceeds. In the case of other Pari Passu Indebtedness that is issued at a discount to its face amount, the requirement that Notes and other Pari Passu Indebtedness be purchased on a 'pro rata basis' means that the amount of such other Pari Passu Indebtedness to be purchased will be based on the amount to which the Pari Passu Indebtedness has accreted in value for purposes of determining the amount that would be payable thereon in the event of the occurrence of an event of default (or similar event) under such other Pari Passu Indebtedness. The offer price as to each Note and such other Pari Passu Indebtedness shall be payable in cash in an amount equal to 100% of the principal amount, or accreted value, as the case may be, of such Note or other Pari Passu Indebtedness (without premium) as of the date of purchase plus accrued interest, if any (the 'Offered Price'), to the date such Excess Proceeds Offer is consummated (the 'Offer Date'). To the extent that the aggregate principal amount, or accreted value, as the case may be, of Notes and such other Pari Passu Indebtedness tendered pursuant to an Excess Proceeds Offer is less than the Excess Proceeds relating thereto, the Company is entitled to use such additional Excess Proceeds for general corporate purposes or to fund an offer to redeem any outstanding Subordinated Indebtedness in accordance with provisions similar to this 'Limitation on Sale of Assets' covenant. If the aggregate principal amount of Notes and such other Pari Passu Indebtedness validly tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, the Company will select Notes and such other Pari Passu Indebtedness to be purchased on a pro rata basis as described in the second preceding paragraph. Upon completion of such offer to purchase, the amount of Excess Proceeds will be reset to zero. (d) If the Company becomes obligated to make an Excess Proceeds Offer pursuant to paragraph (c) above, the Company will purchase Notes, at the option of the holder thereof, in whole or in part in integral multiples of $1,000, on a date that is not earlier than 30 days and not later than 60 days from the date the notice is given to holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act or any other applicable securities laws or regulations, subject to proration in the event the amount of Excess Proceeds is less than the aggregate Offered Price of all Notes and such other Pari Passu Indebtedness tendered. (e) The Company will comply to the extent applicable with the requirements of the tender offer rules, including Rule 14e-1 under the Exchange Act, and any other applicable securities laws and regulations in connection with an Excess Proceeds Offer. LIMITATION ON TRANSACTIONS WITH AFFILIATES The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including the sale, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any Affiliate of the Company (other than the Company or a Restricted Subsidiary) unless: (1) such transaction or series of related transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution, than those that could have been obtained in an arm's-length transaction with unrelated third parties who are not Affiliates; 74 (2) with respect to any transaction or series of related transactions involving aggregate consideration equal to or greater than $2.5 million, the Company shall have delivered an officers' certificate to the Trustee certifying that such transaction or series of related transactions complies with clause (1) above and such transaction or series of related transactions has been approved by a majority of the Disinterested Directors of the Board of Directors of the Company, or the Company has obtained a written opinion from a nationally recognized investment banking firm to the effect that such transaction or series of related transactions is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view; and (3) with respect to any transaction or series of related transactions including aggregate consideration in excess of $10.0 million or in the event no members of the Board of Directors of the Company are Disinterested Directors with respect to any transaction or series of transactions included in clause (2), the Company will obtain an opinion from a nationally recognized investment banking firm as described above; provided, however, that this covenant will not restrict (1) any transaction by the Company or any Restricted Subsidiary with an Affiliate directly related to the purchase, sale or distribution of products in the ordinary course of business consistent with industry practice, (2) the Company from paying reasonable and customary regular compensation and fees to directors of the Company or any Restricted Subsidiary who are not employees of the Company or any Restricted Subsidiary, (3) the payment of compensation (including stock options and other incentive compensation) to officers and other employees the terms of which are approved by the Board of Directors, (4) the Company or any Restricted Subsidiary from making any Restricted Payment in compliance with the 'Limitation on Restricted Payments' covenant (including pursuant to the second paragraph thereof), (5) transactions between the Company and Batchelder & Partners Inc. pursuant to agreements in effect on November 26, 1997; provided, however, that the Company will not, and will not permit any Restricted Subsidiary to amend, modify or in any way alter, other than an extension of the term thereof, the terms of any such agreement in a manner materially adverse to the holders of the Notes, (6) transactions among the Company and its Restricted Subsidiaries, or (7) amendments to the Loral Satellite Contract; provided, however, that the Company will not amend, modify or in any way alter the terms of such agreement in a manner materially adverse to the holders of the Notes. Under Delaware corporate law, the Disinterested Directors' fiduciary obligations require that they act in good faith in a manner which they reasonably believe to be in the best interests of the Company and its stockholders, which may not necessarily be the same as those of holders of the notes. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to: (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock; (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary; (c) make Investments in the Company or any other Restricted Subsidiary; 75 (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary; or (e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of (1) any agreement in effect on the Issue Date, (2) applicable law or judicial or regulatory action, (3) customary non-assignment provisions of any lease governing a leasehold interest of the Company or any Restricted Subsidiary, (4) any agreement or other instrument of a Person acquired by the Company or any Restricted Subsidiary in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired and the Subsidiaries of such Person, (5) any mortgage or other Lien on real property acquired or improved by the Company or any Restricted Subsidiary after the date of the Indenture that prohibit transfers of the type described in (d) above with respect to such real property, (6) any encumbrance or restriction contained in contracts for sales of assets permitted by the 'Limitation on Sale of Assets' covenant with respect to the assets to be sold pursuant to such contract; (7) any such customary encumbrance or restriction contained in a security document creating a Permitted Lien to the extent relating to the property or asset subject to such Permitted Lien; (8) any agreement or other instrument governing any Pari Passu Indebtedness if such encumbrance or restriction applies only (x) to amounts which at any point in time (other than during such periods as are described in clause (y)) (a) exceed amounts due and payable (or which are to become due and payable within 30 days) in respect of the Notes or the Indenture for interest, premium and principal (after giving effect to any realization by the Company under any applicable Currency Agreement), or (b) if paid, would result in an event described in the following clause (y) of this clause (8), or (y) during the pendency of any event that causes, permits or, after notice or lapse of time, would cause or permit the holder(s) of the Indebtedness governed by such agreement or instrument to declare any such Indebtedness to be immediately due and payable or require cash collateralization or cash cover for such Indebtedness for so long as such cash collateralization or cash cover has not been provided; or (9) the refinancing of Indebtedness incurred under the agreements described in clause (5) above, so long as such encumbrances or restrictions are no less favorable in any material respect to the Company or any Restricted Subsidiary than those contained in the respective agreement as in effect on the Issue Date. INSURANCE (a) The Company will maintain launch insurance with respect to each satellite launch covering the period from the launch to 180 days following the launch of each satellite in an amount equal to or greater than the sum of (1) the cost to replace such satellite with a satellite of comparable or superior technological capability (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and having at least as much transmission capacity as the satellite to be replaced, 76 (2) the cost to launch a replacement satellite pursuant to the contract whereby a replacement satellite will be launched and (3) the cost of launch insurance for such replacement or, in the event that the Company has reason to believe that the cost of obtaining comparable insurance for a replacement would be materially higher, the Company's best estimate of the cost of such comparable insurance. Notwithstanding the foregoing, the Company will not be obligated to maintain insurance pursuant to this paragraph (a) with respect to (1) the launch of its first satellite and (2) any subsequent launch not preceded by a launch failure or failure of any satellite within 180 days from the date of its launch; provided, however, that the Company's spare satellite shall be under construction in accordance with the terms of the Loral Satellite Contract or the Company shall have otherwise obtained a spare satellite. (b) The Company will maintain full in-orbit insurance with respect to each satellite it owns and launches in an amount at least equal to (1) the cost to replace such satellite with a satellite of comparable or superior technological capability (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and having at least as much transmission capacity as the satellite to be replaced, (2) the cost to launch a replacement satellite pursuant to the contract pursuant to which a replacement satellite will be launched and (3) the cost of launch insurance for such replacement or, in the event that the Company has reason to believe that the cost of obtaining comparable insurance for a replacement would be materially higher, the Company's best estimate of the cost of such comparable insurance. The in-orbit insurance required by this paragraph will provide that if 50% or more of a satellite's capacity is lost, the full amount of insurance will become due and payable, and that if a satellite is able to maintain more than 50% but less than 100% of its capacity, a portion of such insurance will become due and payable. (c) In the event that the Company receives proceeds from insurance relating to any satellite, the Company is entitled to use all or a portion of such proceeds to repay any vendor or third-party purchase money financing pertaining to such satellite that is required to be repaid by reason of the loss giving rise to such insurance proceeds. The Company will use the remainder of such proceeds to develop and construct a replacement satellite; provided, however, that (1) such replacement satellite is of comparable or superior technological capability as compared with the satellite being replaced and has at least as much transmission capacity as the satellite being replaced (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution); (2) the Company will have sufficient funds (together with the proceeds of any business interruption insurance) to service the Company's projected debt service requirements until the scheduled launch of the Company's spare satellite and for one year thereafter and to develop and construct such replacement satellite; and (3) the Company's spare satellite is scheduled to be launched within 12 months of the receipt of such proceeds. Any such proceeds not used as permitted by this paragraph shall constitute 'Excess Proceeds' for purposes of the 'Limitation on Sale of Assets' covenant. PROVISION OF FINANCIAL STATEMENTS AND REPORTS The Company will file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15 of the Exchange Act. The Company will also be required 77 to file with the Trustee, and provide to each holder of Notes, without cost to such holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company would be required to file such reports and documents if the Company were so required, and if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to supply at the Company's cost copies of such reports and documents to any prospective holder of Notes promptly upon written request. CONSOLIDATION, MERGER AND SALE OF ASSETS The Company will not in a single transaction or a series of related transactions consolidate with or merge with or into any other Person or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to any Person or Persons, and the Company will not permit any Restricted Subsidiary to enter into any such transaction, or series of transactions, if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries on a consolidated basis to any Person or Persons, unless: (1) either (a) the Company shall be the surviving corporation or (b) the Person (if other than the Company) formed by such consolidation or into which the Company or the Company and its Restricted Subsidiaries is merged or the Person which acquires by sale, conveyance, transfer, lease or other disposition, all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, as the case may be (the 'Surviving Entity') (i) shall be a corporation organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and (ii) shall expressly assume, by an indenture supplemental to the Indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, the Company's obligations for the due and punctual payment of the principal of (or premium, if any, on) and interest on all the Notes and the performance and observance of every covenant of the Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any obligation of the Company or any Restricted Subsidiary in connection with or as a result of such transaction as having been incurred at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction or series of transactions on a pro forma basis (on the assumption that the transaction or series of transactions occurred on the first day of the latest four fiscal quarters for which consolidated financial statements of the Company are available prior to the consummation of such transaction or series of transactions with the appropriate adjustments with respect to the transaction or series of transactions, including the incurrence and repayment of any Indebtedness incident to such transaction, being included in such pro forma calculation), the Company (or the Surviving Entity if the Company is not the continuing obligor under the Indenture) could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the proviso to the 'Limitation on Indebtedness' covenant; provided, however, that this clause (3) shall not apply to a consolidation, merger or sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries if (A) all Liens and Indebtedness of the Company or the Surviving Entity, as the case may be, and its Restricted Subsidiaries outstanding immediately after such transaction would, if incurred at such time, have been permitted to be incurred (and all such Liens and Indebtedness, other than the Liens and Indebtedness of the Company and its 78 Restricted Subsidiaries outstanding immediately prior to the transaction, shall be deemed to have been incurred at such time) for all purposes of the Indenture and (B) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any obligation of the Company or any Restricted Subsidiary incurred in connection with or as a result of such transaction or series of transactions as having been incurred at the time of such transaction), the Consolidated Net Worth of the Company (or of the Surviving Entity if the Company is not the continuing obligor under the Indenture) is equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction or series of transactions; (4) if any of the property or assets of the Company or any of its Restricted Subsidiaries would thereupon become subject to any Lien, the provisions of the 'Limitation on Liens' covenant are complied with; and (5) the Company or the Surviving Entity shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition and such supplemental indenture comply with the terms of the Indenture. Upon any consolidation or merger, or any sale, assignment, conveyance, transfer, lease or other disposition of all of substantially all of the properties and assets of the Company in accordance with the immediately preceding paragraph in which the Company is not the continuing obligor under the Indenture, the Surviving Entity shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, with the same effect as if such successor had been named as the Company therein. When a successor assumes all the obligations of its predecessor under the Indenture and the Notes, the predecessor shall be released from those obligations; provided, however, that in the case of a transfer by lease, the predecessor shall not be released from the payment of principal and interest on the Notes. EVENTS OF DEFAULT The following will be 'Events of Default' under the Indenture: (1) as to any interest payment date occuring on or prior to May 15, 2002, default in the payment of any interest on any Note when it becomes due and payable; and as to any interest payment date thereafter, any default in the payment of interest on any Note continued for 30 days; (2) default in the payment of the principal of or premium, if any, on any Note at its Maturity; (3) default in the performance, or breach, of the provisions described in 'Consolidation, Merger and Sale of Assets,' the failure to make or consummate a Change of Control Offer in accordance with the provisions of the 'Purchase of Notes upon a Change of Control' covenant or the failure to make or consummate an Excess Proceeds Offer in accordance with the provisions of the 'Limitation on Sale of Assets' covenant; (4) default in the performance, or breach, of any covenant or agreement of the Company contained in the Indenture (other than a default in the performance, or breach, of a covenant or warranty which is specifically dealt with elsewhere in the Indenture) and continuance of such default or breach for a period of 30 days after written notice shall have been given to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Notes then outstanding; (5) (A) one or more defaults in the payment of principal of or premium, if any, on Indebtedness of the Company or any Subsidiary of the Company aggregating $10.0 million or more, when the same becomes due and payable at the Stated Maturity thereof, and such default or defaults shall have continued after any applicable grace period and shall not have been cured or waived or (B) Indebtedness of the Company or any Subsidiary of the Company aggregating $10.0 million or more shall have been accelerated or otherwise declared due and 79 payable, or required to be prepaid or repurchased (other than by regularly scheduled required prepayment) prior to the Stated Maturity thereof; (6) one or more final judgments, orders or decrees of any court or regulatory agency shall be rendered against the Company or any Subsidiary of the Company or their respective properties for the payment of money, either individually or in an aggregate amount, in excess of $10.0 million and either (A) an enforcement proceeding shall have been commenced by any creditor upon such judgment or order or (B) there shall have been a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, was not in effect; (7) any provision of the Collateral Documents shall cease, for any reason, to be in full force and effect in any material respect, or the Company shall so assert in writing; or the Trustee or the Collateral Agent, as the case may be, shall cease to have a first priority perfected security interest in the Pledged Stock or the Pledged Securities or the Pledge Account, as the case may be (other than by reason of the release of any such security interest in accordance with the Collateral Documents), or any representation, warranty or certification of the Company made in or pursuant to the Collateral Documents shall be false in any material respect as of the date when made; or (8) the occurrence of certain events of bankruptcy, insolvency or reorganization with respect to the Company or any Subsidiary of the Company. If an Event of Default (other than an Event of Default specified in clause (8) above) shall occur and be continuing, the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding, by written notice to us (and to the Trustee if such notice is given by the holders), may, and the Trustee upon the written request of such holders, will declare the principal of, premium, if any, and accrued interest on all of the outstanding Notes immediately due and payable, and upon any such declaration all such amounts payable in respect of the Notes shall become immediately due and payable. If an Event of Default specified in clause (8) above occurs and is continuing, then the principal of, premium, if any, and accrued interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of Notes. At any time after a declaration of acceleration under the Indenture, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders of a majority in aggregate principal amount of the outstanding Notes, by written notice to us and the Trustee, may rescind such declaration and its consequences if (1) we have paid or deposited with the Trustee a sum sufficient to pay (a) all overdue interest on all outstanding Notes, (b) all unpaid principal of and premium, if any, on any outstanding Notes that have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, (c) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate borne by the Notes, (d) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the nonpayment of amounts of principal of, premium, if any, or interest on the Notes that has become due solely by such declaration of acceleration, have been cured or waived. No such rescission shall affect any subsequent default or impair any right consequent thereon. The holders of not less than a majority in aggregate principal amount of the outstanding Notes may, on behalf of the holders of all the Notes, waive any past defaults under the Indenture, except a default in the payment of the premium of, if any, or interest on any Note, or in respect 80 of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each Note outstanding. If a Default or an Event of Default occurs and is continuing and is known to the Trustee, the Trustee will mail to each holder of the Notes notice of the Default or Event of Default within 30 days after the occurrence thereof. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on any Notes, the Trustee may withhold the notice to the holders of such Notes if a committee of its trust officers in good faith determines that withholding the notice is in the interests of the holders of the Notes. We are required to furnish to the Trustee annual and quarterly statements as to our performance of our obligations under the Indenture and as to any default in such performance. We are also required to notify the Trustee within five business days of the occurrence of any Default. DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURE We are entitled, at our option and at any time, to have our obligations upon the Notes discharged with respect to the outstanding Notes ('defeasance'). Such defeasance means that we will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes and to have satisfied all of our other obligations under such Notes and the Indenture insofar as such notes are concerned, except for the rights of holders of outstanding Notes to receive payments in respect of the principal of (and premium, if any, on) and interest on such Notes when such payments are due, our obligations to issue temporary Notes, register the transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office or agency for payments in respect of the Notes and segregate and hold such payments in trust, the rights, powers, trusts, duties and immunities of the Trustee, and the defeasance provisions of the Indenture. In addition, we are entitled, at our option and at any time, to have our obligations released with respect to certain covenants set forth in the Indenture, and any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes ('covenant defeasance'). In order to exercise either defeasance or covenant defeasance, (1) we must irrevocably deposit or cause to be deposited with the Trustee, as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the holders of the Notes, cash in United States dollars, or U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, or a nationally recognized investment banking firm, to pay and discharge the principal of (and premium, if any, on) and interest on the outstanding Notes at Stated Maturity (or upon redemption, if applicable) of such principal, premium, if any, or installment of interest; (2) no Default or Event of Default with respect to the Notes will have occurred and be continuing on the date of such deposit or, insofar as an event of bankruptcy under clause (8) of ' -- Events of Default' above is concerned, at any time during the period ending on the 91st day after the date of such deposit; (3) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) to which we are a party or by which we are bound; (4) in the case of defeasance, we shall have delivered to the Trustee an opinion of counsel in the United States stating that we have received from, or there has been published by, the Internal Revenue Service a ruling, or since the date of this offering memorandum, there has been a change in applicable federal income tax law, in either case to the effect, and 81 based thereon such opinion shall confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (5) in the case of covenant defeasance, we shall have delivered to the Trustee an opinion of counsel in the United States to the effect that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (6) in the case of defeasance or covenant defeasance, we shall have delivered to the Trustee an opinion of counsel in the United States to the effect that after the 91st day following the deposit or after the date such opinion is delivered, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (7) we shall have delivered to the Trustee an officers' certificate stating that we did not make the deposit with the intent of preferring the holders of the Notes over our other creditors with the intent of hindering, delaying or defrauding our other creditors; and (8) we shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to either the defeasance or the covenant defeasance, as the case may be, have been complied with. SATISFACTION AND DISCHARGE The Indenture will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) and the Trustee, at our expense, will execute proper instruments acknowledging satisfaction and discharge of the Indenture when (1) either (a) all the Notes previously authenticated and delivered (other than destroyed, lost or stolen notes which have been replaced or paid and Notes for whose payment money has been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided for in the Indenture) have been delivered to the Trustee for cancellation or (b) all Notes not previously delivered to the Trustee for cancellation (i) have become due and payable, (ii) will become due and payable at their Stated Maturity within one year or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in our name, and at our expense, and we have irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount sufficient to pay and discharge the entire Indebtedness on such Notes not previously delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of such deposit (in the case of Notes which have become due and payable) or to the Stated Maturity or redemption date, as the case may be; (2) we have paid or caused to be paid all sums payable by us under the Indenture; and (3) we have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided in the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. 82 AMENDMENTS AND WAIVERS With certain exceptions, we and the Trustee may make modifications and amendments of the Indenture and the Collateral Documents with the consent of the holders of a majority in aggregate outstanding principal amount of the Notes; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Note affected thereby: (1) change the Stated Maturity of the principal of, or any installment of interest on, any Note, or reduce the principal thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change the coin or currency in which any Note or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment after the Stated Maturity thereof (or, in the case of redemption, on or after the redemption date); (2) reduce the percentage in principal amount of outstanding Notes, the consent of whose holders is required for any such modification or amendment or the consent of whose holders is required for any waiver of compliance with certain provisions of, or certain defaults and their consequences provided for under, the Indenture; (3) modify any provisions described under ' -- Amendments and Waivers' or ' -- Events of Default,' except to increase the percentage of principal amount of outstanding Notes required for such actions or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the holder of each outstanding Note; (4) amend, change or modify our obligation to make and consummate a Change of Control Offer in the event of a Change of Control or an Excess Proceeds Offer in connection with any Asset Sale or modify any of the provisions or definitions with respect thereto; or (5) make any change in any of the provisions of the Collateral Documents not authorized by the Indenture, which materially adversely affect the holders of the Notes. Notwithstanding the foregoing, without the consent of any holder of Notes, we and the Trustee are entitled to modify or amend the Indenture and the Collateral Documents: (1) to evidence the succession of another Person to the Company or any other obligor on the Notes, and the assumption by any such successor of the covenants of the Company or such obligor in the Indenture, the Collateral Documents and in the Notes in accordance with the ' -- Consolidation, Merger and Sale of Assets' covenant; (2) to add to the covenants of the Company or any other obligor upon the Notes for the benefit of the holders of the Notes or to surrender any right or power conferred upon the Company or any other obligor upon the Notes, as applicable, in the Indenture, the Collateral Documents or in the Notes; (3) to cure any ambiguity, or to correct or supplement any provision in the Indenture, the Collateral Documents or the Notes which may be defective or inconsistent with any other provision in the Indenture, the Collateral Documents or the Notes or make any other provisions with respect to matters or questions arising under the Indenture or the Notes; provided, however, that, in each case, such provisions shall not adversely affect the interest of the holders of such Notes; (4) to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act; (5) to add a guarantor of the Notes under the Indenture; (6) to evidence and provide the acceptance of the appointment of a successor Trustee under the Indenture; or (7) to mortgage, pledge, hypothecate or grant a security interest in favor of the Trustee for the benefit of the holders of the Notes as additional security for the payment and performance of our obligations under the Indenture, in any property or assets, including any of which are required to be mortgaged, pledged or hypothecated, or in which a security interest is required to be granted to the Trustee pursuant to the Indenture or otherwise. 83 The holders of a majority in aggregate principal amount of the Notes outstanding may waive compliance with certain restrictive covenants and provisions of the Indenture. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent Person would exercise under the circumstances in the conduct of such Person's own affairs. The Indenture and the provisions of the Trust Indenture Act incorporated by reference therein contain limitations on the rights of the Trustee thereunder, should it become one of our creditors, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest (as defined in the Trust Indenture Act) it must eliminate such conflict or resign. GOVERNING LAW The Indenture, the Notes and the Collateral Documents will be governed by, and construed in accordance with, the laws of the State of New York. CERTAIN DEFINITIONS 'Acquired Indebtedness' means Indebtedness of a Person (1) existing at the time such Person becomes a Restricted Subsidiary or (2) assumed in connection with the acquisition of assets from such Person, in each case, other than Indebtedness incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary or such acquisition; provided, however, that, for purposes of the 'Limitation on Indebtedness' covenant, such Indebtedness shall be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Restricted Subsidiary. 'Adjusted Consolidated Operating Cash Flow' means Consolidated Operating Cash Flow for the latest four fiscal quarters for which consolidated financial statements of Company are available, taken as a whole. For purposes of calculating 'Consolidated Operating Cash Flow' for any four fiscal quarter period for purposes of this definition, (1) all Restricted Subsidiaries of the Company on the date of the transaction giving rise to the need to calculate 'Adjusted Consolidated Operating Cash Flow' (the 'Transaction Date') shall be deemed to have been Restricted Subsidiaries at all times during such four fiscal quarter period and (2) any Unrestricted Subsidiary on the Transaction Date shall be deemed to have been an Unrestricted Subsidiary at all times during such four fiscal quarter period. In addition to and without limitation of the foregoing, for purposes of this definition, 'Consolidated Operating Cash Flow' shall be calculated after giving effect on a pro forma basis for the applicable four fiscal quarter period to, without duplication, (1) any Asset Sales or Asset Acquisitions (including any Asset Acquisition giving rise to the need to make such calculation as a result of the Company or a Restricted Subsidiary (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the period commencing on the first day of such four fiscal quarter period to and including the Transaction Date (the 'Reference Period'), as if such Asset Sale or Asset Acquisition occurred on the first day of the Reference Period and (2) any incurrence or repayment, retirement or permanent reduction of any Indebtedness of the Company or any Restricted Subsidiary during the Reference Period, as if such 84 incurrence, repayment, retirement or reduction occurred on the first day of the Reference Period. 'Affiliate' means, with respect to any specified Person, (1) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person or (2) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Voting Stock or any executive officer or director of any such specified Person or other Person or, with respect to any natural Person, any Person having a relationship with such Person by blood, marriage or adoption not more remote than first cousin. For the purposes of this definition, 'control,' when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms 'controlling' and 'controlled' have meanings correlative to the foregoing. 'Asset Acquisition' means (1) any capital contribution (by means of transfers of cash or other property to others or payments for property or services for the account or use of others, or otherwise) by the Company or any Restricted Subsidiary in any other Person, or any acquisition or purchase of Capital Stock of any other Person by the Company or any Restricted Subsidiary, in either case pursuant to which such Person shall become a Restricted Subsidiary or shall be merged with or into the Company or any Restricted Subsidiary or (2) any acquisition by the Company or any Restricted Subsidiary of the assets of any Person which constitute substantially all of an operating unit or line of business of such Person or which is otherwise outside of the ordinary course of business. 'Asset Sale' means any direct or indirect sale, conveyance, transfer or lease (that has the effect of a disposition and is not for security purposes) or other disposition (that is not for security purposes) to any Person other than the Company or a Restricted Subsidiary in one transaction or a series of related transactions, of (1) any Capital Stock of any Restricted Subsidiary, (2) any material license or other authorization of the Company or any Restricted Subsidiary, (3) any assets of the Company or any Restricted Subsidiary which constitute substantially all of an operating unit or line of business of the Company and the Restricted Subsidiaries or (4) any other property or asset of the Company or any Restricted Subsidiary outside of the ordinary course of business. For the purposes of this definition, the term 'Asset Sale' shall not include (1) any disposition of properties and assets of the Company that is governed by the provisions described under ' -- Consolidation, Merger and Sale of Assets' above, (2) sales of property or equipment that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any Restricted Subsidiary, as the case may be, (3) sales of accounts receivable by the Company for cash in an amount at least equal to the fair market value of such accounts receivable, (4) for purposes of the 'Limitation on Sale of Assets' covenant, any sale, conveyance, transfer, lease or other disposition of any property or asset, whether in one transaction or a series of related transactions, involving assets with a Fair Market Value not in excess of $250,000 in any twelve-month period and (5) sales of rights to the Company's transmissions outside the continental United States and outside the ordinary course of the Company's business if (a) after giving effect to such sale and for a six month period thereafter, the Company and the Restricted Subsidiaries shall 85 have no Indebtedness outstanding under any Bank Credit Agreement, (b) the consideration received by the Company for such sale is at least 80% cash or Cash Equivalents and (c) the proceeds of such sale are used by the Company for working capital or as provided in clause (1) or (2) of paragraph (b) of the 'Limitation on Sale of Assets' covenant. 'Attributable Indebtedness' means with respect to an operating lease included in any Sale and Leaseback Transaction at the time of determination, the present value (discounted at the interest rate implicit in the lease or, if not known, at the Company's incremental borrowing rate) of the obligations of the lessee of the property subject to such lease for rental payments during the remaining term of the lease included in such transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended, or until the earliest date on which the lessee may terminate such lease without penalty or upon payment of penalty (in which case the rental payments shall include such penalty), after excluding from such rental payments all amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water, utilities and similar charges. 'Average Life' means, as of the date of determination with respect to any Indebtedness, the quotient obtained by dividing (1) the sum of the products of (a) the number of years from the date of determination to the date or dates of each successive scheduled principal payment (including any sinking fund requirements) of such Indebtedness multiplied by (b) the amount of each such principal payment by (2) the sum of all such principal payments. 'Bank Credit Agreement' means any one or more credit agreements (which may include or consist of revolving credit agreements or similar arrangements) between the Company or any Restricted Subsidiary and one or more banks or other financial institutions providing financing for the business of the Company and its Restricted Subsidiaries. 'Board of Directors' means the Board of Directors of the Company or any duly authorized committee thereof. 'Bond Collateral' means (1) shares of Satellite CD Radio, Inc. or (2) any license owned by Satellite CD Radio, Inc. that is required to operate a CD Radio Business. 'Capital Stock' of any Person means any and all shares, interests, rights to purchase, warrants, options, participations, rights in or other equivalents (however designated) of such Person's capital stock or other equity participations, including partnership interests, whether general or limited, in such Person, including any Preferred Stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock, whether now outstanding or issued after the Issue Date. 'Capitalized Lease Obligation' of any Person means any obligation of such Person and its subsidiaries on a consolidated basis under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of the Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. 'Cash Equivalents' means (1) any evidence of Indebtedness with a maturity of 365 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (2) certificates of deposit or acceptances with a maturity of 365 days or less of any financial institution that is a member of the Federal Reserve System, in each case having combined capital and surplus and undivided profits of not less than $500 million; 86 (3) commercial paper with a maturity of 270 days or less issued by a corporation that is not an Affiliate of the Company and is organized under the laws of any state of the United States or the District of Columbia and rated at least A-1 by S&P or at least P-1 by Moody's; and (4) any money market mutual fund organized under the laws of the United States or any state thereof whose assets consist solely of cash or the foregoing instruments. 'CD Radio Assets' means all assets, rights, services and properties, whether tangible or intangible, used or intended for use in connection with a CD Radio Business, including satellites, terrestrial repeating stations, uplink facilities, musical libraries and other recorded programming, furniture, fixtures and equipment and telemetry, tracking, monitoring and control equipment. 'CD Radio Business' means the business of transmitting digital radio programming throughout the United States by satellite to be received by paying subscribers, including any business in which the Company was engaged on the date of the Indenture, and any business reasonably related thereto. 'Change of Control' means the occurrence of any of the following events: (1) any 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, is or becomes the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have 'beneficial ownership' of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total outstanding Voting Stock of the Company; (2) the Company consolidates with, or merges with or into another Person or conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with or merges with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (a) the outstanding Voting Stock of the Company is not converted or exchanged at all (except to the extent necessary to reflect a change in the jurisdiction of incorporation of the Company) or is converted into or exchanged for (i) Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation or (ii) Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation and cash, securities and other property (other than Capital Stock of the surviving entity) in an amount that could be paid by the Company as a Restricted Payment as described under the 'Limitation on Restricted Payments' covenant and (b) immediately after such transaction, no 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have 'beneficial ownership' of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total outstanding Voting Stock of the surviving or transferee corporation; (3) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election to such Board of Directors, or whose nomination for election by the stockholders of the Company, was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (4) the Company is liquidated or dissolved or a special resolution is passed by the stockholders of the Company approving the plan of liquidation or dissolution other than in a 87 transaction which complies with the provisions described under ' -- Consolidation, Merger and Sales of Assets.' 'Collateral Agent' means initially IBJ Whitehall and thereafter any successor Collateral Agent that is a financial institution in the State of New York selected by the Trustee, acting as the agent and designee of the Trustee pursuant to a Intercreditor Agreement, that (a) is a financial intermediary (not a clearing corporation) within the meaning of Section 8-313(4) of the Uniform Commercial Code from time to time in effect in the State of New York carrying on business in the State of New York, (b) issues (or whose parent issues) commercial paper or certificates of deposit rated as described in clause (c) of the definition of Cash Equivalents, (c) has combined capital and surplus and undivided profits of not less than $500,000,000 and (d) enters into a Intercreditor Agreement. 'Collateral Documents' means the Indenture, the Intercreditor Agreement, the Pledge Agreement and the Collateral Pledge Agreement. 'Collateral Pledge Agreement' means the Collateral Pledge and Security Agreement dated as of May 15, 1999 between the Company and the Trustee, governing the disbursement of funds from the Pledge Account. 'Common Stock' means, with respect to any Person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of such Person's common stock or ordinary shares, whether outstanding at the date of the Indenture or thereafter issued, and includes all series and classes of such common stock or ordinary shares. 'Consolidated Income Tax Expense' means, with respect to any period, the provision for United States corporation, local, foreign and other income taxes of the Company and the Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. 'Consolidated Interest Expense' means, for any period, without duplication, the sum of (1) the interest expense of the Company and the Restricted Subsidiaries for such period, including (a) amortization of original issue discount, (b) the net cost of Interest Rate Agreements (including amortization of discounts), (c) the interest portion of any deferred payment obligation, (d) accrued interest, (e) the consolidated amount of any interest capitalized by the Company and (f) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, plus (2) the interest component of Capitalized Lease Obligations of the Company and the Restricted Subsidiaries paid, accrued or scheduled to be paid or accrued during such period, in each case as determined on a consolidated basis in accordance with GAAP, plus (3) cash and non-cash dividends paid on Redeemable Capital Stock by the Company and any Restricted Subsidiary (to any Person other than the Company and any Restricted Subsidiary), in each case as determined on a consolidated basis in accordance with GAAP minus (4) to the extent included in the calculation of interest expense, the amortization of underwriting discounts and commissions and fees related to the issuance of the Units and the November 1997 offering of units (consisting of the Senior Discount Notes and warrants exercisable for Senior Discount Notes); 88 provided, however, that the Consolidated Interest Expense attributable to interest on any Indebtedness computed on a pro forma basis and (A) bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period and (B) which was not outstanding during the period for which the computation is being made but which bears, at the option of the Company, a fixed or floating rate of interest, shall be computed by applying, at the option of the Company, either the fixed or the floating rate. 'Consolidated Net Income' means, for any period, the consolidated net income (or loss) of the Company and all Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted by excluding, without duplication, (1) any net after-tax extraordinary gains or losses (less all fees and expenses relating thereto), (2) any net after-tax gains or losses (less all fees and expenses relating thereto) attributable to asset dispositions other than in the ordinary course of business, (3) the portion of net income (or loss) of any Person (other than the Company or a Restricted Subsidiary), including Unrestricted Subsidiaries, in which the Company or any Restricted Subsidiary has an ownership interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any Restricted Subsidiary in cash dividends or distributions during such period, (4) net income (or loss) of any Person combined with the Company or any Restricted Subsidiary on a 'pooling of interests' basis attributable to any period prior to the date of combination, (5) the net income of any Restricted Subsidiary, to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary is not at the date of determination permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary or its stockholders and (6) any non-cash items of the Company and any Restricted Subsidiary (including monetary corrections) increasing or decreasing Consolidated Net Income for such period (other than items that will result in the receipt or payment of cash). 'Consolidated Net Worth' means, at any date, the stockholders' equity of the Company or any Surviving Entity less the amount of such stockholders' equity attributable to Redeemable Capital Stock or treasury stock of the Company, such Surviving Entity and any Restricted Subsidiary, as determined on a consolidated basis in accordance with GAAP. 'Consolidated Operating Cash Flow' means, with respect to any period, the Consolidated Net Income of the Company and its Restricted Subsidiaries for such period increased by (in each case to the extent included in computing Consolidated Net Income) the sum of (1) the Consolidated Income Tax Expense of the Company and its Restricted Subsidiaries accrued according to GAAP for such period (other than taxes attributable to extraordinary, unusual or non-recurring gains or losses); (2) Consolidated Interest Expense for such period; (3) depreciation of the Company and its Restricted Subsidiaries for such period; and (4) amortization of the Company and its Restricted Subsidiaries for such period, including amortization of capitalized debt issuance costs for such period, all determined on a consolidated basis in accordance with GAAP. 'Cumulative Available Cash Flow' means, as at any date of determination, the positive cumulative Consolidated Operating Cash Flow realized during the period commencing on December 1, 1997 and ending on the last day of the most recent fiscal quarter immediately preceding the date of determination for which consolidated financial information of the Company is available or, if such cumulative Consolidated Operating Cash Flow for such period is negative, the negative amount by which cumulative Consolidated Operating Cash Flow is less than zero. 89 'Currency Agreement' means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement entered into by a Person that is designed to protect such Person against fluctuations in currency values. 'Default' means any event that after notice or passage of time or both would be an Event of Default. 'Disinterested Director' means, with respect to any transaction or series of transactions in respect of which the Board of Directors is required to deliver a resolution of the Board of Directors under the Indenture, a member of the Board of Directors who does not have any material direct or indirect financial interest in or with respect to such transaction or series of transactions. 'Equity Offering' means an underwritten primary public offering of Common Stock of the Company pursuant to an effective registration statement under the Securities Act or any offering or placement of Qualified Capital Stock of the Company, in each case resulting in gross proceeds equal to or greater than $50 million. 'Exchange Act' means the Securities Exchange Act of 1934, as amended. 'Fair Market Value' means, with respect to any asset or property, the sale value that would be obtained in an arm's length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. 'Generally Accepted Accounting Principles' or 'GAAP' means generally accepted accounting principles in the United States, consistently applied, that were in effect on November 26, 1997. 'guarantee' means, as applied to any obligation, (1) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (2) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including the payment of amounts drawn down by letters of credit. 'Indebtedness' means, with respect to any Person, without duplication, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (1) all liabilities of such Person for borrowed money (including overdrafts) or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities (including outstanding disbursements) incurred in the ordinary course of business (whether or not evidenced by a note), but including all obligations, contingent or otherwise, of such Person in connection with any letters of credit and acceptances issued under letter of credit facilities, acceptance facilities or other similar facilities, (2) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (3) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (4) all Capitalized Lease Obligations of such Person, (5) all Indebtedness referred to in (but not excluded from) the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or with respect to property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment 90 of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (6) all guarantees by such Person of Indebtedness referred to in this definition of any other Person, (7) all Redeemable Capital Stock of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends, (8) all obligations of such Person under or in respect of Interest Rate Agreements or Currency Agreements and (9) all Attributable Indebtedness of such Person. For purposes hereof, the 'maximum fixed repurchase price' of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Redeemable Capital Stock, such fair market value shall be determined in good faith by the board of directors of the issuer of such Redeemable Capital Stock. For purposes of the 'Limitation on Indebtedness' and 'Limitation on Restricted Payments' covenants and the definitions of 'Events of Default' and 'Permitted Indebtedness,' in determining the principal amount of any Indebtedness to be incurred by the Company or a Restricted Subsidiary or which is outstanding at any date, (x) the principal amount of any Indebtedness which provides that an amount less than the principal amount at maturity thereof shall be due upon any declaration of acceleration thereof shall be the accreted value thereof at the date of determination for purposes of determining the amount that would be payable thereon in the event of the occurrence of an event of default (or similar) event under such Indebtedness, (y) the sum of the principal amount of any Indebtedness at such date and the principal amount of any other Indebtedness outstanding at such date to the extent incurred to refinance such Indebtedness shall be reduced by an amount equal to the Fair Market Value, on the date of incurrence of such Indebtedness, of cash, Cash Equivalents or U.S. Government Obligations constituting the collateral securing such Indebtedness on a perfected basis, and dedicated for disbursement to the payment of principal of or interest on such Indebtedness and (z) effect shall be given to the impact of any Currency Agreement with respect to such Indebtedness. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability of any guarantees at such date; provided, however, that for purposes of calculating the amount of Senior Discount Notes outstanding at any date, the amount of Senior Discount Notes shall be the accreted value thereof as of such date, unless cash interest has commenced to accrue pursuant to the terms of the Senior Discount Notes and the Discount Notes Indenture, in which case the amount of such Senior Discount Notes outstanding at such date shall be the aggregate principal amount thereof at Stated Maturity; and provided further, however, that for purposes of calculating the amount of noninterest bearing or other discount security (other than the Senior Discount Notes), such Indebtedness shall be deemed to be the principal amount thereof that would be shown on the balance sheet of the Person dated such date prepared in accordance with GAAP but that such security shall be deemed to have been incurred only on the date of the original issuance thereof. 'Indenture' means the Indenture dated as of May 15, 1999 between the Company and the Trustee. 'Interest Rate Agreements' means any interest rate protection agreement and other types of interest rate hedging agreements or arrangements (including interest rate swaps, caps, floors, collars and similar agreements) designed to protect against or manage exposure to fluctuations in interest rates in respect of Indebtedness. 'Investment' means, with respect to any Person, any direct or indirect advance, loan or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any 91 purchase, acquisition or ownership by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued or owned by any other Person and all other items that would be classified as investments on a balance sheet prepared in accordance with GAAP. In addition, the Fair Market Value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be an 'Investment' made by the Company in such Unrestricted Subsidiary at such time. 'Investments' shall exclude extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. 'Issue Date' means the date on which the Notes are originally issued. 'LIBOR' means, on any date of determination, for purposes of calculating the effective annual interest rate on any Indebtedness referred to in clause (15) of the definition of Permitted Liens, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m, London time, as the rate for dollar deposits with a maturity comparable to such Indebtedness. 'Lien' means any mortgage, charge, pledge, lien (statutory or otherwise), privilege, security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind, real or personal, movable or immovable, now owned or hereafter acquired. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. 'Loral Satellite Contract' means the Amended and Restated Contract No. SS/L-TP93002-01, dated as of June 30, 1998, among the Company and Space Systems/Loral, Inc., as amended, modified or supplemented from time to time. 'Maturity' means, with respect to any Note, the date on which any principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity with respect to such principal or by declaration of acceleration, call for redemption or purchase or otherwise. 'Moody's' means Moody's Investors Service, Inc. and its successors. 'Net Cash Proceeds' means, (1) with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations or escrowed funds, but only when received in the form of, or stock or other assets when disposed for, cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary), net of (a) brokerage commissions and other fees and expenses (including fees and expenses of legal counsel, accountants, consultants and investment banks) related to such Asset Sale, (b) provisions for all taxes payable as a result of such Asset Sale, (c) payments made to retire Indebtedness where payment of such Indebtedness is secured by the assets or properties the subject of such Asset Sale or becomes due and payable as a result thereof, (d) amounts required to be paid to any Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale and (e) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the Company or any 92 Restricted Subsidiary, as the case may be, after such Asset Sale, including pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an officers' certificate delivered to the Trustee and (2) with respect to any capital contribution or issuance or sale of Capital Stock as referred to under the 'Limitation on Restricted Payments' covenant, the proceeds of such capital contribution, issuance or sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations when received in the form of, or stock or other assets when disposed for, cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary), net of attorney's fees, accountant's fees and brokerage, consulting, financial, advisory, underwriting and other fees and expenses actually incurred in connection with such capital contribution, issuance or sale and net of taxes paid or payable as a result thereof. 'Pari Passu Indebtedness' means Indebtedness of the Company that is pari passu in right of payment to the Notes. 'Permitted Holder' means Loral Space & Communications Ltd., and its successors. 'Permitted Indebtedness' means any of the following: (1) Pari Passu Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount which, when taken together with the then outstanding principal amount of (x) Pari Passu Indebtedness incurred pursuant to this clause (1), (y) the Notes and (z) any refinancing of such Pari Passu Indebtedness or the Notes pursuant to clause (11) below, does not exceed the sum of (a) $350 million and (b) an amount equal to 125% of Total Incremental Equity as of the date of such incurrence; (2) Indebtedness of the Company or any Restricted Subsidiary incurred pursuant to the Tranche A Credit Facility in an amount which, after giving effect to the incurrence thereof, the aggregate principal amount of Indebtedness incurred under this clause (2) and any refinancings thereof pursuant to clause (11) below and then outstanding, does not exceed $115 million; (3) Indebtedness of the Company pursuant to the Notes or of any Restricted Subsidiary pursuant to a guarantee of the Notes; (4) Indebtedness of the Company or any Restricted Subsidiary outstanding on the Issue Date, including amounts not yet advanced on the Issue Date but which the Company is entitled to defer or incur under the Loral Satellite Contract; (5) Indebtedness of the Company owing to any Restricted Subsidiary; provided, however, that any Indebtedness of the Company owing to any such Restricted Subsidiary is subordinated in right of payment to the Notes from and after such time as the Notes shall become due and payable (whether at Stated Maturity, acceleration or otherwise) to the payment and performance of the Company's obligations under the Notes; provided further, however, that any disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to the Company or another Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the Company not permitted by this clause (5); (6) Indebtedness of a Restricted Subsidiary owing to the Company or to a Restricted Subsidiary; provided, however, that any disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to the Company or a Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness by such Restricted Subsidiary not permitted by this clause (6); (7) obligations of the Company entered into in the ordinary course of business (a) pursuant to bona fide Interest Rate Agreements designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates in respect of 93 Indebtedness of the Company or any Restricted Subsidiary, which obligations do not exceed the aggregate principal amount of such Indebtedness, and (b) pursuant to bona fide Currency Agreements entered into by the Company or any of its Restricted Subsidiaries and designed to protect such Person against fluctuation in currency values in respect of its assets or obligations; (8) Capitalized Lease Obligations and Purchase Money Obligations of the Company, the aggregate value (in the case of Capitalized Lease Obligations) or principal amount (in the case of Purchase Money Obligations) of which (including any refinancings (as defined in clause (11) below) thereof) does not exceed $20 million at any one time outstanding; (9) unsecured Subordinated Indebtedness of the Company incurred to finance the operation of CD Radio Assets or the construction, expansion, development or acquisition of music libraries and other recorded music programming, furniture, fixtures and equipment if such Subordinated Indebtedness has an Average Life longer than the Average Life of the Notes and has a final Stated Maturity of principal later than the Stated Maturity of principal of the Notes; (10) in addition to the items referred to in clauses (1) through (9) above, Indebtedness of the Company having an aggregate principal amount not to exceed $15 million at any time outstanding; and (11) Indebtedness of the Company or any Restricted Subsidiary to the extent it represents a replacement, renewal, refinancing, refunding or extension of outstanding Indebtedness of the Company or any Restricted Subsidiary incurred or outstanding pursuant to clauses (1), (2), (3), (4), (8) and (9) of this definition or the proviso of the covenant 'Limitation on Indebtedness'; provided, however, that (i) Indebtedness of the Company may not be replaced, renewed, refinanced, refunded or extended to such extent under this clause (11) with Indebtedness of any Restricted Subsidiary and (ii) any such replacement, renewal, refinancing, refunding or extension (a) shall not result in a lower Average Life of such Indebtedness as compared with the Indebtedness being replaced, renewed, refinanced, refunded or extended, (b) shall not exceed the sum of the principal amount (or, (x) if such Indebtedness provides for a lesser amount to be due and payable upon a declaration of acceleration thereof, an amount no greater than such lesser amount or (y), in the case of Indebtedness the principal amount of which was calculated pursuant to clause (y) of the last paragraph of the definition of Indebtedness, the face amount of such Indebtedness) of the Indebtedness being replaced, renewed, refinanced, refunded or extended plus the amount of accrued interest thereon and the amount of any reasonably determined prepayment premium necessary to accomplish such replacement, renewal, refinancing, refunding or extension and the reasonable fees and expenses incurred in connection therewith, and (c) in the case of any replacement, renewal, refinancing, refunding or extension by the Company of Pari Passu Indebtedness, the Notes or Subordinated Indebtedness, such new Indebtedness is made pari passu with or subordinate to the Notes, at least to the same extent as the Indebtedness being replaced, renewed, refinanced, refunded or extended. 'Permitted Investments' means (1) Cash Equivalents; (2) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers' compensation, performance and other similar deposits; (3) loans and advances to employees made in the ordinary course of business; (4) Interest Rate Agreements and Currency Agreements; (5) bonds, notes, debentures or other securities received as a result of Asset Sales permitted under the 'Limitation on Sale of Assets' covenant; provided, however, that the 94 Company or the Restricted Subsidiaries, as the case may be, have received at least 80% of the aggregate consideration therefrom in cash or Cash Equivalents; (6) Investments by the Company or any Restricted Subsidiary in another Person, if as a result of such Investment (i) such other Person becomes a Restricted Subsidiary or (ii) such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to, the Company or a Restricted Subsidiary; (7) Investments in the Company or in any Restricted Subsidiary (8) investments in preferred stock of corporations (x) organized and validly existing under the laws of any state of the United States of America, (y) conducting business principally in the State of New York and (z) whose long term unsecured debt rating is rated one of the four highest rating categories by S&P, Moody's or another nationally recognized securities rating agency, in an aggregate amount not to exceed $35 million at any one time outstanding; and (9) investments not otherwise permitted by the foregoing clauses (1) through (8) in an amount not to exceed $5.0 million at any one time outstanding. 'Permitted Liens' means the following types of Liens: (1) Liens existing on the date of the Indenture; (2) Liens on Bond Collateral securing Pari Passu Indebtedness incurred pursuant to clause (1) of the definition of Permitted Indebtedness or any refinancing Indebtedness in respect thereof or of the Notes incurred pursuant to clause (11) of the definition of Permitted Indebtedness; provided, however, that such Lien shall be equal in priority to the Lien on the Bond Collateral securing the Notes; (3) Liens on any property or assets of a Restricted Subsidiary granted in favor of the Company or any other Restricted Subsidiary; (4) Liens securing the Notes; (5) Liens securing Acquired Indebtedness created prior to (and not in connection with or in contemplation of) the incurrence of such Indebtedness by the Company or any Restricted Subsidiary; provided, however, that such Lien does not extend to any property or assets of the Company or any Restricted Subsidiary other than the assets acquired in connection with the incurrence of such Acquired Indebtedness; (6) any interest or title of a lessor or a lender under any Capitalized Lease Obligation or any Purchase Money Obligation, in each case as permitted under clause (8) of the definition of 'Permitted Indebtedness'; provided, however, that such interest or title shall not extend to any property or assets other than the assets that are the subject of such Capitalized Lease Obligation or Purchase Money Obligation; (7) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business of the Company or any Restricted Subsidiary and with respect to amounts not yet delinquent or being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (8) Liens for taxes, assessments, government charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (9) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance bonds and other obligations of a like nature incurred in the ordinary course of business (other than contracts for the payment of money); 95 (10) easements, rights-of-way, encroachments and survey defects restrictions and other similar charges or encumbrances incurred in the ordinary course of business not interfering in any material respect with the business of the Company or any Restricted Subsidiary; (11) Liens arising by reason of any judgment, decree or order of any court or arbitration proceeding so long as such Lien is adequately bonded and any appropriate legal proceedings that may have been duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (12) Liens securing obligations of the Company under Interest Rate Agreements or Currency Agreements or any collateral (other than Bond Collateral) for the Indebtedness to which such Interest Rate Agreements or Currency Agreements relate; (13) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (14) Liens securing reimbursement obligations of the Company or any Restricted Subsidiary with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof so long as such Liens do not extend to Bond Collateral; (15) Liens on the satellites of the Company which are not one of the first three satellites, or on contractual rights to acquire such satellites, securing Indebtedness of the Company; provided, however, that such Indebtedness shall not be secured by Bond Collateral; provided further, however, that such Lien on the satellites of the Company which are not one of the first three satellites, or on contractual rights to acquire such satellites, may only secure up to $110 million of such Indebtedness (plus the interest thereon and other amounts payable in respect thereof) and such Indebtedness (a) shall not have an effective annual interest rate greater than LIBOR + 600 basis points and (b) by its terms does not entitle the holders of such Indebtedness to receive Common Stock or warrants exercisable for Common Stock in an amount greater than 2.25% of the Company's outstanding Common Stock on a fully diluted basis (after giving pro forma effect to such offering of Common Stock or warrants exercisable for Common Stock) and, in the event that such Indebtedness is in an amount less that $110 million, the provisions of clause (b) of the immediately preceding proviso shall be pro rated accordingly; (16) any extension, renewal or replacement, in whole or in part, of any Lien described in the foregoing clauses (1) and (3) through (14); provided, however, that any such extension, renewal or replacement shall be no more restrictive in any material respect than the Lien so extended, renewed or replaced and shall not extend to any additional property or assets; (17) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary with respect to obligations that do not exceed $5 million at any one time outstanding; and (18) Liens on cash, Cash Equivalents or U.S. Government Obligations securing Indebtedness up to the Fair Market Value, on the date of incurrence of such Indebtedness, of the cash, Cash Equivalents and U.S. Government Obligations constituting the collateral securing such Indebtedness on a perfected basis and dedicated for disbursement to the payment of principal and/or interest on such Indebtedness. 'Person' means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. 'Pledge Account' means an account established with the Trustee pursuant to the terms of the Collateral Pledge Agreement for the deposit of the Pledged Securities. 'Pledge Agreement' means the Amended and Restated Pledge Agreement dated as of May 15, 1999 among the Company, the Collateral Agent, the Trustee and the trustee for the Senior Discount Notes. 96 'Pledged Securities' means the U.S. Government Obligations purchased by the Company with a portion of the net proceeds from the Units offering to be deposited in the Pledge Account. 'Preferred Stock' means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's preferred or preference stock whether now outstanding, or issued after the Issue Date, and including all classes and series of preferred or preference stock of such Person. 'Purchase Money Obligations' means Indebtedness of the Company or any Restricted Subsidiary (1) issued to finance or refinance the purchase or construction of any assets of the Company or any Restricted Subsidiary, (2) issued to finance the construction of satellite dish antennas or radio adapters to receive the Company's services or (3) secured by a Lien on any assets of the Company or any Restricted Subsidiary where the lender's sole recourse is to the assets so encumbered, (a) in the case of clauses (1) or (3) above, to the extent the purchase or construction prices for such assets are or should be included in 'addition to property, plant or equipment' in accordance with GAAP and (b) in each case, if the purchase or construction of such assets is not part of any acquisition of a Person or business unit. 'Qualified Capital Stock' of any Person means any and all Capital Stock of such person other than Redeemable Capital Stock. 'Redeemable Capital Stock' means any class or series of Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is, or upon the happening of an event or passage of time would be, required to be redeemed prior to the final Stated Maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to such final Stated Maturity, or is convertible into or exchangeable for debt securities at any time prior to such final Stated Maturity; provided, however, that Redeemable Capital Stock shall not include any Common Stock the holder of which has a right to put to the Company upon certain terminations of employment; and provided further, however, that any class or series of Capital Stock that would not constitute Redeemable Capital Stock but for provisions thereof giving holders thereof the right to require the issuer of such Capital Stock to repurchase or redeem such Capital Stock upon the occurrence of an 'asset sale' or 'change of control' occurring prior to the final Stated Maturity of the Notes shall not constitute Redeemable Capital Stock if the 'asset sale' or 'change of control' provisions applicable to such class or series of Capital Stock are no more favorable to the holders of such Capital Stock in any material respect than the provisions of the 'Purchase of Notes Upon a Change of Control' and 'Limitation on Sale of Assets' covenants and such class or series of Capital Stock specifically provides that the issuer of such Capital Stock will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Notes as are required to be purchased pursuant to the 'Purchase of Notes Upon a Change of Control' or 'Limitation on Sale of Assets' covenant, as applicable. 'Restricted Subsidiary' means a Subsidiary other than an Unrestricted Subsidiary. 'S&P' means Standard and Poor's Ratings Group, a division of McGraw-Hill, Inc. and its successors. 'Sale and Leaseback Transaction' means an arrangement by the Company or a Restricted Subsidiary with any lender or investor or to which such lender or investor is a party providing for the leasing by the Company or such Restricted Subsidiary of any property or asset of the Company or such Restricted Subsidiary which has been or is being sold or transferred by the Company or such Restricted Subsidiary not more than 270 days after the acquisition thereof to such lender or investor or any Affiliate thereof or to any Person to whom funds have been or are to be advanced by such lender or investor or any Affiliate thereof on the security of such property or asset. 97 'Securities Act' means the Securities Act of 1933, as amended. 'Series C Preferred Stock' means the 10 1/2% Series C Convertible Preferred Stock of the Company. 'Stated Maturity' means, when used with respect to any Note or any installment of interest thereon, the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable, and, when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. 'Subordinated Indebtedness' means Indebtedness of the Company that is expressly subordinated in right of payment to the Notes. 'Subsidiary' means any Person a majority of the equity ownership or Voting Stock of which is at the time owned, directly or indirectly, by the Company or by one or more other Subsidiaries or by the Company and one or more other Subsidiaries. 'Total Consolidated Indebtedness' means, at any date of determination, an amount equal to the aggregate amount of all Indebtedness of the Company and the Restricted Subsidiaries outstanding as of the date of determination. 'Total Incremental Equity' means, at any date of determination, the sum of, without duplication, (1) the aggregate cash proceeds received by the Company after the Issue Date from the issuance or sale of Qualified Capital Stock of the Company (excluding any proceeds received from the issuance of the Company's 9.2% Series B Junior Cumulative Convertible Preferred Stock but including Capital Stock issued upon the conversion of convertible Indebtedness or from the exercise of options, warrants or rights to purchase Qualified Capital Stock of the Company) to any Person other than a Subsidiary; plus (2) an amount equal to the sum of (a) the net reduction in Investments in any Person (other than Permitted Investments) resulting from the payment in cash of dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary after the Issue Date from such Person and (b) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that in the case of (a) or (b) above, the foregoing sum shall not exceed the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary and that constitutes a Restricted Payment that has been deducted from Total Incremental Equity pursuant to clause (3) below; minus (3) the aggregate amount of all Restricted Payments declared or made on or after the Issue Date; and minus (4) the aggregate amount paid pursuant to clauses (1), (2), (3), (4), (6) and (8) of the second paragraph of the 'Limitation on Restricted Payments' covenant. 'Tranche A Credit Facility' means the term loan facility under the Credit Agreement, dated as of June 30, 1998, among the Company, Bank of America National Trust and Savings Association ('Bank of America') and other financial institutions from time to time parties thereto and Bank of America, as administrative agent, as the same may be amended, modified or supplemented from time to time. 'Trust Indenture Act' means the Trust Indenture Act of 1939, as amended. 'Unrestricted Subsidiary' means 98 (1) any Subsidiary that at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors, as provided below) and (2) any subsidiary of an Unrestricted Subsidiary; provided, however, that in no event shall any Person that is a Subsidiary on the Issue Date become an Unrestricted Subsidiary. The Board of Directors may designate any newly acquired or newly formed Subsidiary to be an Unrestricted Subsidiary so long as (1) neither the Company nor any Restricted Subsidiary is directly or indirectly liable for any Indebtedness of such Subsidiary, (2) no default with respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity, (3) neither the Company nor any Restricted Subsidiary has a contract, agreement, arrangement, understanding or obligation of any kind, whether written or oral, with such Subsidiary other than those that might be obtained at the time from persons who are not Affiliates of the Company and (4) neither the Company nor any Restricted Subsidiary has any obligation (a) to subscribe for additional shares of Capital Stock or other equity interests in such Subsidiary or (b) to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing a Board Resolution with the Trustee giving effect to such designation. The Board of Directors may designate any Unrestricted Subsidiary as a Restricted Subsidiary if immediately after giving effect to such designation, there would be no Default or Event of Default under the Indenture and the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the 'Limitation on Indebtedness' covenant. 'U.S. Government Obligations' means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. 'Voting Stock' means, with respect to any Person, any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). BOOK-ENTRY, DELIVERY AND FORM Except as described below, we will initially issue the exchange notes in the form of one or more registered exchange notes in global form without coupons. We will deposit each global note on the date of the closing of this exchange offer with, or on behalf of, The Depository Trust Company in New York, New York, and register the exchange notes in the name of The Depository Trust Company or its nominee, or will leave these notes in the custody of the Trustee. THE DEPOSITORY TRUST COMPANY'S PROCEDURES For your convenience, we are providing you with a description of the operations and procedures of The Depository Trust Company. The operations and procedures of The Depository Trust Company are solely within the control of its settlement system however and may change from time to time. We are not responsible for these operations and procedures and urge you to contact The Depository Trust Company or its participants directly to discuss these matters. 99 The Depository Trust Company has advised us that it is a limited-purpose trust company created to hold securities for its participating organizations and to facilitate the clearance and settlement of transactions in those securities between its participants through electronic book entry changes in the accounts of these participants. These direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and other organizations. Access to The Depository Trust Company's system is also indirectly available to other entities that clear through or maintain a direct or indirect, custodial relationship with a direct participant. The Depository Trust Company may hold securities beneficially owned by other persons only through its participants and the ownership interests and transfers of ownership interests of these other persons will be recorded only on the records of the participants and not on the records of The Depository Trust Company. The Depository Trust Company has also advised us that, in accordance with its procedures, (1) upon deposit of the global notes, it will credit the accounts of the direct participants with an interest in the global notes, and (2) it will maintain records of the ownership interests of these direct participants in the global notes and the transfer of ownership interests by and between direct participants. The Depository Trust Company will not maintain records of the ownership interests of, or the transfer of ownership interests by and between, indirect participants or other owners of beneficial interests in the global notes. Both direct and indirect participants must maintain their own records of ownership interests of, and the transfer of ownership interests by and between, indirect participants and other owners of beneficial interests in the global notes. Investors in the global notes may hold their interests in the notes directly through The Depository Trust Company if they are direct participants in The Depository Trust Company or indirectly through organizations that are direct participants in The Depository Trust Company. All interests in a global note may be subject to the procedures and requirements of The Depository Trust Company. The laws of some states require that some persons take physical delivery in definitive certificated form of the securities that they own. This may limit or curtail the ability to transfer beneficial interests in a global note to these persons. Because The Depository Trust Company can act only on behalf of direct participants, which in turn act on behalf of indirect participants and others, the ability of a person having a beneficial interest in a global note to pledge its interest to persons or entities that are not direct participants in The Depository Trust Company or to otherwise take actions in respect of its interest, may be affected by the lack of physical certificates evidencing the interests. Except as described below, owners of interests in the global notes will not have notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or holders of these notes under the indenture for any purpose. Payments with respect to the principal of and interest on any notes represented by a global note registered in the name of The Depository Trust Company or its nominee on the applicable record date will be payable by the trustee to or at the direction of The Depository Trust Company or its nominee in its capacity as the registered holder of the global note representing these notes under the indenture. Under the terms of the indenture, we and the trustee will treat the person in whose names the notes are registered, including notes represented by global notes, as the owners of the notes for the purpose of receiving payments and for any and all other purposes whatsoever. Payments in respect of the principal and interest on global notes registered in the name of The Depository Trust Company or its nominee will be payable by the Trustee to The Depository Trust Company or its nominee as the registered holder under the indenture. Consequently, none of CD Radio, the Trustee or any of our agents, or the trustee's agents has or will have any responsibility or liability for (1) any aspect of The Depository Trust Company's records or any direct or indirect participant's records relating to, or payments made on account of, beneficial ownership interests in the global notes or for maintaining, supervising or reviewing any of The Depository Trust Company's records or any direct or indirect participant's records relating to the 100 beneficial ownership interests in any global note or (2) any other matter relating to the actions and practices of The Depository Trust Company or any of its direct or indirect participants. The Depository Trust Company has advised us that its current practice, upon receipt of any payment in respect of securities such as the notes, including principal and interest, is to credit the accounts of the relevant participants with the payment on the payment date, in amounts proportionate to their respective holdings in the principal amount of beneficial interest in the security as shown on its records, unless it has reasons to believe that it will not receive payment on the payment date. Payments by the direct and indirect participants to the beneficial owners of interests in the global note will be governed by standing instructions and customary practice and will be the responsibility of the direct or indirect participants and will not be the responsibility of The Depository Trust Company, the Trustee or us. Neither CD Radio nor the Trustee will be liable for any delay by The Depository Trust Company or any direct or indirect participant in identifying the beneficial owners of the notes and CD Radio and the Trustee may conclusively rely on, and will be protected in relying on, instructions from The Depository Trust Company for all purposes, including with respect to the registration and delivery, and the respective principal amounts, of the notes. Transfers between participants in The Depository Trust Company will be effected in accordance with The Depository Trust Company's procedures, and will be settled in same day funds. The Depository Trust Company has advised us that it will take any action permitted to be taken by a holder of notes only at the direction of one or more participants to whose account The Depository Trust Company has credited the interests in the global notes and only in respect of the portion of the aggregate principal amount of the notes as to which the participant or participants has or have given that direction. However, if there is an event of default with respect to the notes, The Depository Trust Company reserves the right to exchange the global notes for legended notes in certificated form and to distribute them to its participants. Although The Depository Trust Company has agreed to these procedures to facilitate transfers of interests in the global notes among participants in The Depository Trust Company, it is under no obligation to perform or to continue to perform these procedures and may discontinue them at any time. None of CD Radio, the Trustee or any of our or the Trustee's respective agents will have any responsibility for the performance by The Depository Trust Company and its direct or indirect participants of their respective obligations under the rules and procedures governing their operations. EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES A global note will be exchangeable for definitive notes in registered certificated form if: (1) The Depository Trust Company notifies us that it is unwilling or unable to continue as depository for the global notes and we fail to appoint a successor depository within 90 days, (2) The Depository Trust Company ceases to be a clearing agency registered under the Exchange Act, (3) we elect to cause the issuance of the certificated notes upon a notice of the Trustee, (4) a default or event of default under the indenture for the notes has occurred and is continuing, or (5) a request to that effect is made but only upon prior written notice given to the Trustee by or on behalf of The Depository Trust Company in accordance with the indenture. In all cases, certificated notes delivered in exchange for any global note or beneficial interests in a global note will be registered in the name, and issued in any approved denominations, requested by or on behalf of The Depository Trust Company, in accordance with its customary procedures. 101 EXCHANGE OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES Initial notes issued in certificated form may be exchanged for beneficial interests in the global note. SAME DAY SETTLEMENT We expect that the interests in the global notes will be eligible to trade in The Depository Trust Company's Same-Day Funds Settlement System. As a result, secondary market trading activity in these interests will settle in immediately available funds, subject in all cases to the rules and procedures of The Depository Trust Company and its participants. We expect that secondary trading in any certificated notes will also be settled in immediately available funds. PAYMENT The indenture requires that payments in respect of the notes represented by global notes, including principal and interest, be made by wire transfer of immediately available funds to the accounts specified by the holder of the global notes. With respect to notes in certificated form, we will make all payments of principal and interest on the notes at our office or agency maintained for that purpose within the city and state of New York. This office will initially be the office of the paying agent maintained for that purpose. At our option however, we may make these installments of interest by (1) check mailed to the holders of notes at their respective addresses provided in the register of holder of notes or (2) transfer to an account located in the United States maintained by the payee. 102 DESCRIPTION OF OTHER INDEBTEDNESS 15% SENIOR SECURED DISCOUNT NOTES DUE 2007 The Senior Discount Notes were originally issued on November 27, 1997, will mature on December 1, 2007 and are secured by the Pledged Stock, which pledge ranks equally with the pledge of the stock to secure CD Radio's obligations in respect of the notes. The Senior Discount Notes accrue the original issue discount at a rate of 15% per annum until December 1, 2002, and thereafter will bear interest at the same rate, payable in cash semiannually in arrears. The Senior Discount Notes Indenture does not provide for a sinking fund. The Senior Discount Notes are not redeemable before December 1, 2002. Thereafter, the Senior Discount Notes are redeemable, in whole or in part, at our option, at the redemption prices described in the Senior Discount Notes Indenture, plus accrued interest to the applicable redemption date. Specifically, if redeemed during the 12-month period commencing on December 1 of the years shown below, the redemption price will be that amount, expressed as a percentage of the principal amount of the Senior Discount Notes, shown below:
REDEMPTION YEAR PRICE - ---- ----- 2002..................................................... 112.5% 2003..................................................... 110.0% 2004..................................................... 107.5% 2005..................................................... 105.0% 2006..................................................... 102.5%
If there is a Change of Control (as defined in the Senior Discount Notes Indenture) or asset sales in specific circumstances, we will be required by the terms of the Senior Discount Notes Indenture to make an offer to purchase the outstanding Senior Discount Notes at a purchase price equal to 101% of the accrued value of the Senior Discount Notes, plus accrued interest to the date of purchase. The indebtedness evidenced by the Senior Discount Notes ranks equally in right of payment with all of our other existing and future unsubordinated indebtedness (including the notes we are offering) and senior in right of payment to all of our existing and future obligations expressly subordinated in right of payment to the Senior Discount Notes. The Senior Discount Notes Indenture contains a number of covenants restricting our operations and the operations of our subsidiaries, including those restricting the incurrence of indebtedness; the making of restricted payments (in the form of the declaration or payment of some kinds of dividends or distributions, the purchase, redemption or other acquisition of any of our capital stock, the voluntary prepayment of equal or subordinated indebtedness and the making of some kinds of investments, loans and advances); transactions with affiliates; the issuance of liens; sale-leaseback transactions; the transfer of assets; issuances and sales of capital stock of subsidiaries; the issuance of guarantees by subsidiaries; dividend and other payment restrictions affecting subsidiaries; and consolidation, merger or sale of substantially all of our assets. The events of default under the Senior Discount Notes Indenture include provisions that are typical of senior debt financings, including a cross-acceleration to a default by CD Radio or any material subsidiary on any indebtedness that has an aggregate principal amount in excess of $5 million. Upon the occurrence of an event of default, the trustee or the holders of not less than 25% in principal amount at maturity of the outstanding Senior Discount Notes may immediately accelerate the maturity of all the Senior Discount Notes as provided in the Senior Discount Notes Indenture. VENDOR FINANCING Pursuant to the Tranche A Facility, Bank of America and other financial institutions have committed to provide us a term loan facility in the aggregate principal amount of up to $115 million. The proceeds of the loans are being used by us to fund a portion of the progress 103 payments required to be made under the Loral Satellite Contract for the purchase of launch services and to pay interest, fees and other expenses related to the Tranche A Facility. The loans are due on the earlier of February 29, 2000 and ten days before the launch of our second satellite and bear interest, at our option, at either (1) the London Interbank Offered Rate plus 1.75% or (2) the higher of (a) the rate publicly announced by Bank of America as its reference rate and (b) 0.50% per annum above the Federal Funds Rate then in effect. The loans are secured by the grant of a security interest in the portion of the Loral Satellite Contract relating to launch services. The Tranche A Facility also contains covenants relating to financial information, the conduct of our business, payments under the Loral Satellite Contract, maintenance of governmental and other approvals, maintenance of existence and qualifications, maintenance of books and records, maintenance of property and insurance, compliance with laws and notice of defaults. In addition, the terms of the Tranche A Facility require us to maintain a minimum net worth and sufficient cash. As of December 31, 1998, we had borrowed $70.9 million under the Tranche A Facility, substantially all of which was used to make progress payments under the Loral Satellite Contract. Loral assisted us in arranging the Tranche A Facility. Specifically, Loral has agreed that at maturity of the loans (including maturity as a result of an acceleration), upon the occurrence of a bankruptcy of CD Radio or upon the occurrence of an event of default by Loral Space under its agreement with Bank of America, Loral Space & Communications Ltd. will repurchase from Bank of America and the other Lenders the loans at a price equal the principal amount of the loans plus accrued and unpaid interest. In exchange for providing this credit support, we pay Loral Space & Communications Ltd. a fee equal to 1.25% per annum of the outstanding amount of the loans from time to time. We have also entered into an agreement with Bank of America under which Bank of America has agreed to attempt to arrange a syndicate of lenders to provide a term loan facility in the aggregate principal amount of $225 million. It is anticipated that a portion of the proceeds of these loans would be used on or before the earlier of February 29, 2000 and ten days before the launch of our second satellite to repay amounts outstanding under the Tranche A Facility and for other general corporate purposes. Bank of America has not committed to provide these loans and we cannot assure you that these loans will be arranged or the terms of any these loans will be acceptable to us. 104 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion summarizes some of the United States federal income tax consequences that may be relevant to the exchange of initial notes for exchange notes in accordance with the exchange offer, and the purchase of, ownership and disposition of the exchange notes. The discussion is intended only as a summary and does not purport to be a complete analysis or listing of all potential tax considerations that may be relevant to holders of exchange notes. The discussion does not include special rules that may apply to some holders (including insurance companies, tax-exempt organizations, financial institutions or broker-dealers, holders whose functional currency is not the United States dollar, and persons holding the notes as part of a 'straddle,' 'hedge,' 'constructive sale' or 'conversion transaction,' and investors who are not United States Persons), and does not address the tax consequences of the law of any state, locality or foreign jurisdiction. The discussion is based upon currently existing provisions of the Internal Revenue Code of 1986 (the 'Internal Revenue Code'), existing and proposed Treasury regulations under the Internal Revenue Code and current administrative rulings and court decisions. Everything listed in the previous sentence may change and any change could affect the continuing validity of this discussion. The discussion below assumes that the initial notes or exchange notes, as applicable, are held as capital assets within the meaning of Section 1221 of the Internal Revenue Code. As used in this prospectus, 'United States Person' means a beneficial owner of the notes who or that (1) is a citizen or resident of the United States, (2) is a corporation, partnership or other entity created or organized in or under the laws of the United States or political subdivision of the United States, (3) is an estate the income of which is subject to U.S. federal income taxation regardless of its source, (4) is a trust if (A) a U.S. court is able to exercise primary supervision over the administration of the trust and (B) one or more U.S. fiduciaries have authority to control all substantial decisions of the trust, or (5) is otherwise subject to U.S. federal income tax on a net income basis in respect of the notes. THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. THE TAX TREATMENT MAY VARY DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE EXCHANGE OFFER AND THE OWNERSHIP OF THE INITIAL NOTES OR THE EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. TAXATION OF HOLDERS ON EXCHANGE The exchange of initial notes for exchange notes in accordance with the exchange offer will not be treated as an exchange or otherwise as a taxable event to holders. Consequently, (1) no gain or loss will be realized by a holder upon receipt of an exchange note, (2) the holding period of the exchange note will include the holding period of the initial note exchanged for the exchange note and (3) the adjusted tax basis of the exchange note will be the same as the adjusted tax basis of the initial note exchanged for the exchange note immediately before the exchange. Further, the tax consequences of ownership and disposition of any exchange note should be the same as the tax consequences of ownership and disposition of an initial note. STATED INTEREST AND ORIGINAL ISSUE DISCOUNT A holder of an exchange note will be required (absent the election described below to treat all interest on the note as original issue discount ('OID') within the meaning of Section 1273(a) of the Internal Revenue Code) to report as income for U.S. federal income tax purposes the portion of the stated interest on the note that is 'qualified stated interest' ('QSI') in accordance with the holder's method of accounting for tax purposes. QSI on a note is the stated interest that is unconditionally payable at least annually at a single fixed rate. The exchange notes will have original issue discount for U.S. federal income tax purposes. The amount of original issue discount on an exchange note is the excess of its 'stated redemption price 105 at maturity' (the sum of all payments to be made on the note other than QSI, whether denominated as interest or principal) over its 'issue price.' Because the exchange notes are treated for federal income tax purposes as if they were the same as the initial notes, the amount of OID on an exchange note will be calculated as if the exchange note and the initial note were a single note that was issued at the time the initial note was issued, for an issue price equal to the issue price of the initial note, and any accrued OID on the initial note at the time of the exchange offer will carry over and be treated as accrued OID on the exchange notes. The issue price of each initial note is $843.09, which is the amount of the unit price that CD Radio allocated to the initial notes at the time of the issuance of the units. See ' -- The Units.' Each holder of exchange notes (whether a cash or accrual method taxpayer) will be required to include in income OID as it accrues, in advance of the receipt of some or all of the related cash payments. The amount of OID includable in income by the holder of an exchange note is the sum of the 'daily portions' of OID with respect to the note for each day during the taxable year or portion of the taxable year on which the holder held the note ('accrued OID'). The daily portion is determined by allocating to each day in any 'accrual period' a proportionate portion of the OID allocable to that accrual period. The accrual periods for a note will be periods that are each selected by the holder of the note that are no longer than one year, provided that each scheduled payment occurs either on the final day of an accrual period or on the first day of an accrual period. The amount of OID allocable to any accrual period other than the initial short accrual period (if any) and the final accrual period is an amount equal to the excess of (a) the product of the note's 'adjusted issue price' at the beginning of the accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) over (b) the sum of any payments of QSI allocable to the accrual period. The amount of OID allocable to the final accrual period is the difference between the amount payable at maturity (other than a payment of QSI) and the adjusted issue price of the note at the beginning of the final accrual period. The amount of OID allocable to any initial short accrual period may generally be computed under any reasonable method. The 'yield to maturity' is the discount rate that, when used in computing the present value of all payments to be made under the notes, produces an amount equal to the issue price of the notes. The 'adjusted issue price' of the note at the start of any accrual period is equal to its issue price increased by the accrued OID for each prior accrual period and reduced by any prior payments with respect to the note that were not QSI payments. We are required to report the amount of OID accrued on exchange notes held of record by persons other than corporations and other exempt holders of notes, which may be based on accrual periods other than those chosen by the holders of notes. A holder of a note, with some limitations, may elect to include in gross income for U.S. federal income tax purposes all interest that accrues on the note by using the constant yield method described above. For purposes of the election, interest includes all stated and unstated interest, acquisition discount, OID, de minimis OID, market discount, and de minimis market discount, as adjusted by any amortizable bond premium or acquisition premium (as discussed below). In applying the constant yield method to a note with respect to which an election is made, the issue price of the note will equal the electing holder's adjusted basis in the note immediately after its acquisition, the issue date of the note will be the date of its acquisition, and no payments on the note will be treated as payments of QSI. This election is generally applicable only to the note with respect to which it is made and may not be revoked without the consent of the Internal Revenue Service. This election, if made in respect of a market discount bond, will be treated as an election to include market discount in income currently on all market discount bonds held by the holder during or after the taxable year in which the note is acquired. See the discussion below under 'Market Discount.' If the election is made with respect to a note with amortizable bond premium, the holder will be deemed to have elected to apply amortizable bond premium against interest with respect to all debt instruments with amortizable bond premium held by the electing holder during or after the taxable year in which the note is acquired. See the discussion below under 'Acquisition Premium and Amortizable Bond Premium.' 106 The tax basis of an exchange note in the hands of the holder of the note will be increased by the amount of OID, if any, on the note that is included in the holder's income under these rules, and will be decreased by the amount of any payments (other than payments of QSI) made with respect to the note. Applicable High Yield Discount Obligation. If the exchange notes are treated as having 'significant original issue discount,' the notes will be subject to the applicable high yield discount obligation ('AHYDO') rules of the Internal Revenue Code. The notes will have 'significant original issue discount' if the amount includible in gross income of a holder for periods before the close of any accrual period ending after the date 5 years after the date of issue exceeds the sum of (1) the aggregate cash interest paid before the close of such accrual period and (2) the product of the issue price of the note and its yield to maturity. If the notes are determined to be subject to the AHYDO rules, our deductions with respect to original issue discount will be suspended until these amounts are actually paid, and the 'disqualified portion' of the original issue discount (defined as the portion that is attributable to the yield on such note in excess of the applicable federal rate plus 600 basis points) will be permanently nondeductible. These rules generally do not affect the amount, timing or character of a holder's income; however, domestic corporate holders may be eligible for a dividends-received deduction with respect to their inclusion in income of the 'disqualified portion' if this amount, if paid with respect to stock, would have been a dividend (i.e., would have been out of earnings and profits). The availability of the dividends-received deduction is subject to a number of complex limitations. Market Discount. If an exchange note is acquired by a subsequent purchaser at a 'market discount,' some or all of any gain realized upon a disposition (including a sale or a taxable exchange) or payment at maturity of the note may be treated as ordinary income. 'Market discount' with respect to a security is, subject to a de minimis exception, the excess of (1) the issue price of the security increased by all previously accrued original issue discount and probably reduced (although the Internal Revenue Code does not expressly so provide) by any cash payments in respect of the security over (2) the holder's initial tax basis in the security. The amount of market discount treated as having accrued will be determined either on a ratable basis, or, if the holder so elects, on a constant interest method. Upon any subsequent disposition (including a gift or payment at maturity) of the note (other than in connection with some nonrecognition transactions), the lesser of any gain on the disposition (or appreciation, in the case of a gift) or the portion of the market discount that accrued while the note was held by the holder will be treated as ordinary interest income at the time of the disposition. Instead of including accrued market discount in income at the time of disposition, a holder may elect to include market discount in income currently. Unless a holder so elects, the holder may be required to defer a portion of any interest expense that may otherwise be deductible on any indebtedness incurred or maintained to purchase or carry the note until the holder disposes of the note. The election to include market discount in income currently, once made, is irrevocable and applies to all market discount obligations acquired on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the Internal Revenue Service. Acquisition Premium. If a subsequent holder's tax basis in an exchange note (1) exceeds the adjusted issue price of the note, and (2) is less than or equal to the stated redemption price at maturity (reduced by any payments made on the note other than payments of QSI), the excess will be considered 'acquisition premium.' The holder is permitted to reduce the amount of OID required to be included in gross income by an amount equal to the OID otherwise includible multiplied by a fraction, the numerator of which is the amount of acquisition premium and the denominator of which is the excess of the sum of all amounts payable on the notes after the purchase date (other than QSI payments) over the adjusted issue price. Alternatively, a holder may elect to amortize acquisition premium on a constant yield basis, treating the holder's purchase price as the note's issue price. Bond Premium. If a subsequent holder's tax basis in an exchange note exceeds the sum of all amounts (other than QSI) payable on the note after the acquisition date, the excess would be treated as 'amortizable bond premium.' The holder may elect to amortize the excess over the 107 period from the acquisition date of the note to the maturity date. Amortizable bond premium allocable to a period may be offset against QSI on the related security to the extent QSI for the period exceeds the holder's yield for the period (the yield being the discount rate that, when used in computing the present value of all remaining payments to be made (including QSI), produces an amount equal to the holder's basis in the note). Additional amortizable premium for a period may be treated as a bond premium deduction to the extent that the holder's total interest inclusions on the note in prior periods exceed the total amount treated by the holder as a bond premium deduction on the note in prior periods. Any excess over the total interest inclusions is carried forward to the next accrual period. A holder that elects to amortize bond premium must reduce its adjusted basis in the note by the amount of allowable amortization. An election to amortize bond premium applies to the amortizable bond premium on all taxable bonds held during or after the holder's taxable year for which the election is made and may be revoked only with the consent of the Internal Revenue Service. Disposition of Notes. A holder of exchange notes will recognize gain or loss upon the sale, redemption, retirement or other disposition of notes; this gain or loss will generally be equal to the difference between (1) the amount of cash and the fair market value of property received and (2) the holder's adjusted tax basis (including any accrued OID or market discount previously included in income by the holder and reduced by any previous payments (other than payments of QSI) with respect to the notes and any amortizable bond premium applied to reduce interest on the notes). Subject to the market discount rules discussed above, gain or loss recognized will be capital gain or loss and will be long term capital gain or loss if the holder has held the notes (or is treated as having held the notes) for longer than one year. Net capital gains of individuals are subject to tax at lower rates than items of ordinary income. The deductibility of capital losses is subject to limitations. Reporting Requirements. We will provide annual information statements to holders of the exchange notes and to the Internal Revenue Service, setting forth the amount of original issue discount and QSI determined to be attributable to the notes for that year. BACKUP WITHHOLDING Under some circumstances, the failure of a holder of exchange notes to provide sufficient information to establish that the holder is exempt from the backup withholding provisions of the Internal Revenue Code will subject the holder to backup withholding at a rate of 31 percent on payments of principal and interest on the notes, and the proceeds from a disposition of the exchange notes. In general, backup withholding applies if a noncorporate holder fails to furnish a correct taxpayer identification number, fails to report dividend and interest income in full, or fails to certify that the holder has provided a correct taxpayer identification number and that the holder is not subject to withholding. An individual's taxpayer identification number is the individual's Social Security number. Any amount withheld from a payment to a holder under the backup withholding rules will be allowed as a credit against the holder's U.S. federal income tax liability and may entitle the holder to a refund, provided the required information is furnished to the Internal Revenue Service. THE ABOVE SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF EXCHANGE NOTES OR INITIAL NOTES IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF NOTES SHOULD CONSULT THEIR TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO THE HOLDER OF THE EXCHANGE OFFER AND THE OWNERSHIP OF THE INITIAL NOTES OR THE EXCHANGE NOTES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT REVISIONS OF THESE TAX LAWS. 108 PLAN OF DISTRIBUTION Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer in exchange for initial notes acquired by such broker-dealer as a result of market making or other trading activities may be deemed to be an 'underwriter' within the meaning of the Securities Act and, therefore, must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales, offers to resell or other transfers of the exchange notes received by it in connection with the exchange offer. Accordingly, each such broker-dealer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such exchange notes. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an 'underwriter' within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for initial notes where such initial notes were acquired as a result of market-making activities or other trading activities. We will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an 'underwriter' within the meaning of the Securities Act and any profit of any such resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an 'underwriter' within the meaning of the Securities Act. LEGAL MATTERS Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York, has passed upon specific legal matters, including specific tax matters, with respect to the notes. Certain regulatory matters arising under the Communications Act are being passed upon by Wiley, Rein & Fielding, Washington, D.C. EXPERTS Our consolidated financial statements as of December 31, 1997 and 1998, and for each of the three years in the period ended December 31, 1998, and for the period from May 17, 1990 (date of inception) to December 31, 1998, included in this prospectus have been so included in reliance on the report (which contains an explanatory paragraph relating to the Company's ability to continue as a going concern, as described in Note 2 to the financial statements) of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in accounting and auditing. WHERE YOU CAN OBTAIN ADDITIONAL AVAILABLE INFORMATION We file annual, quarterly and current reports, proxy statements and other information with the Commission. You may read and copy the materials we file with the Commission at the Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices in Chicago, Illinois and New York, New York. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference 109 rooms. The Commission also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file with the Commission, including us. The site's address is http://www.sec.gov. You can request copies of those documents, upon payment of a duplicating fee, by writing to the Commission. INCORPORATION BY REFERENCE The Commission allows us to 'incorporate by reference' in this prospectus other information we file with them, which means that we can disclose important information to you by referring you to those documents. This prospectus incorporates important business and financial information about us that is not included in or delivered with this prospectus. The information that we file later with the SEC will automatically update and supersede the information included in and incorporated by reference in this prospectus. We incorporate by reference the documents listed below and any future filings made with the Commission under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act until the expiration of this exchange offer. 1. Our Annual Report on Form 10-K for the year ended December 31, 1998, filed with the Commission on March 31, 1999, as amended by the amendment to it on Form 10-K/A filed with the Commission on April 30, 1999. 2. Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1999. 3. Our Current Reports on Form 8-K filed on February 4, 1999, April 9, 1999, April 16, 1999, May 3, 1999, May 25, 1999 and June 15, 1999. We have filed each of these documents with the Commission and they are available from the Commission's Internet site and public reference rooms described under 'Where You Can Obtain Additional Available Information' above. You may also request a copy of these filings, at no cost, by writing or calling us at the following address or telephone number: Patrick L. Donnelly Senior Vice President, General Counsel and Secretary CD Radio Inc. 1221 Avenue of the Americas New York, New York 10020 (212) 584-5100 110 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants........................... F-2 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1998 and for the period May 17, 1990 (date of inception) to December 31, 1998......................................... F-3 Consolidated Balance Sheets as of December 31, 1997 and 1998...................................................... F-4 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1998 and for the period May 17, 1990 (date of inception) to December 31, 1998......................................... F-5 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998 and for the period May 17, 1990 (date of inception) to December 31, 1998......................................... F-8 Notes to Consolidated Financial Statements.................. F-9
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders CD RADIO INC.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of CD Radio Inc. and subsidiary (a Development Stage Enterprise) (collectively, the 'Company') at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, and for the period May 17, 1990 (the date of inception) to December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is expected to incur significant operating losses before it commences operations and is obligated to make substantial capital expenditures through December 31, 1999 for which it currently does not have the financial resources. This raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. PRICEWATERHOUSECOOPERS LLP New York, New York February 5, 1999 F-2 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF OPERATIONS
CUMULATIVE FOR THE PERIOD MAY 17, 1990 FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION) ----------------------------------------- TO DECEMBER 31, 1996 1997 1998 1998 ----------- ------------ ------------ ------------------- Revenue.............................. $ -- $ -- $ -- $ -- Operating expenses: Legal, consulting and regulatory fees.......................... (1,582,000) (3,236,000) (4,064,000) (14,549,000) Other general and administrative................ (1,231,000) (3,572,000) (9,311,000) (20,416,000) Research and development........ (117,000) (57,000) (22,000) (1,995,000) Special charges................. -- -- (25,682,000) (27,682,000) ----------- ------------ ------------ ------------- Total operating expenses... (2,930,000) (6,865,000) (39,079,000) (64,642,000) ----------- ------------ ------------ ------------- Other income (expense): Interest and investment income........................ 112,000 4,074,000 7,250,000 11,652,000 Interest expense, net........... (13,000) (1,946,000) (14,272,000) (16,384,000) ----------- ------------ ------------ ------------- 99,000 2,128,000 (7,022,000) (4,732,000) ----------- ------------ ------------ ------------- Income (loss) before income taxes.... (2,831,000) (4,737,000) (46,101,000) (69,374,000) Income taxes: Federal......................... -- -- (1,982,000) (1,982,000) State........................... -- -- (313,000) (313,000) ----------- ------------ ------------ ------------- Net loss............................. (2,831,000) (4,737,000) (48,396,000) (71,669,000) ----------- ------------ ------------ ------------- Preferred stock dividend............. -- (2,338,000) (19,380,000) (21,718,000) Preferred stock deemed dividend...... -- (51,975,000) (11,676,000) (63,651,000) Accretion of dividends in connection with the issuance of warrants on preferred stock.................... -- -- (6,501,000) (6,501,000) ----------- ------------ ------------ ------------- Net loss applicable to common stockholders....................... $(2,831,000) $(59,050,000) $(85,953,000) $(163,539,000) ----------- ------------ ------------ ------------- ----------- ------------ ------------ ------------- Net loss per share applicable to common stockholders (basic and diluted)........................... $(0.29) $(5.08) $(4.79) ----------- ------------ ------------ ----------- ------------ ------------ Weighted average common shares outstanding (basic and diluted).... 9,642,000 11,626,000 17,932,000 ----------- ------------ ------------ ----------- ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- 1997 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents............................... $ 900,000 $204,753,000 Marketable securities, at market........................ 169,482,000 60,870,000 Prepaid expense and other............................... 928,000 166,000 ------------ ------------ Total current assets................................ 171,310,000 265,789,000 ------------ ------------ Property and equipment, at cost: Satellite construction in process....................... 49,400,000 188,849,000 Launch construction in process.......................... 10,885,000 87,492,000 Terrestrial repeater network in process................. -- 1,990,000 Broadcast studio in process............................. -- 5,168,000 Technical equipment and other........................... 389,000 156,000 ------------ ------------ 60,674,000 283,655,000 Less accumulated depreciation............................... (243,000) (21,000) ------------ ------------ 60,431,000 283,634,000 Other assets: FCC license............................................. 83,346,000 83,368,000 Debt issue cost, net.................................... 8,617,000 9,313,000 Deposits and other...................................... 104,000 1,776,000 ------------ ------------ Total other assets.................................. 92,067,000 94,457,000 ------------ ------------ Total assets........................................ $323,808,000 $643,880,000 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses................... $ 416,000 $ 5,481,000 Satellite construction payable.......................... -- 8,479,000 Short-term notes payable................................ -- 70,863,000 ------------ ------------ Total current liabilities........................... 416,000 84,823,000 Long-term notes payable and accrued interest................ 131,387,000 153,033,000 Deferred satellite payments and accrued interest............ -- 31,324,000 Deferred income taxes....................................... -- 2,237,000 ------------ ------------ Total liabilities................................... 131,803,000 271,417,000 ------------ ------------ Commitments and contingencies 10 1/2% Series C Convertible Preferred Stock, no par value: 2,025,000 shares authorized, 1,846,799 and 1,467,416 shares issued and outstanding at December 31, 1997 and 1998, respectively (liquidation preferences of $184,679,900 and $146,741,600), at net carrying value including accrued dividends............................... 176,025,000 156,755,000 9.2% Series A Junior Cumulative Convertible Preferred Stock, $.001 par value: 4,300,000 shares authorized, 1,350,000 shares issued and outstanding at December 31, 1998 (liquidation preference of $135,000,000), at net carrying value including accrued dividends......................... -- 137,755,000 9.2% Series B Junior Cumulative Convertible Preferred Stock, $.001 par value: 2,100,000 shares authorized, no shares issued or outstanding..................................... -- -- Stockholders' equity: Preferred stock, $.001 par value; 50,000,000 shares authorized 8,000,000 shares designated as 5% Delayed Convertible Preferred Stock; none issued or outstanding............................................ -- -- Common stock, $.001 par value; 200,000,000 shares authorized, and 16,048,691 and 23,208,949 shares issued and outstanding at December 31, 1997 and 1998, respectively........................................... 16,000 23,000 Additional paid-in capital.............................. 39,237,000 149,599,000 Deficit accumulated during the development stage........ (23,273,000) (71,669,000) ------------ ------------ Total stockholders' equity.......................... 15,980,000 77,953,000 ------------ ------------ Total liabilities and stockholders' equity.......... $323,808,000 $643,880,000 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK -------------------------------------------------------------------------- CLASS A CLASS A CLASS B CLASS B SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ ------ ------ Initial sale of no par value common stock, $5.00 per share, May 17, 1990........... 11,080 $ 55,000 -- $ -- -- $ -- Initial issuance of common stock in satisfaction of amount due to related party, $5.00 per share........ 28,920 145,000 -- -- -- -- Conversion of no par value common stock to Class A and Class B no par value common stock.................. (40,000) (200,000) 2,000,000 169,000 360,000 31,000 Sale of Class B common stock, $0.4165 per share.................. -- -- -- -- 442,000 184,000 Issuance of Class B common stock in satisfaction of amount due to related party, $0.4165 per share...... -- -- -- -- 24,000 10,000 Net loss................. -- -- -- -- -- -- --------- ---------- ---------- --------- ---------- ----------- Balance, December 31, 1990................... -- -- 2,000,000 169,000 826,000 225,000 DEFICIT DEFERRED ACCUMULATED COMPENSATION ADDITIONAL DURING THE ON STOCK PAID-IN DEVELOPMENT OPTIONS CAPITAL STAGE GRANTED TOTAL ------- ----- ------- ----- Initial sale of no par value common stock, $5.00 per share, May 17, 1990........... $ -- $ -- $ -- $ 55,000 Initial issuance of common stock in satisfaction of amount due to related party, $5.00 per share........ -- -- -- 145,000 Conversion of no par value common stock to Class A and Class B no par value common stock.................. -- -- -- -- Sale of Class B common stock, $0.4165 per share.................. -- -- -- 184,000 Issuance of Class B common stock in satisfaction of amount due to related party, $0.4165 per share...... -- -- -- 10,000 Net loss................. -- (839,000) -- (839,000) ---------- ----------- -------- ----------- Balance, December 31, 1990................... -- (839,000) -- (445,000)
COMMON STOCK -------------------------------------------------------------------------- CLASS A CLASS A CLASS B CLASS B SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ ------ ------ Sale of Class B common stock, $0.50 per share........ -- -- -- -- 610,000 305,000 Issuance of Class B common stock in satisfaction of amount due to related party, $0.50 per share........ -- -- -- -- 300,000 150,000 Net loss................. -- -- -- -- -- -- --------- ---------- ---------- --------- ---------- ----------- Balance, December 31, 1991................... -- -- 2,000,000 169,000 1,736,000 680,000 Sale of Class B common stock, $0.50 per share.................. -- -- -- -- 200,000 100,000 Issuance of Class B common stock in satisfaction of amount due to related party, $0.50 per share........ -- -- -- -- 209,580 105,000 Conversion of note payable to related party to Class B common stock, $0.4165......... -- -- -- -- 303,440 126,000 Conversion of Class A and Class B common stock to no par value common stock........... 4,449,020 1,180,000 (2,000,000) (169,000) (2,449,020) (1,011,000) DEFICIT DEFERRED ACCUMULATED COMPENSATION ADDITIONAL DURING THE ON STOCK PAID-IN DEVELOPMENT OPTIONS CAPITAL STAGE GRANTED TOTAL ------- ----- ------- ----- Sale of Class B common stock, $0.50 per share........ -- -- -- 305,000 Issuance of Class B common stock in satisfaction of amount due to related party, $0.50 per share........ -- -- -- 150,000 Net loss................. -- (575,000) -- (575,000) ---------- ----------- -------- ----------- Balance, December 31, 1991................... -- (1,414,000) -- (565,000) Sale of Class B common stock, $0.50 per share.................. -- -- -- 100,000 Issuance of Class B common stock in satisfaction of amount due to related party, $0.50 per share........ -- -- -- 105,000 Conversion of note payable to related party to Class B common stock, $0.4165......... -- -- -- 126,000 Conversion of Class A and Class B common stock to no par value common stock........... -- -- -- --
COMMON STOCK -------------------------------------------------------------------------- CLASS A CLASS A CLASS B CLASS B SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ ------ ------ Sale of no par value common stock, $1.25 per share.................. 1,600,000 2,000,000 -- -- -- -- Conversion of no par value common stock to $.001 par value common stock.................. -- (3,174,000) -- -- -- -- Sale of $.001 par value common stock, $5.00 per share.................. 315,000 -- -- -- -- -- Net loss................. -- -- -- -- -- -- --------- ---------- ---------- --------- ---------- ----------- Balance, December 31, 1992................... 6,364,020 6,000 -- -- -- -- Sale of $.001 par value common stock, $5.00 per share, net of commissions............ 1,029,000 1,000 -- -- -- -- Compensation expense in connection with issuance of stock options................ -- -- -- -- -- -- Common stock issued in connection with conversion of note payable at $5.00 per share.................. 60,000 -- -- -- -- -- Common stock issued in satisfaction of commissions payable, $5.00 per share........ 4,000 -- -- -- -- -- Net loss................. -- -- -- -- -- -- --------- ---------- ---------- --------- ---------- ----------- Balance, December 31, 1993................... 7,457,020 7,000 -- -- -- -- DEFICIT DEFERRED ACCUMULATED COMPENSATION ADDITIONAL DURING THE ON STOCK PAID-IN DEVELOPMENT OPTIONS CAPITAL STAGE GRANTED TOTAL ------- ----- ------- ----- Sale of no par value common stock, $1.25 per share.................. -- -- -- 2,000,000 Conversion of no par value common stock to $.001 par value common stock.................. 3,174,000 -- -- -- Sale of $.001 par value common stock, $5.00 per share.................. 1,575,000 -- -- 1,575,000 Net loss................. -- (1,551,000) -- (1,551,000) ---------- ----------- -------- ----------- Balance, December 31, 1992................... 4,749,000 (2,965,000) -- 1,790,000 Sale of $.001 par value common stock, $5.00 per share, net of commissions............ 4,882,000 -- -- 4,883,000 Compensation expense in connection with issuance of stock options................ 80,000 -- -- 80,000 Common stock issued in connection with conversion of note payable at $5.00 per share.................. 300,000 -- -- 300,000 Common stock issued in satisfaction of commissions payable, $5.00 per share........ 20,000 -- -- 20,000 Net loss................. -- (6,568,000) -- (6,568,000) ---------- ----------- -------- ----------- Balance, December 31, 1993................... 10,031,000 (9,533,000) -- 505,000
(continued) The accompanying notes are an integral part of these consolidated statements. F-5 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
COMMON STOCK ------------------------------------------------------------ CLASS A CLASS A CLASS B CLASS B SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ ------ ------ Sale of $.001 par value common stock, $5.00 per share, net of commissions............ 250,000 -- -- -- -- -- Initial public offering of Units, consisting of two shares of $.001 par value common stock and one warrant, $10.00 per Unit, net of expenses............... 1,491,940 2,000 -- -- -- -- Deferred compensation on stock options granted................ -- -- -- -- -- -- Forfeiture of stock options by Company officer................ -- -- -- -- -- -- Compensation expense in connection with issuance of stock options................ -- -- -- -- -- -- Amortization of deferred compensation........... -- -- -- -- -- -- Net loss................. -- -- -- -- -- -- ---------- ------- ----- ----- ----- ----- Balance, December 31, 1994................... 9,198,960 9,000 -- -- -- -- Common stock issued for services rendered, between $3.028 and $3.916 per share....... 107,000 -- -- -- -- -- Amortization of deferred compensation........... -- -- -- -- -- -- Net loss................. -- -- -- -- -- -- ---------- ------- ----- ----- ----- ----- Balance, December 31, 1995................... 9,305,960 9,000 -- -- -- -- Exercise of stock warrants at $6.00 per share.................. 791,931 1,000 -- -- -- -- Exercise of stock options by Company officers, between $1.00 and $5.00 per share.............. 135,000 -- -- -- -- -- Common stock issued for services rendered, between $5.76 and $12.26 per share....... 67,500 -- -- -- -- -- Common stock options granted for services rendered, to purchase 60,000 shares at $4.50 per share..... -- -- -- -- -- -- DEFICIT DEFERRED ACCUMULATED COMPENSATION ADDITIONAL DURING THE ON STOCK PAID-IN DEVELOPMENT OPTIONS CAPITAL STAGE GRANTED TOTAL ------- ----- ------- ----- Sale of $.001 par value common stock, $5.00 per share, net of commissions............ 1,159,000 -- -- 1,159,000 Initial public offering of Units, consisting of two shares of $.001 par value common stock and one warrant, $10.00 per Unit, net of expenses............... 4,834,000 -- -- 4,836,000 Deferred compensation on stock options granted................ 1,730,000 -- (1,730,000) -- Forfeiture of stock options by Company officer................ (207,000) -- 207,000 -- Compensation expense in connection with issuance of stock options................ 113,000 -- -- 113,000 Amortization of deferred compensation........... -- -- 883,000 883,000 Net loss................. -- (4,065,000) -- (4,065,000) ----------- ------------ ------------ ------------ Balance, December 31, 1994................... 17,660,000 (13,598,000) (640,000) 3,431,000 Common stock issued for services rendered, between $3.028 and $3.916 per share....... 347,000 -- -- 347,000 Amortization of deferred compensation........... -- -- 320,000 320,000 Net loss................. -- (2,107,000) -- (2,107,000) ----------- ------------ ------------ ------------ Balance, December 31, 1995................... 18,007,000 (15,705,000) (320,000) 1,991,000 Exercise of stock warrants at $6.00 per share.................. 4,588,000 -- -- 4,589,000 Exercise of stock options by Company officers, between $1.00 and $5.00 per share.............. 155,000 -- -- 155,000 Common stock issued for services rendered, between $5.76 and $12.26 per share....... 554,000 -- -- 554,000 Common stock options granted for services rendered, to purchase 60,000 shares at $4.50 per share..... 120,000 -- -- 120,000
COMMON STOCK -------------------------------------------------------------------------- CLASS A CLASS A CLASS B CLASS B SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ ------ ------ Amortization of deferred compensation........... -- -- -- -- -- -- Net loss................. -- -- -- -- -- -- ---------- ------- ----- ----- ----- ----- Balance, December 31, 1996................... 10,300,391 10,000 -- -- -- -- Exercise of stock options between $1.00 and $2.00 per share.............. 43,000 -- -- -- -- -- Value of beneficial conversion feature on 5% Preferred Stock..... Accretion of deemed dividend............... -- -- -- -- -- -- Sale of $.001 par value common stock, $13.12, net of expenses........ 1,905,488 2,000 -- -- -- -- Exchange of 5% Preferred Stock into 10 1/2% Preferred Stock........ -- -- -- -- -- -- Conversion of 5% Preferred Stock into $.001 par value common stock.................. 749,812 1,000 -- -- -- -- Public offering of $.001 par value common stock at $18.00 per share, net of expenses........ 3,050,000 3,000 -- -- -- -- Dividends on preferred stock.................. -- -- -- -- -- -- Issuance of fully vested in the money stock options................ -- -- -- -- -- -- Net loss................. -- -- -- -- -- -- ---------- ------- ----- ----- ----- ----- Balance, December 31, 1997................... 16,048,691 $16,000 -- $-- -- $-- DEFICIT DEFERRED ACCUMULATED COMPENSATION ADDITIONAL DURING THE ON STOCK PAID-IN DEVELOPMENT OPTIONS CAPITAL STAGE GRANTED TOTAL ------- ----- ------- ----- Amortization of deferred compensation........... -- -- 320,000 320,000 Net loss................. -- (2,831,000) -- (2,831,000) ----------- ------------ ------------ ------------ Balance, December 31, 1996................... 23,424,000 (18,536,000) -- 4,898,000 Exercise of stock options between $1.00 and $2.00 per share.............. 56,000 -- -- 56,000 Value of beneficial conversion feature on 5% Preferred Stock..... 51,975,000 -- -- 51,975,000 Accretion of deemed dividend............... (51,975,000) -- -- (51,975,000) Sale of $.001 par value common stock, $13.12, net of expenses........ 24,393,000 -- -- 24,395,000 Exchange of 5% Preferred Stock into 10 1/2% Preferred Stock........ (63,450,000) -- -- (63,450,000) Conversion of 5% Preferred Stock into $.001 par value common stock.................. 10,280,000 -- -- 10,281,000 Public offering of $.001 par value common stock at $18.00 per share, net of expenses........ 46,424,000 -- -- 46,427,000 Dividends on preferred stock.................. (2,338,000) -- -- (2,338,000) Issuance of fully vested in the money stock options................ 448,000 -- -- 448,000 Net loss................. -- (4,737,000) -- (4,737,000) ----------- ------------ ------------ ------------ Balance, December 31, 1997................... $39,237,000 $(23,273,000) $ -- $ 15,980,000
(continued) The accompanying notes are an integral part of these consolidated statements. F-6 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
COMMON STOCK ------------------------------------------------------------ CLASS A CLASS A CLASS B CLASS B SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ ------ ------ Sale of $.001 par value common stock, $20.00, net of expenses........ 5,000,000 5,000 -- -- -- -- Exercise of stock options between $2.00 and $4.50 per share.............. 44,850 -- -- -- -- -- Conversion of 10 1/2% Preferred Stock into $.001 par value common stock.................. 2,107,666 2,000 -- -- -- -- Issuance of $.001 par value common stock in connection with employee benefit plan................... 7,742 -- -- -- -- -- Compensation expense in connection with quick vesting of stock options................ -- -- -- -- -- -- Value of beneficial conversion feature on Series A Junior Preferred Stock........ -- -- -- -- -- -- Value of option on Series B Junior Preferred Stock.................. -- -- -- -- -- -- Accretion of deemed dividend............... -- -- -- -- -- -- Dividends on preferred stock.................. -- -- -- -- -- -- Net loss................. -- -- -- -- -- -- ---------- ------- ----- ----- ----- ----- Balance, December 31, 1998................... 23,208,949 $23,000 -- $-- -- $-- ---------- ------- ----- ----- ----- ----- ---------- ------- ----- ----- ----- ----- DEFICIT DEFERRED ACCUMULATED COMPENSATION ADDITIONAL DURING THE ON STOCK PAID-IN DEVELOPMENT OPTIONS CAPITAL STAGE GRANTED TOTAL ------- ----- ------- ----- Sale of $.001 par value common stock, $20.00, net of expenses........ 97,995,000 -- -- 98,000,000 Exercise of stock options between $2.00 and $4.50 per share.............. 140,000 -- -- 140,000 Conversion of 10 1/2% Preferred Stock into $.001 par value common stock.................. 37,654,000 -- -- 37,656,000 Issuance of $.001 par value common stock in connection with employee benefit plan................... 214,000 -- -- 214,000 Compensation expense in connection with quick vesting of stock options................ 950,000 -- -- 950,000 Value of beneficial conversion feature on Series A Junior Preferred Stock........ 10,884,000 -- -- 10,884,000 Value of option on Series B Junior Preferred Stock.................. (6,600,000) -- -- (6,600,000) Accretion of deemed dividend............... (11,495,000) -- -- (11,495,000) Dividends on preferred stock.................. (19,380,000) -- -- (19,380,000) Net loss................. -- (48,396,000) -- (48,396,000) ------------ ------------ --------- ------------ Balance, December 31, 1998................... $149,599,000 $(71,669,000) $ -- $ 77,953,000 ------------ ------------ --------- ------------ ------------ ------------ --------- ------------ The accompanying notes are an integral part of these consolidated statements.
F-7 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF CASH FLOWS
CUMULATIVE FOR THE PERIOD MAY 17, 1990 FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION) ------------------------------------------- TO DECEMBER 31, 1996 1997 1998 1998 ----------- ------------- ------------- ------------------- Cash flows from development stage activities: Net loss................................. $(2,831,000) $ (4,737,000) $ (48,396,000) $ (71,669,000) Adjustments to reconcile net loss to net cash provided by (used in) development stage activities: Depreciation expense................. 53,000 30,000 49,000 303,000 Amortization of debt issue costs..... -- 73,000 1,354,000 1,427,000 Unrealized (gain) loss on marketable securities......................... -- (624,000) 391,000 (233,000) (Gain) loss on disposal of assets.... -- -- 105,000 105,000 Special charges...................... -- -- 23,557,000 25,557,000 Accretion of note payable charged as interest expense................... -- 1,868,000 25,998,000 27,866,000 Sales (purchases) of marketable securities, net.................... -- (168,858,000) 108,221,000 (60,637,000) Compensation expense in connection with issuance of stock options..... 440,000 448,000 -- 2,284,000 Common stock issued for services rendered........................... 554,000 -- 150,000 1,052,000 Increase (decrease) in cash and cash equivalents resulting from changes in assets and liabilities: Prepaid expense and other............ (1,000) (919,000) 762,000 (166,000) Due to related party................. -- -- -- 351,000 Deposits and other assets............ -- -- (3,722,000) (4,026,000) Accounts payable and accrued expenses........................... 85,000 270,000 5,080,000 5,556,000 Accrued interest and other liabilities........................ (20,000) (21,000) (18,000) (4,000) Deferred taxes....................... -- -- 2,237,000 2,237,000 ----------- ------------- ------------- ------------- Net cash provided by (used in) development stage activities... (1,720,000) (172,470,000) 115,768,000 (69,997,000) ----------- ------------- ------------- ------------- Cash flows from investing activities: Purchase of FCC license.................. -- (83,346,000) (22,000) (83,368,000) Payments for satellite construction...... -- (49,300,000) (99,646,000) (148,946,000) Payments for launch services............. -- (6,292,000) (103,563,000) (109,855,000) Capital expenditures..................... -- (7,000) (7,301,000) (7,700,000) Acquisition of Sky-Highway Radio Corp.... -- -- -- (2,000,000) ----------- ------------- ------------- ------------- Net cash used in investing activities..................... -- (138,945,000) (210,532,000) (351,869,000) ----------- ------------- ------------- ------------- Cash flows from financing activities: Proceeds from issuance of notes payable................................ -- -- 70,863,000 70,863,000 Proceeds from issuance of common stock, net.................................... -- 70,822,000 98,064,000 183,443,000 Proceeds from issuance of preferred stock, net............................. -- 120,518,000 129,550,000 250,068,000 Proceeds from exercise of stock options and warrants........................... 4,744,000 56,000 140,000 4,940,000 Proceeds from issuance of promissory note and Units.............................. -- 116,335,000 -- 116,535,000 Proceeds from issuance of promissory notes to related parties............... -- -- -- 2,965,000 Repayment of promissory notes............ (240,000) -- -- (2,635,000) Loan from officer........................ -- -- -- 440,000 ----------- ------------- ------------- ------------- Net cash provided by financing activities..................... 4,504,000 307,731,000 298,617,000 626,619,000 ----------- ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents................................ 2,784,000 (3,684,000) 203,853,000 204,753,000 Cash and cash equivalents at the beginning of period..................................... 1,800,000 4,584,000 900,000 -- ----------- ------------- ------------- ------------- Cash and cash equivalents at the end of period..................................... $ 4,584,000 $ 900,000 $ 204,753,000 $ 204,753,000 ----------- ------------- ------------- ------------- ----------- ------------- ------------- ------------- Supplemental disclosure of cash flow information: Cash paid during the period for interest............................... $ 43,000 $ -- $ 2,383,000 $ 2,466,000 Cash paid during the period for taxes.... $ -- $ -- $ 58,000 $ 58,000 Supplemental disclosure of non-cash investing and financing activities: Deferred satellite payments, including accrued interest....................... $ -- $ -- $ 31,324,000 $ 31,324,000 Common stock issued in satisfaction of notes payable and amounts due to related parties, including accrued interest....................... $ -- $ -- $ -- $ 1,407,000 Exchange of 5% Preferred Stock for 10 1/2% Series C Preferred Stock....... $ -- $ 173,687,000 $ -- $ 173,687,000 Exchange of 10 1/2% Series C Preferred Stock for common stock................. $ -- $ -- $ 37,656,000 $ 37,656,000 Accrual of dividends on preferred stock.................................. $ -- $ 2,338,000 $ 19,380,000 $ 21,718,000
The accompanying notes are an integral part of these consolidated financial statements. F-8 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS CD Radio Inc. (the 'Company'), a Delaware corporation, is a pioneer in the development of a service for broadcasting digital quality music programming via satellites to subscribers' vehicles ('satellite radio'). The Company intends to focus exclusively on providing a consumer service, and anticipates that the equipment required to receive its broadcasting will be manufactured by consumer electronics manufacturers. In April 1997, the Company was the winning bidder in an FCC auction for one of two national satellite broadcast licenses with a winning bid of $83.3 million. The Company paid the bid amount during 1997 and was awarded an FCC license on October 10, 1997. 2. ACCOUNTING POLICIES Basis of presentation: The consolidated financial statements include the accounts of CD Radio Inc. and its wholly owned subsidiary. Intercompany transactions are eliminated in consolidation. The Company's principal activities to date have included technology development, obtaining regulatory approval for the CD Radio service, commencement of construction of three satellites, acquisition of content for its programming, strategic planning, market research, recruitment of its senior management team and securing financing for working capital and capital expenditures. Accordingly, the Company's financial statements are presented as those of a development stage enterprise, as prescribed by Statement of Financial Accounting Standards ('SFAS') No. 7, 'Accounting and Reporting by Development Stage Enterprises.' The Company's financial statements for the year ended December 31, 1998 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company expects to incur additional substantial expenditures to complete the construction of its satellite system, to plan and implement its service and to sustain its operations until it generates positive cash flow from operations. The Company's working capital at December 31, 1998 will not be sufficient to meet these objectives as presently structured. Management recognizes that it must generate additional resources or consider modifications to its programs to enable it to continue operations with its available resources. Management's plans to raise additional financing include the sale of debt or equity securities or a combination thereof. Management expects to complete the sale of such securities, however, no assurance can be given that such financings will be completed on terms acceptable to the Company. If the Company is unable to obtain additional financing, management will be required to sharply curtail its satellite program and to curtail its operations. The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Risks and uncertainties: As a development stage enterprise, the Company has a limited operating history and its prospects are subject to the risks, expenses and uncertainties frequently encountered by companies in new and rapidly evolving markets for satellite products and services. These risks include the failure of the Company to have: (1) a successful and timely construction and deployment of its satellite system; (2) the development and manufacture by one or more consumer electronics manufacturers of devices capable of receiving CD Radio broadcasts and antennas; and (3) the successful marketing and consumer acceptance of the Company's service, as well as other risks and uncertainties. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reported period. The estimates involve judgments with respect to, F-9 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) among other things, various future factors which are difficult to predict and are beyond the control of the Company. Actual amounts could differ from these estimates. Cash equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Concentration of credit risk: The Company has invested its excess cash in obligations of agencies of the U.S. government and in commercial paper issued by major U.S. corporations with high credit ratings. The Company has not experienced any losses on its investments. Property and equipment: All costs incurred related to activities necessary to prepare the CD Radio satellite system for use are capitalized, including interest on funds borrowed to finance construction. To date, such costs consist of satellite construction in process, launch construction in process, broadcast studio construction in process, terrestrial repeater network in process, capitalized interest (totaling $16.2 million at December 31, 1998) and the cost to acquire the FCC license at auction. Charges to operations for depreciation and amortization of these items will begin upon commencement of commercial broadcasting, which is projected to be in 2000. The Company anticipates that it will depreciate satellite and launch costs over a period not to exceed 15 years and amortize the FCC license costs over 40 years. Depreciation of technical and other equipment, primarily satellite communications equipment, is computed on the straight-line method based on estimated useful lives ranging from 4 to 10 years. Long-lived assets: The Company evaluates the recoverability of long-lived assets, utilizing qualitative and quantitative factors. At such time as an impairment in value is identified, the impairment, will be quantatively measured in accordance with SFAS No. 121, 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of,' and charged to operations. No such impairment losses have been recognized to date. Fair value information: The carrying amount of current assets and current liabilities approximates fair value because of the short maturity of these investments. The fair value of fixed-rate long-term debt and redeemable preferred stock is estimated using quoted market prices where applicable or by discounting remaining cash flows at the current market rate. Income taxes: Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the sum of tax payable for the period and the change during the period in deferred tax assets and liabilities. Redeemable convertible preferred stock: The Company records redeemable convertible preferred stock on the date of issuance by allocating a portion of the proceeds that represents a beneficial conversion feature to additional paid-in capital. The beneficial conversion feature (discount) is amortized using the effective interest method and is recognized as a deemed dividend over the shortest period of conversion. The carrying value of the stock accretes to its liquidation value over the mandatory redemption period. The periodic accretion increases the net loss applicable to common stockholders. Net loss per share: Effective December 31, 1997, the Company adopted SFAS No. 128, 'Earnings Per Share,' which requires the presentation of basic earnings (loss) per share and diluted earnings per share. Basic earnings (loss) per share is based on the weighted average number of outstanding shares of common stock. Diluted earnings per share adjusts the weighted average for the potential dilution that could occur if stock options, warrants or other convertible securities were exercised or converted into common stock. Diluted earnings (loss) per share is the F-10 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) same as basic earnings per share because the effects of such items were anti-dilutive. Earnings (loss) per share for all periods presented conform to SFAS No. 128. The following is a reconciliation of net loss per common share before preferred stock dividend requirements to net loss per share applicable to common stockholders:
FOR THE YEARS ENDED DECEMBER 31, ------------------------ 1996 1997 1998 ---- ---- ---- Per common shares (basic and diluted): Net loss.................................................. $(0.29) $(0.41) $(2.70) Preferred stock dividend requirements..................... -- (4.67) (1.73) Accretion of dividends in connection with the issuance of warrants on preferred stock............................. -- -- (0.36) ------ ------ ------ Net loss applicable to common stockholders................ $(0.29) $(5.08) $(4.79) ------ ------ ------ ------ ------ ------
Comprehensive income: In 1997, the Financial Accounting Standards Board ('the FASB') issued SFAS No. 130, 'Reporting Comprehensive Income.' SFAS No. 130 requires additional reporting with respect to certain changes in assets and liabilities that previously were included in stockholders' equity. Presently, the Company has no comprehensive income items to report. Recent accounting pronouncements: The FASB has issued SFAS No. 131, 'Disclosures about Segments of an Enterprise and Related Information,' which requires financial and descriptive information with respect to operating segments of an entity based on the way management disaggregates the entity for internal operating decisions. There is no impact to the Company's 1998 financial statements from the adoption of this standard. Reclassifications: Certain amounts in the prior year's financial statements have been reclassified to conform to the current presentation. 3. MARKETABLE SECURITIES Marketable securities consist of fixed income securities and are stated at market value. Marketable securities are defined as trading securities under the provision of SFAS No. 115, 'Accounting for Certain Investments in Debt and Equity Securities' and unrealized holding gains and losses are reflected in earnings. Unrealized holding gains were $624,000 and $232,000 at December 31, 1997 and 1998, respectively. 4. NOTES PAYABLE SHORT-TERM The Company has entered into a credit agreement with Bank of America ('BofA') and a group of financial institutions (together with BofA, the 'Lenders') pursuant to which the Lenders provide the Company a term loan facility in an aggregate principal amount of up to $115 million. The proceeds of the facility are being used to fund progress payments for the purchase of launch services and to pay interest, fees and other related expenses. The contract under which the launch vehicles are being constructed has been pledged to the Lenders as collateral. The terms of the credit agreement require the Company to maintain minimum levels of consolidated net worth and place limitations on asset disposals. The amounts advanced under the credit agreement are due on September 30, 1999 and bear interest at a variable rate selected by the Company. The weighted average borrowing rate for 1998 was 9%. Loral Space & Communications Ltd. ('Loral Space') has guaranteed the amounts outstanding under the credit agreement. F-11 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) LONG-TERM In November 1997, the Company received net proceeds of $116 million from the issuance of 12,910 units consisting of $20,000 principal amount at maturity of 15% Senior Secured Discount Notes due 2007 (the 'Notes') and a warrant to purchase an additional $3,000 principal amount at maturity of Notes for no additional consideration. All of the warrants were exercised in 1997. The aggregate maturity value of the Notes, including Notes issued upon the exercise of the warrants, is $297 million. The Notes mature on December 1, 2007 and the first cash interest payment is deferred until June 2003. Cash interest of $22.3 million will be due on each June 1 and December 1 of the remaining years of the Notes. The Indenture under which the Notes were issued contains various restrictive covenants, including a limitation on the amount of additional indebtedness that may be incurred by the Company. As of December 31, 1997 and 1998, the Company had accrued interest relating to the Notes of $1,869,000 and $27,867,000, respectively. At December 31, 1998, the Notes had a fair value of $157 million. The Notes are redeemable, at the option of the Company, in whole or in part, at any time on or after December 1, 2002, at specified redemption prices plus accrued interest, if any, to the date of redemption. The Notes are senior obligations of the Company and are secured by a lien on all of the issued and outstanding common stock of Satellite CD Radio, Inc. ('SCDR'). SCDR conducts no business activities and its only asset is the FCC license. The Company incurred $8.7 million of costs in connection with the issuance of the Notes. Debt issuance costs have been deferred and are amortized over the 10 year life of the Notes. Accumulated amortization of debt issuance costs was $73,000 and $952,000 at December 31, 1997 and 1998, respectively. 5. DEFERRED SATELLITE PAYMENTS Under an amended and restated contract (the 'Loral Satellite Contract') with Space Systems/Loral, Inc. ('SS/L'), SS/L has agreed to defer certain amounts due under the Loral Satellite Contract. The amounts deferred, which approximate fair value, bear interest at 10% per year and are due in quarterly installments beginning in June 2002. The Company has the right to prepay any deferred payments together with accrued interest, without penalty. 6. CAPITAL STOCK COMMON STOCK, PAR VALUE $.001 PER SHARE On September 29, 1994, the Company completed its initial public offering by issuing 1,491,940 shares of Common Stock for net proceeds of $4.8 million. On August 5, 1997, the Company sold 1.9 million shares of Common Stock to Loral Space for net proceeds of approximately $24.4 million. In November 1997, the Company issued 2.8 million shares of Common Stock for net proceeds of $42.2 million in a public offering. In December 1997, the Company issued an additional 250,000 shares, in connection with the partial exercise of an option granted to the underwriters of the public offering solely to cover overallotments, for net proceeds of $4.2 million. In November 1998, the Company issued 5 million shares of Common Stock to Prime 66 Partners, L.P. for net proceeds of $98 million. In 1995, the Company adopted the 1995 Stock Compensation Plan from which up to 175,000 shares of Common Stock could be issued in lieu of cash compensation to employees and or consultants. During 1995 and 1996, respectively, 107,000 and 67,500 shares of the Company's Common Stock were issued pursuant to this Plan. As of December 31, 1998, 33.4 million shares of Common Stock were reserved in connection with convertible preferred stock, warrants and incentive stock plans. F-12 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PREFERRED STOCK In April 1997, the Company completed a private placement of its 5% Delayed Convertible Preferred Stock (the '5% Preferred Stock'). The Company sold a total of 5.4 million shares of the 5% Preferred Stock for an aggregate sales price of $135 million. The 5% Preferred Stock was immediately convertible at a discount to the fair market value of Common Stock and accordingly, the Company recorded approximately $52 million as a deemed dividend in determining net loss attributable to common stockholders. In November 1997, the Company exchanged 1,846,799 shares of 10 1/2% Series C Convertible Preferred Stock (the '10 1/2% Preferred Stock') for all outstanding shares of its 5% Preferred Stock. Each share of 10 1/2% Preferred Stock is convertible into a number of shares of Common Stock calculated by dividing the $100 per share liquidation preference (the 'Liquidation Preference') by a conversion price of $18.00. This conversion price is subject to adjustment for certain corporate events. Any stockholder who converts the 10 1/2% Preferred Stock into Common Stock prior to November 15, 2002 will forfeit the right to any accrued and unpaid dividends. Dividends on the 10 1/2% Preferred Stock are cumulative from the date of issuance and payable, if declared by the Board of Directors, on a quarterly basis commencing on November 15, 2002. Dividends may be paid with cash or Common Stock at the option of the Company. Commencing November 15, 1999, the Company may redeem the 10 1/2% Preferred Stock at the Liquidation Preference plus any accrued and unpaid dividends, provided the price of the Company's Common Stock is at least $31.50 per share during a specified period. After November 15, 2002, the Company's right to redeem the 10 1/2% Preferred Stock is not restricted by the market price of its Common Stock. The Company is required to redeem all outstanding shares of 10 1/2% Preferred Stock on November 15, 2012 at a price equal to the Liquidation Preference plus any accrued and unpaid dividends. As of December 31, 1997 and 1998, the Company accrued dividends payable relating to the 10 1/2% Preferred Stock totaling $2,338,000 and $18,179,000, respectively. At December 31, 1998, the 10 1/2% Preferred Stock had a fair value of $279 million. On December 23, 1998, the Company and Apollo Investment Fund IV, L.P., a Delaware limited partnership ('AIF IV'), and Apollo Overseas Partners IV, L.P., a Cayman Islands limited partnership ('AOP IV' and, together with AIF IV, the 'Apollo Investors') completed a transaction pursuant to which the Company sold to the Apollo Investors 1,350,000 shares of its 9.2% Series A Junior Cumulative Convertible Preferred Stock, par value $.001 per share (the 'Series A Preferred Stock'), for an aggregate purchase price of $135 million. Each share of Series A Preferred Stock is convertible into a number of shares of Common Stock calculated by dividing the $100 per share liquidation preference (the 'Series A Liquidation Preference') by a conversion price of $30. This conversion price is subject to adjustment for certain corporate events. Dividends on the Series A Preferred Stock are payable annually commencing on November 15, 1999 and may be paid with cash or additional shares of Series A Preferred Stock, at the option of the Company. From and after November 15, 2001 and prior to November 15, 2003, the Company may redeem the Series A Preferred Stock at the Series A Liquidation Preference, plus any unpaid dividends, provided the price of the Common Stock is at least $60 per share during a specified period. From and after November 15, 2003, the Company's right to redeem the Series A Preferred Stock is not restricted by the market price of its Common Stock. The Company is required to redeem all outstanding shares of the Series A Preferred Stock at a price equal to the Series A Liquidation Preference plus any unpaid dividends on November 15, 2011. On the date of issuance, the Series A Preferred Stock was immediately convertible at a discount to the then fair market value of the Common Stock and, accordingly, the Company recorded approximately $11 million as a deemed dividend in net loss applicable to common stockholders. At December 31, 1998, the Series A Preferred Stock fair value approximates book value and accrued dividends payable relating to this stock totaled $1,565,000. F-13 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Apollo Investors have also granted the Company an option to sell the Apollo Investors an additional 650,000 shares of its 9.2% Series B Junior Cumulative Convertible Preferred Stock, par value $.001 per share (the 'Series B Preferred Stock'), for an aggregate purchase price of $65 million. The Company may exercise its option to require the Apollo Investors to purchase the Series B Preferred Stock at any time prior to September 23, 1999. The terms of the Series B Preferred Stock are similar to those of the Series A Preferred Stock. The Company recorded the value of the Series B Preferred Stock option at fair value and recorded approximately $180,000 of deemed dividends related primarily to the amortization of the value of the option. WARRANTS In connection with the Company's initial public offering in 1994, the Company issued warrants to purchase 745,970 shares of Common Stock. Additionally, the Company issued to the underwriters as consideration warrants to purchase 123,560 shares of the Company's Common Stock. In September 1996, the Company received proceeds of $4,589,000 relating to the exercise of 864,848 warrants and the remaining 4,682 warrants expired unexercised. Of the warrants exercised, 764,848 shares of Common Stock were issued in exchange for cash at a purchase price of $6.00 per share and 27,083 shares of Common Stock were issued in a cashless exercise of 100,000 warrants held by the underwriters. In connection with the November 1997 issuance of the 10 1/2% Preferred Stock, the Company granted to its investment advisor and certain related persons, in lieu of a warrant to purchase shares of 5% Preferred Stock, warrants to purchase an aggregate of 177,178 shares of 10 1/2% Preferred Stock at an initial exercise price of $68.47 per share. The exercise price of the warrants declines by approximately $0.12 per month to $60.24 per share on and after April 1, 2002. This warrant is convertible at a discount to the then fair market value of the Common Stock and accordingly, the Company will record, over the life of the warrant, $1.6 million as a deemed dividend in connection with the issuance of warrants on preferred stock. During 1998, the Company accreted dividends of $428,000 related to this warrant. In addition, the Company granted to an investor warrants to purchase 1,800,000 shares of common stock at $50 per share during the period from June 15, 1998 until June 15, 2005, subject to certain conditions. After June 15, 2000, the Company may redeem all of these warrants, provided that the price of its Common Stock is at least $75 per share during a specified period. During 1998, the Company accreted dividends of $6,073,000 related to these warrants. 7. EMPLOYEE BENEFIT PLANS STOCK OPTION PLANS In February 1994, the Company adopted its 1994 Stock Option Plan (the '1994 Plan') and its 1994 Directors' Nonqualified Stock Option Plan (the 'Directors' Plan'). Options granted under the 1994 Plan generally vest over a four-year period and generally are exercisable for a period of ten years from the date of grant. The aggregate number of shares of Common Stock available for issuance pursuant to the 1994 Plan and the Directors' Plan is 3,100,000. F-14 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of option activity under the 1994 Plan, the Directors' Plan and of all other option activity follows:
1994 PLAN DIRECTORS' PLAN OTHER --------------------- ------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTION PRICE PER OPTION PRICE PER OPTION PRICE PER SHARES SHARE SHARES SHARE SHARES SHARE ------ ----- ------ ----- ------ ----- Outstanding at December 31, 1995... 637,500 $ 3.61 105,000 $ 3.39 350,000 $4.00 Granted....................... 545,000 $ 8.10 40,000 $ 6.88 -- Exercised..................... (60,000) $ 1.00 (5,000) $ 1.00 (120,000) $1.00 Cancelled..................... -- -- -- --------- ------- -------- Outstanding at December 31, 1996... 1,122,500 $ 5.93 140,000 $ 4.47 230,000 $5.57 Granted....................... 515,000 $14.52 -- -- Exercised..................... (13,000) $ 2.00 -- (30,000) $1.00 Cancelled..................... (55,000) $ 5.98 -- -- --------- ------- -------- Outstanding at December 31, 1997... 1,569,500 $ 8.73 140,000 $ 4.47 200,000 $6.25 Granted....................... 559,500 $28.53 100,000 $25.88 -- Exercised..................... (19,850) $ 3.25 (25,000) $ 3.00 -- Cancelled..................... (70,625) $18.55 -- -- --------- ------- -------- Outstanding at December 31, 1998... 2,038,525 $13.35 215,000 $14.50 200,000 $6.25 --------- ------- -------- --------- ------- -------- Exercisable at December 31, 1998... 1,207,650 $ 6.56 188,334 $12.89 200,000 $6.25 --------- ------- -------- --------- ------- --------
1994 PLAN DIRECTORS' PLAN OTHER --------- --------------- ----- As of December 31, 1998: Range of exercise prices............................. $1.00 - $38.38 $ 2.13 - $25.88 $6.25 Weighted average remaining contractual life for options outstanding (years)........................ 8.11 7.99 4.39
The weighted average fair value of options granted during 1997 and 1998 was $4.37 and $18.22, respectively. As of December 31, 1998, 729,000 shares of Common Stock are available for grant pursuant to either the 1994 Plan or the Directors' Plan. The Company has adopted the disclosure-only provisions of SFAS No. 123 as they pertain to financial statement recognition of compensation expense attributable to option grants. If the Company had elected to recognize compensation cost for the option grants in accordance with SFAS No. 123, the Company's net loss and net loss per share (basic and diluted) on a pro-forma basis would have been:
1997 1998 ---- ---- Net loss -- as reported................................... $(4,737,000) $(48,396,000) Net loss -- pro-forma..................................... $(6,254,000) $(51,028,000) Net loss per share -- as reported......................... $ (0.41) $ (2.70) Net loss per share -- pro-forma........................... $ (0.54) $ (2.85)
F-15 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The pro-forma expense related to stock options is recognized over the vesting period, generally four years. The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions for each year:
1997 1998 ---- ---- Risk-free interest rate..................................... 6.11% 4.72% Expected life of options -- years........................... 3.11 4.36 Expected stock price volatility............................. 75% 75% Expected dividend yield..................................... N/A N/A
401(k) SAVINGS PLAN During 1998, the Company adopted the CD Radio 401(k) Savings Plan (the '401(k) Plan'). The 401(k) Plan allows eligible employees to contribute from 1% to 12% of their pretax pay subject to certain defined limits. Employees are 100% vested in their contributions at all times. In addition, the Company matches 100% of the employees' contribution, in the form of the Company's Common Stock. The Company matching contribution is 33 1/3% vested each year and is fully vested after three years of employment with the Company. Contribution expense to the 401(k) Plan was $104,000 in 1998. 8. INCOME TAXES The types of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts that give rise to the deferred tax assets and deferred tax liability are as follows:
DECEMBER 31, -------------------------- 1997 1998 ---- ---- Capitalized start-up costs................................ $ 7,919,000 $ 13,066,000 Accrual to cash adjustments............................... 316,000 6,427,000 Net operating loss carryforwards.......................... 335,000 6,205,000 Other..................................................... 656,000 (1,581,000) ----------- ------------ 9,226,000 24,117,000 Valuation allowance....................................... (9,226,000) (26,354,000) ----------- ------------ Net deferred tax liability................................ $ -- $ (2,237,000) ----------- ------------ ----------- ------------
Realization of deferred tax assets at the balance sheet date is dependent upon future earnings, which are uncertain. Accordingly, a full valuation allowance was recorded against the assets. At December 31, 1998, the Company has net operating loss carryforwards of approximately $15 million for federal and state income tax purposes available to offset future taxable income. The net operating loss carryforwards expire at various dates beginning 2008. There may be limitations on the annual utilization of these net operating losses as a result of certain changes in ownership that have occurred since the Company's inception. In addition, a significant portion of costs incurred have been capitalized for tax purposes as a result of the Company's status as a start-up enterprise. Total start-up costs as of December 31, 1998 are $32 million. Once the Company begins its active trade or business, these capitalized costs will be amortized over 60 months. The total deferred tax asset related to capitalized start-up costs of $13 million includes $169,000 which, when realized, would not affect financial statement income but will be recorded directly to stockholders' equity. F-16 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. SPECIAL CHARGES During 1998, the Company decided to enhance its satellite delivery system to include a third in-orbit satellite and to terminate certain launch and orbit related contracts. The Company recorded special charges totaling $25,682,000 related primarily to the termination of such contracts. 10. RELATED PARTIES Since inception, the Company has relied upon related parties for certain consulting, legal and management services. The Company has paid for these services with cash and with the issuance of Common Stock. Total cash expenses incurred in transactions with related parties during the years ended December 31, 1996, 1997 and 1998 and the period from May 17, 1990 (date of inception) to December 31, 1998 were $272,000, $279,000, $127,000 and $2,446,000, respectively. The Company has also issued Common Stock in lieu of cash in settlement of other related party liabilities. Total related party expenses settled with the issuance of Common Stock during the years ended December 31, 1996, 1997 and 1998 and the period from May 17, 1990 (date of inception) to December 31, 1998 were $554,000, $- , $- and $1,311,000, respectively. 11. LEASES AND RENTALS As of December 31, 1998, minimum rental commitments under operating leases were $4,467,000, $4,467,000, $4,467,000, $4,467,000 and $4,467,000 for 1999, 2000, 2001, 2002 and 2003, respectively. For the remaining years, such commitments totaled $52,052,000, aggregating total minimum lease payments of $74,387,000. Total rent expense for the years ended December 31, 1996, 1997 and 1998 and the period May 17, 1990 (date of inception) to December 31, 1998 was $302,000, $278,000, $1,985,000 and $3,468,000, respectively. 12. COMMITMENTS AND CONTINGENCIES SATELLITE CONSTRUCTION AND LAUNCH SERVICES To build and launch the satellites necessary for the operations of CD Radio, on July 28, 1998, the Company entered into the Loral Satellite Contract with SS/L. The Loral Satellite Contract provides for SS/L to construct, launch and deliver three satellites in-orbit and checked-out, to construct for the Company a fourth satellite for use as a ground spare and to become the Company's launch services provider. The Company is committed to make aggregate payments of approximately $718 million under the Loral Satellite Contract. Approximately half of these payments are contingent upon SS/L meeting specified milestones in the construction of the satellites. SS/L has agreed to defer $50 million total of payments due in 1999 and 2000 until 2002 and 2003. As of December 31, 1998, $221 million of this commitment has been satisfied. Future payments are due as follows: $218 million in 1999, $229 million in 2000, $25 million in 2002 and $25 million in 2003. In the event of a satellite or launch failure, the Company will be required to pay Loral the full-deferred amount for the affected satellite no later than 120 days after the date of the failure. If the Company should elect to put one of the first three satellites into ground storage, rather than having it shipped to the launch site, the full-deferred amount for the affected satellite will become due within 60 days of such election. F-17 CD RADIO INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INTEGRATED CIRCUITS During 1998, the Company signed an agreement with Lucent Technologies, Inc. ('Lucent') pursuant to which Lucent has agreed to use commercially reasonable efforts to deliver commercial quantities of integrated circuits ('chip sets'), which will be used in consumer electronic devices capable of receiving the Company's broadcasts, by December 1999. The Company agreed to pay Lucent the costs of the chip set development work totaling $9 million. On February 1, 1999, the Company and Lucent amended and restated this agreement due to the design and development of the chip sets requiring more engineering resources than originally estimated. Lucent will now use commercially reasonable efforts to deliver commercial quantities of chip sets by June 2000. The estimates of the development work in this amended contract total $27 million. F-18 ________________________________________________________________________________ [Logo] EXCHANGE OFFER FOR $200,000,000 OF ITS 14 1/2% SENIOR SECURED NOTES DUE 2009 --------------------------- PROSPECTUS , 1999 --------------------------- No person has been authorized to give any information or to make any representation other than those contained in this prospectus, and, if given or made, any information or representations must not be relied upon as having been authorized. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy any securities other than the securities to which it relates or an offer to sell or the solicitation of an offer to buy these securities in any circumstances in which this offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made under this prospectus shall, under any circumstances, create any implication that there has been no change in the affairs of CD Radio since the date of this prospectus or that the information contained in this prospectus is correct as of any time subsequent to its date. ________________________________________________________________________________ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law authorizes a corporation to indemnify its directors, officers, employees and agents against certain liabilities they may incur in such capacities, including liabilities under the Securities Act, provided they act in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation. The Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws require the Company to indemnify its officers and directors to the full extent permitted by Delaware law. Section 102 of the Delaware General Corporation Law authorizes a corporation to limit or eliminate its directors' liability to the corporation or its stockholders for monetary damages for breaches of fiduciary duties, other than for (i) breaches of the duty of loyalty, (ii) acts or omissions involving bad faith, intentional misconduct or knowing violations of the law, (iii) unlawful payments of dividends, stock purchases or redemptions, or (iv) transactions from which a director derives an improper personal benefit. The Company's Amended and Restated Certificate of Incorporation contains provisions limiting the liability of the directors to the Company and to its stockholders to the full extent permitted by Delaware law. Section 145 of the Delaware General Corporation Law authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against him and incurred by him or her in any such capacity, or arising out of his or her status as such. The Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws provide that the Company may, to the full extent permitted by law, purchase and maintain insurance on behalf of any director, officer, employee or agent of the Company against any liability that may be asserted against him or her and the Company currently maintains such insurance. The Company has acquired $10 million of liability insurance covering its directors and officers for claims asserted against them or incurred by them in such capacity, including claims brought under the Securities Act. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The Exhibit Index beginning on page E-1 is hereby incorporated by reference. ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes: (a) That, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-1 (c) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (d) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on July 2, 1999. CD RADIO INC. By /S/ ANDREW J. GREENEBAUM ......................... ANDREW J. GREENEBAUM SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER II-3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Andrew J. Greenebaum or Patrick L. Donnelly or either of them his true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments (including post-effective amendments) to this registration statement together with all schedules and exhibits thereto and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together with all schedules and exhibits thereto, (ii) act on, sign and file such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith, (iii) act on and file any supplement to any prospectus included in this registration statement or any such amendment or any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (iv) take any and all actions which may be necessary or appropriate in connection therewith, granting unto such agent, proxy and attorney-in-fact full power and authority to do and perform each and every act and thing necessary or appropriate to be done, as fully for all intents and purposes as he might or could do in person, hereby approving, ratifying and confirming all that such agents, proxies and attorneys-in-fact or any of their substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /S/ DAVID MARGOLESE Chairman and Chief Executive Officer July 2, 1999 ......................................... (Principal Executive Officer) DAVID MARGOLESE /S/ ANDREW J. GREENEBAUM Senior Vice President and Chief July 2, 1999 ......................................... Financial Officer (Principal ANDREW J. GREENEBAUM Financial Officer) /S/ JOHN T. MCCLAIN Vice President and Controller July 2, 1999 ......................................... (Principal Accounting Officer) JOHN T. MCCLAIN /S/ ROBERT D. BRISKMAN Director July 2, 1999 ......................................... ROBERT D. BRISKMAN /S/ LAWRENCE F. GILBERTI Director July 2, 1999 ......................................... LAWRENCE F. GILBERTI /S/ JOSEPH V. VITTORIA Director July 2, 1999 ......................................... JOSEPH V. VITTORIA /S/ RALPH V. WHITWORTH Director July 2, 1999 ......................................... RALPH V. WHITWORTH
II-4 EXHIBIT INDEX
EXHIBIT - ------- 4.1.1 -- Form of Certificate for Shares of Common Stock (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1 (File No. 33-74782)). 4.1.2 -- Rights Agreement, dated as of October 22, 1997, between the Company and Continental Stock Transfer & Trust Company, as rights agent (incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A, filed with the Commission on October 30, 1997 (the 'Form 8-A')). 4.1.3 -- Form of Certificate of Designations of Series B Preferred Stock (incorporated by reference to Exhibit A to Exhibit 1 to the Form 8-A). 4.1.4 -- Form of Right Certificate (incorporated by reference to Exhibit B to Exhibit 1 to the Form 8-A). 4.1.5 -- Amendment to the Rights Agreement, dated as of October 22, 1997, between the Company and Continental Stock Transfer & Trust Company, as rights agent, dated as of October 13, 1998 (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed on October 13, 1998). 4.1.6 -- Amendment to the Rights Agreement, dated as of October 22, 1997, between the Company and Continental Stock Transfer & Trust Company, as rights agent, dated as of November 13, 1998 (incorporated by reference to Exhibit 99.7 to the Company's Current Report on Form 8-K filed on November 17, 1998). 4.1.7 -- Amended and Restated Amendment to Rights Agreement, dated as of December 22, 1997, between the Company and Continental Stock Transfer & Trust Company, as rights agent, dated as of December 22, 1998 (incorporated by reference to Exhibit 6 to the Amendment No. 1 to the Form 8-A, filed with the Commission on January 6, 1999). 4.1.8* -- Amendment to the Rights Agreement, dated as of October 22, 1997, between the Company and Continental Stock Transfer & Trust Company, as rights agent, dated as of June 11, 1999. 4.1.9 -- Form of Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of 10 1/2% Series C Convertible Preferred Stock (the 'Series C Certificate of Designations') (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 (File No. 333-34761)). 4.1.10 -- Certificate of Correction to Series C Certificate of Designations (incorporated by reference to Exhibit 3.5.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998). 4.1.11 -- Certificate of Increase of 10 1/2% Series C Convertible Preferred Stock (incorporated by reference to Exhibit 3.5.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998). 4.1.12 -- Exhibit A to the Stock Purchase Agreement (Form of Certificate of Designation of the Series A Junior Preferred Stock) (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed on November 17, 1998). 4.1.13 -- Exhibit B to the Stock Purchase Agreement (Form of Certificate of Designation of the Series B Junior Preferred Stock) (incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K filed on November 17, 1998). 4.2.1 -- Indenture, dated as of November 26, 1997, between the Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3 (File No. 333-34769) (the '1997 Units Registration Statement')). 4.2.2 -- Form of Note (incorporated by reference to Exhibit 4.2 to the 1997 Units Registration Statement). 4.2.3 -- Warrant Agreement, dated as of November 26, 1997, between the Company and IBJ Schroder Bank & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.3 to the 1997 Units Registration Statement). 4.2.4 -- Form of Warrant (incorporated by reference to Exhibit 4.4 to the 1997 Units Registration Statement). 4.3.1 -- Form of Preferred Stock Warrant Agreement, dated as of April 9, 1997, between the Company and each warrantholder thereof (incorporated by reference to Exhibit 4.12 to the Company's 1997 Annual Report on Form 10-K (the '1997 Form 10-K')). 4.3.2 -- Form of Common Stock Purchase Warrant granted by the Company to Everest Capital Master Fund, L.P. and to The Ravich Revocable Trust of 1989 (incorporated by reference to Exhibit 4.11 to the 1997 Form 10-K). 4.4.1* -- Notes Registration Rights Agreement among CD Radio Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc., Bear, Stearns & Co. Inc., NationsBanc Montgomery Securities LLC, U.S. Bancorp Libra, dated as of May 13, 1999.
EXHIBIT - ------- 4.4.2* -- Indenture between the Company and United States Trust Company of New York, as trustee, dated as of May 15, 1999, regarding the Company's 14 1/2% Senior Secured Notes due 2009. 4.4.3* -- Form of the Company's 14 1/2% Senior Secured Notes due 2009 (included in Exhibit 4.4.2 to this Registration Statement). 4.4.4* -- Warrant Agreement between the Company and United States Trust Company of New York, as warrant agent, dated as of May 15, 1999. 4.4.5* -- Amended and Restated Pledge Agreement among the Company, as pledgor, IBJ Whitehall Bank & Trust Company, as trustee, United States Trust Company of New York, as trustee, and IBJ Whitehall Bank & Trust Company, as collateral agent, dated as of May 15, 1999. 4.4.6* -- Collateral Pledge and Security Agreement between the Company, as pledgor, and United States Trust Company of New York, as trustee, dated as of May 15, 1999. 4.4.7* -- Intercreditor Agreement, dated May 15, 1999, by and between IBJ Whitehall Bank & Trust Company, as trustee, and United States Trust Company of New York, as trustee. 4.5.1* -- Common Stock Purchase Warrant granted by the Company to Ford Motor Company, dated June 11, 1999. 5.1* -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re legality. 8.1* -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re tax matters. 12.1* -- Statement Regarding Computation of Ratios of Earnings to Fixed Charges. 23.1* -- Consent of PricewaterhouseCoopers LLP. 23.2* -- Consents of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1 and Exhibit 8.1). 23.3* -- Consent of Wiley, Rein & Fielding. 24.1* -- Power of Attorney (included on signature page). 25.1* -- Statement of Eligibility of United States Trust Company of New York, as trustee, on Form T-1 with respect to the Indenture between the Company and United States Trust Company of New York, as trustee, with respect to the Company's 14 1/2% Senior Secured Notes due 2009. 99.1* -- Form of Letter of Transmittal for Exchange Offer.
- ------------ * Filed with this prospectus. STATEMENT OF DIFFERENCES The section symbol shall be expressed as ........................'SS' EX-4 2 EXHIBIT 4.1.8 EXHIBIT 4.1.8 AMENDMENT TO RIGHTS AGREEMENT AMENDMENT, dated June 11, 1999 (this "Amendment"), by and between CD RADIO INC., a Delaware corporation (the "Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY (the "Rights Agent"). RECITALS WHEREAS, the Company and the Rights Agent are parties to a Rights Agreement, dated as of October 22, 1997 (as heretofore amended, the "Rights Agreement"); WHEREAS, the Company proposes to issue to Ford Motor Company ("Ford"), a warrant or warrants (the "Warrants") entitling Ford to purchase from the Company, on the terms and subject to conditions specified therein, up to an aggregate of 4,000,000 Common Shares (as such term is defined in the Rights Agreement); and WHEREAS, under the terms of the Rights Agreement, unless the Rights Agreement is amended, Ford would become an "Acquiring Person," as defined in Section 1(a) of the Rights Agreement, upon the acquisition of the Warrant; and WHEREAS, the Board of Directors of the Company deems it desirable and in the best interests of the Company and its stockholders to amend the Rights Agreement to exclude Ford and any of Ford's Affiliates and Associates who would otherwise be deemed Beneficial Owners (as defined in the Rights Agreement) as a result of such transaction from such definition of "Acquiring Person." Accordingly, the parties agree as follows: 2 1. AMENDMENT OF SECTION 1(a). The definition of "Acquiring Person" set forth in Section 1(a) of the Rights Agreement is amended by adding the following clause at the end of such definition: "; and provided, further, that Ford Motor Company, a Delaware corporation (hereinafter referred to as "Ford"), and any of the Affiliates or Associates of Ford that otherwise would be deemed to be Beneficial Owners of the Company's common stock purchase warrants issued on June 11, 1999 (collectively, the "Warrant") (such Affiliates and Associates, together with Ford, are hereinafter referred to as the "Ford Investors") shall not be, or be deemed to be, an Acquiring Person solely by reason of the issuance by the Company and the acquisition by Ford of the Warrant pursuant to Section 5.01 of the Agreement dated as of June 11, 1999 between the Company and Ford." 2. MISCELLANEOUS. This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state. This Amendment may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. If any provision, covenant or restriction of this Amendment is held by a court of competent jurisdiction or other authority to 3 be invalid, illegal or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Amendment shall remain in full force and effect and shall in no way be effected, impaired or invalidated. EXECUTED as of the date set forth above. CD RADIO INC. By: /s/ Patrick L. Donnelly -------------------------------------- Name: Patrick L. Donnelly Title: Executive Vice President, General Counsel and Secretary CONTINENTAL STOCK TRANSFER & TRUST COMPANY By: /s/ William F. Seegraber -------------------------------------- Name: William F. Seegraber Title: Vice President EX-4 3 EXHIBIT 4.4.1 EXHIBIT 4.4.1 EXECUTION COPY ================================================================================ NOTES REGISTRATION RIGHTS AGREEMENT among CD RADIO INC. and MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED LEHMAN BROTHERS INC. BEAR, STEARNS & CO. INC. NATIONSBANC MONTGOMERY SECURITIES LLC U.S. BANCORP LIBRA The Initial Purchasers Dated as of May 13, 1999 ================================================================================ THIS NOTES REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of May 13, 1999, by and among CD Radio Inc., a Delaware corporation (the "Company"), and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers Inc., Bear, Stearns & Co. Inc., NationsBanc Montgomery Securities LLC and U.S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc. (collectively, the "Initial Purchasers"). WHEREAS, this Agreement is made pursuant to the Purchase Agreement dated as of May 13, 1999 among the Company and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Initial Purchasers of 200,000 units (the "Units" or the "Securities"), each Unit consisting of $1,000 principal amount of the Company's 14-1/2% Senior Secured Notes due 2009 (the "Notes") and three warrants (collectively, the "Warrants"), each Warrant entitling the holder thereof to purchase 3.65 shares of common stock, par value $0.001 per share (the "Common Stock"), of the Company. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide to the Initial Purchasers and their direct and indirect transferees and assigns the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing of the transactions contemplated by the Purchase Agreement. NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows: Article I Definitions As used in this Agreement, the defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, and the rules and regulations of the SEC promulgated thereunder. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations of the SEC promulgated thereunder. 2 "Agreement" shall have the meaning set forth in the first introductory paragraph hereto. "Closing Time" shall mean the Closing Time as defined in the Purchase Agreement. "Company" shall have the meaning set forth in the first introductory paragraph hereto and also includes the Company's successors. "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Company; provided, however, that any such depositary must have an address in the City of New York. "Exchange Notes" shall mean the 14-1/2% Senior Secured Notes due 2009 issued by the Company under the Indenture containing terms identical to the Notes (except that (a) interest thereon shall accrue from the last date on which interest was paid on the Notes or, if no such interest has been paid, from May 15, 1999, (b) the transfer restrictions thereon shall be eliminated and (c) certain provisions relating to payment of additional interest thereon shall be eliminated) to be offered to Holders of Notes in exchange for Notes pursuant to the Exchange Offer. "Exchange Offer" shall mean the exchange offer by the Company of Exchange Notes for Notes pursuant to Article II(a) hereof. "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to Article II(a) hereof. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Holder" or "Holders" shall mean the Initial Purchasers, for so long as they own any Registrable Notes, and each of their successors, assigns and direct and indirect transferees who become registered owners of Registrable Notes under the Indenture. "Indenture" shall mean the Indenture pursuant to which the Notes are being issued, dated as of May 15, 1999, between the Company and United States Trust Company of New 3 York, as trustee, as the same may be amended or supplemented from time to time in accordance with the terms thereof. "Initial Purchasers" shall have the meaning set forth in the first introductory paragraph hereto. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of Registrable Notes outstanding; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by the Company or any of its affiliates (as such term is defined in Rule 405 under the 1933 Act) (other than the Initial Purchasers or subsequent holders of Registrable Notes if such subsequent holders are deemed to be such affiliates solely by reason of their holding of such Registrable Notes or other non-voting securities issued by the Company) shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage or amount. "Notes" shall have the meaning set forth in the second introductory paragraph hereto. "Person" shall mean an individual, trustee, partnership, limited liability company, corporation, trust, unincorporated organization, a government or agency or political subdivision thereof or other legal entity. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Notes covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein (it being understood that filings made pursuant to the 1934 Act which become incorporated by reference in a prospectus do not constitute amendments or supplements to such prospectus that would require redistribution to the selling Holders). "Purchase Agreement" shall have the meaning set forth in the second introductory paragraph hereto. "Registrable Notes" shall mean the Notes; provided, however, that the Notes shall cease to be Registrable Notes when (a) a Registration Statement with respect to such Notes shall have been declared effective 4 under the 1933 Act and such Notes shall have been disposed of pursuant to such Registration Statement, (b) such Notes shall have been sold to the public pursuant to Rule 144 (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (c) such Notes shall have ceased to be outstanding or (d) such Notes have been exchanged for Exchange Notes upon consummation of the Exchange Offer. "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including: (a) all SEC, stock exchange or National Association of Securities Dealers, Inc. ("NASD") registration and filing fees; (b) all fees and expenses incurred in connection with compliance with state or other securities or blue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of one counsel for any underwriters and Holders in connection with state or other securities or blue sky qualification of any of the Exchange Notes or Registrable Notes); (c) all expenses of any Persons in preparing, or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements, certificates representing the Exchange Notes and other documents relating to the performance of and compliance with this Agreement; (d) all rating agency fees, if any, (e) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Notes on any securities exchange or exchanges; (f) all fees and disbursements relating to the qualification of the Indenture under applicable securities laws; (g) the fees and disbursements of counsel for the Company and its subsidiaries and, in the case of a Shelf Registration Statement, the reasonable fees and disbursements (including the expenses of preparing and distributing any underwriting or securities sales agreement) of one counsel for the Holders (which counsel shall be selected in writing by the Majority Holders); (h) the fees and expenses of the independent public accountants of the Company and any of its subsidiaries, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance; (i) the fees and expenses of a "qualified independent underwriter" as defined by Conduct Rule 2720 of the NASD, if required by the NASD rules, in connection with the offering of the Registrable Notes; (j) the fees and expenses of the Trustee, including its counsel, and any escrow agent or custodian; and (k) any fees and disbursements (including any advertising expenses) of the underwriters customarily required to be paid by issuers or sellers of securities and the reasonable fees and expenses of any experts retained by 5 the Company in connection with any Registration Statement, but excluding in each case above (as applicable) fees and expenses of counsel to the underwriters or the Holders and underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Notes by a Holder. "Registration Statement" shall mean any registration statement of the Company which covers any of the Exchange Notes or Registrable Notes pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "SEC" shall mean the Securities and Exchange Commission. "Shelf Registration" shall mean a registration effected pursuant to Article II(b) hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Article II(b) hereof which covers all of the then Registrable Notes on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Trustee" shall mean the trustee with respect to the Notes under the Indenture. Article II Registration Under the 1933 Act (a) Exchange Offer Registration. The Company shall (i) file within 90 calendar days after the Closing Time an Exchange Offer Registration Statement covering the offer by the Company to the Holders to exchange all of the Registrable Notes for Exchange Notes, (ii) use its best efforts to cause such Exchange Offer Registration Statement to be declared effective by the SEC within 150 calendar days after the Closing Time and (iii) use its best efforts to consummate the Exchange Offer within 30 calendar days following the effective date of the Exchange Offer 6 Registration Statement. The Exchange Notes will be issued under the Indenture. Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder (other than Participating Broker-Dealers (as defined in Article III(f) hereof) eligible and electing to exchange Registrable Notes for Exchange Notes (assuming that such Holder (i) is not an affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (ii) acquires the Exchange Notes in the ordinary course of such Holder's business and (iii) has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing the Exchange Notes) to trade such Exchange Notes from and after their receipt without any limitations or restrictions under the 1933 Act and without material restrictions under the securities laws of a substantial portion of the several states of the United States. In connection with the Exchange Offer, the Company shall: (i) mail to each Holder a copy of the Prospectus (without the materials incorporated by reference therein) forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) keep the Exchange Offer open for not less than 20 business days after the date notice thereof is mailed to the Holders (or longer if required by applicable law); (iii) use the services of the Depositary for the Exchange Offer with respect to Notes evidenced by global certificates; (iv) permit Holders to withdraw tendered Registrable Notes at any time prior to the close of business, New York City time, on the last business day on which the Exchange Offer shall remain open, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Notes delivered for exchange, and a statement that such Holder is withdrawing its election to have such Notes exchanged; and (v) otherwise comply in all respects with all applicable laws relating to the Exchange Offer. 7 As soon as practicable after the close of the Exchange Offer, the Company shall: (i) accept for exchange Registrable Notes duly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter of transmittal which is an exhibit thereto; (ii) deliver, or cause to be delivered, to the Trustee for cancellation, or direct the Trustee to cancel, all Registrable Notes so accepted for exchange by the Company; and (iii) cause the Trustee promptly to authenticate and deliver Exchange Notes (which may be in global form) to each Holder of Registrable Notes equal in amount to the Registrable Notes of such Holder so accepted for exchange. Interest will accrue on each Exchange Note exchanged for a Note in either case from the last date on which interest was paid on the Notes surrendered in exchange therefor, or if no interest has been paid on the Notes, from May 15, 1999. The Exchange Offer shall not be subject to any conditions, other than that (A) the Exchange Offer, or the making of any exchange by a Holder, does not violate applicable law or any applicable interpretation of the staff of the SEC, (B) no action or proceeding shall have been instituted or threatened in any court or before any governmental agency with respect to the Exchange Offer which, in the Company's judgment, might impair the ability of the Company to proceed with the Exchange Offer or, (C) there shall not have been adopted or enacted any law, statute, rule or regulation which, in the Company's judgment, would materially impair the ability of the Company to proceed with the Exchange Offer, (D) there shall not have been any law, rule or regulation or applicable interpretations of the staff of the SEC issued or promulgated which, in the good faith determination of the Company, do not permit the Company to effect the Exchange Offer and (E) there shall not have occurred any change in the current interpretation by the staff of the SEC which permits the Exchange Notes issued pursuant to the Exchange Offer in exchange for Notes to be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder that is a broker-dealer or an "affiliate" of the Company within the meaning of Rule 405 under the 1933 Act) without compliance with the registration and prospectus delivery provisions of the 1933 Act provided that such Exchange Notes are acquired in the ordinary course of such 8 holders' business and such holders have no arrangement with any person to participate in the distribution of such Exchange Notes. Each Holder of Notes (other than Participating Broker-Dealers) who wishes to exchange such Notes for Exchange Notes in the Exchange Offer shall have represented that (i) any Exchange Notes to be received by it were acquired in the ordinary course of business, (ii) at the time of the commencement of the Exchange Offer it had no arrangement or understanding with any Person to participate in the distribution (within the meaning of the 1933 Act) of the Exchange Notes, (iii) it is not an affiliate (as defined in Rule 405 under the 1933 Act) of the Company or, if it is such an affiliate, it will comply with the registration and prospectus delivery requirements of the 1933 Act to the extent applicable and (iv) it shall have made such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or another appropriate form under the 1933 Act available. The Company shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, to the extent available, and the Initial Purchasers shall have the right to contact such Holders and otherwise facilitate the tender of Registrable Notes in the Exchange Offer. (b) Shelf Registration. (i) If, because of any change in law after the date of this Agreement or applicable interpretations thereof by the staff of the SEC, the Company is not permitted to effect the Exchange Offer as contemplated by Article II(a) hereof, or (ii) if for any other reason the Exchange Offer is not consummated within 180 calendar days following the date hereof, or (iii) if any Holder (other than an Initial Purchaser) is not eligible to participate in the Exchange Offer or (iv) upon the request of any Initial Purchaser (with respect to any Registrable Notes which it acquired from the Company) following the consummation of the Exchange Offer if any such Initial Purchaser shall hold Registrable Notes which it acquired directly from the Company and if such Initial Purchaser is not permitted, in the opinion of counsel to such Initial Purchaser, pursuant to applicable law or applicable interpretation of the staff of the SEC, to participate in the Exchange Offer, the Company shall, at its own cost: (A) as promptly as practicable, file with the SEC a Shelf Registration Statement relating to the offer and sale of the then-outstanding Registrable Notes by the Holders from time to time in accordance with the methods of distribution elected by the Majority Holders of such Registrable Notes and set forth in such Shelf Registration Statement, and use its best efforts to 9 cause such Shelf Registration Statement to be declared effective by the SEC by the 180th calender day after the Closing Time (or promptly in the event of a request by any Initial Purchaser pursuant to clause (iv) above). In the event that the Company is required to file a Shelf Registration Statement upon the request of any Holder (other than an Initial Purchaser) not eligible to participate in the Exchange Offer pursuant to clause (iii) above or upon the request of any Initial Purchaser pursuant to clause (iv) above, the Company shall file and use its best efforts to have declared effective by the SEC both an Exchange Offer Registration Statement pursuant to Article II(a) hereof with respect to all Registrable Notes and a Shelf Registration Statement (which may be a Registration Statement combined with the Exchange Offer Registration Statement) with respect to offers and sales of Registrable Notes held by such Holder or such Initial Purchaser after completion of the Exchange Offer; (B) use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of two years after its effective date (or until one year after the effective date of the Shelf Registration Statement if such Shelf Registration Statement is filed upon the request of any Initial Purchaser pursuant to clause (iv) above) or such shorter period which will terminate when all of the Registrable Notes covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement; and (C) notwithstanding any other provisions hereof, use its best efforts to ensure that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any supplement thereto complies in all material respects with the 1933 Act, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Shelf Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 10 The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement if requested by the Majority Holders with respect to information relating to the Holders and otherwise as required by Article III(b) below, to use all reasonable efforts to cause any such amendment to become effective and such Shelf Registration to become usable as soon as practicable thereafter and to furnish to the Holders of Registrable Notes copies of any such supplement or amendment promptly after its being used or filed with the SEC. (c) Expenses. The Company shall pay all Registration Expenses in connection with the registration pursuant to Articles II(a) and II(b) hereof and, in the case of an Exchange Offer Registration Statement, will reimburse the Initial Purchasers, as applicable, for the reasonable fees and disbursements of one counsel in connection therewith. Each Holder shall pay all expenses of its counsel other than as set forth in the preceding sentence, including underwriting discounts, commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Notes pursuant to the Shelf Registration Statement. (d) Effective Registration Statement. (i) The Company will be deemed not to have used its best efforts to cause a Registration Statement to become, or to remain, effective during the requisite periods set forth herein if the Company voluntarily takes any action that could reasonably be expected to result in any such Registration Statement not being declared effective or in the Holders of Registrable Notes covered thereby not being able to exchange or offer and sell such Registrable Notes during that period unless (A) such action is required by applicable law or (B) such action is taken by the Company in good faith and for valid business reasons (but not including avoidance of the Company's obligations hereunder), including a material corporate transaction, so long as the Company promptly complies with the requirements of Article III(k) hereof, if applicable. (ii) An Exchange Offer Registration Statement pursuant to Article II(a) hereof or a Shelf Registration Statement pursuant to Article II(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of Registrable Notes pursuant to a Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to 11 have been effective during the period of such interference, until the offering of Registrable Notes pursuant to such Registration Statement may legally resume. (e) Accrual and Payment of Additional Interest. In the event that (i) the Exchange Offer Registration Statement is not filed with the SEC on or prior to the 90th calendar day following the Closing Time, (ii) the Exchange Offer Registration Statement is not declared effective on or prior to the 150th calendar day following the Closing Time, (iii) the Exchange Offer is not consummated, or, if required, a Shelf Registration Statement with respect to the Notes is not declared effective, on or prior to the 180th calendar day following the Closing Time or (iv) the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective but thereafter ceases to be effective or usable (each event referred to in clauses (i) through (iv) above, a "Registration Default"), then the Company shall pay additional interest in cash on the Notes on each Interest Payment Date (as defined in the Indenture) in an amount equal to one-half of one percent (0.5%) per annum of the principal amount of the Notes, with respect to the first 90-day period following such Registration Default. The amount of such additional interest will increase by an additional one-half of one percent (0.5%) to a maximum of one and one-half percent (1.5%) per annum for each subsequent 90-day period until such Registration Default has been cured. Upon (w) the filing of the Exchange Offer Registration Statement after the 90-day period described in clause (i) above, (x) the effectiveness of the Exchange Offer Registration Statement after the 150-day period described in clause (ii) above, (y) the consummation of the Exchange Offer or the effectiveness of a Shelf Registration Statement, as the case may be, after the 180-day period described in clause (iii) above, or (z) the cure of any Registration Default described in clause (iv) above, such additional interest shall cease to accrue on the Notes from the date of such filing, effectiveness, consummation or cure, as the case may be, if the Company is otherwise in compliance with this paragraph; provided, however, that if, after any such additional interest ceases to accrue, a different event specified in clause (i), (ii), (iii) or (iv) above occurs, such additional interest shall begin to accrue again pursuant to the foregoing provisions. (f) Specific Enforcement. Without limiting the remedies available to the Initial Purchasers and the Holders, the Company acknowledges that any failure by the Company to comply with its respective obligations under Articles II(a) and (b) hereof may result in material irreparable injury to the Initial Purchasers or the Holders 12 for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Articles II(a) and (b) hereof. Article III Registration Procedures In connection with the obligations of the Company with respect to the Registration Statements pursuant to Articles II(a) and (b) hereof, the Company shall: (a) prepare and file with the SEC a Registration Statement, within the time period specified in Article II hereof, on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Notes by the selling Holders thereof and (iii) shall be appropriately responsive in all material respects with the requirements of the applicable form required by the SEC and include or incorporate by reference all financial statements required by the SEC to be filed therewith, and use its best efforts to cause such Registration Statement to become effective and remain effective in accordance with Article II hereof; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period; cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof; (c) in the case of a Shelf Registration, (i) notify, or direct that a notice be issued by the Trustee to, each Holder of Registrable Notes, at least five days prior to filing, that a Shelf Registration Statement with respect to the Registrable Notes is 13 being filed and advise such Holders that the distribution of Registrable Notes will be made in accordance with the method elected by the Majority Holders, (ii) furnish to each Holder of Registrable Notes, to counsel for the Initial Purchasers, to counsel for the Holders and to each underwriter of an underwritten offering of Registrable Notes, if any, without charge, as many copies of each Prospectus (without the materials incorporated therein by reference), including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, including financial statements and schedules and, if the Holder so reasonably requests, all materials incorporated therein by reference and exhibits (including those incorporated by reference) in order to facilitate the public sale or other disposition of the Registrable Notes and (iii) subject to the last paragraph of Article III, hereby consent to the use of the Prospectus, including each preliminary Prospectus, or any amendment or supplement thereto by each of the selling Holders of Registrable Notes in connection with the offering and sale of the Registrable Notes covered by the Prospectus or any amendment or supplement thereto; (d) use its reasonable efforts to register or qualify the Registrable Notes under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Notes covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Notes shall reasonably request by the time the applicable Registration Statement is declared effective by the SEC, to cooperate with the Holders in connection with any filings required to be made with the NASD, keep each such registration or qualification effective during the period such Registration Statement is required to be effective and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in each such jurisdiction of such Registrable Notes owned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Article III(d) or (ii) take any action which would subject it to general service of process or taxation in any such jurisdiction if it is not then so subject; 14 (e) in the case of a Shelf Registration, notify, or direct that a notice be issued by the Trustee to, each Holder of Registrable Notes and counsel for such Holders promptly and, if requested by such Holder or counsel, confirm such advice in writing promptly (i) when a Shelf Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for post-effective amendments and supplements to a Shelf Registration Statement and Prospectus or for additional information after the Shelf Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Shelf Registration Statement or the initiation of any proceedings for that purpose, (iv) if, during the period a Registration Statement is effective, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to such offering cease to be true and correct in all material respects, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (vi) of the happening of any event or the discovery of any facts during the period a Shelf Registration Statement is effective which makes any statement made in such Shelf Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Shelf Registration Statement or Prospectus in order to make the statements therein not misleading and (vii) of any determination by the Company that a post-effective amendment to a Registration Statement would be appropriate; (f) (A) in the case of an Exchange Offer, (i) include in the Exchange Offer Registration Statement a "Plan of Distribution" section covering the use of the Prospectus that is included in the Exchange Offer Registration Statement by broker-dealers who have exchanged their Registrable Notes for Exchange Notes for the resale of such Exchange Notes, (ii) furnish to each broker-dealer who desires to participate in the Exchange Offer, without charge, as many copies of each Prospectus (without the materials incorporated therein by reference) included in the Exchange Offer Registration Statement, including any preliminary prospectus, any amendment or supplement thereto and 15 copies of the materials incorporated by reference in such Prospectus, as such broker-dealer may reasonably request, (iii) include in the Exchange Offer Registration Statement a statement that any broker-dealer who holds Registrable Notes acquired for its own account as a result of market-making activities or other trading activities (a "Participating Broker-Dealer"), and who receives Exchange Notes for Registrable Notes pursuant to the Exchange Offer, may be a statutory underwriter and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Notes, (iv) subject to the last paragraph of Article III hereof, hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto, by any broker-dealer in connection with the sale or transfer of the Exchange Notes covered by the Prospectus or any amendment or supplement thereto, and (v) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision: "If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Registrable Notes, it represents that the Registrable Notes to be exchanged for Exchange Notes were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Notes pursuant to the Exchange Offer; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the 1933 Act;" and (y) a statement to the effect that a broker-dealer, by making the acknowledgment described in subclause (x) and by delivering a Prospectus in connection with the exchange of Registrable Securities, will not be deemed to admit that it is an underwriter within the meaning of the 1933 Act; and (B) to the extent any Participating Broker-Dealer participates in the Exchange Offer, the Company shall use its best efforts to cause to be delivered at the 16 request of an entity representing the Participating Broker-Dealers (which entity shall be one of the Initial Purchasers, unless it elects not to act as such representative) only one, if any, "cold comfort" letter with respect to the Prospectus in the form existing on the last date for which exchanges are accepted pursuant to the Exchange Offer and with respect to each subsequent amendment or supplement, if any, effected during the period specified in clause (C) below; and (C) to the extent any Participating Broker-Dealer participates in the Exchange Offer, the Company shall use its best efforts to maintain the effectiveness of the Exchange Offer Registration Statement for a period of 120 calendar days following the closing of the Exchange Offer; and (D) the Company shall not be required to amend or supplement the Prospectus contained in the Exchange Offer Registration Statement as would otherwise be contemplated by Article III(b) hereof, or take any other action as a result of this Article III(f), for a period exceeding 180 calendar days after the last date for which exchanges are accepted pursuant to the Exchange Offer (as such period may be extended by the Company) and Participating Broker-Dealers shall not be authorized by the Company to, and shall not, deliver such Prospectus after such period in connection with resales contemplated by this Article III. (g) (A) in the case of an Exchange Offer, furnish counsel for the Initial Purchasers and (B) in the case of a Shelf Registration, furnish counsel for the Holders of Registrable Notes, copies of any request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information; (h) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment and provide notice promptly to each Holder of the withdrawal of any such order; (i) in the case of a Shelf Registration, furnish to each selling Holder of Registrable Notes, and to each underwriter, if any, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); 17 (j) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Notes to facilitate the timely preparation and delivery of certificates (which may be in global form if requested) representing Registrable Notes to be sold and not bearing any restrictive legends; and cause such Registrable Notes to be in a form eligible for deposit with the Depositary, in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders or the underwriters, if any, may reasonably request at least three business days prior to the closing of any sale of Registrable Notes; (k) in the case of a Shelf Registration, promptly upon the occurrence of any event or the discovery of any facts, each as contemplated by Article III(e)(vi) hereof, use its best efforts to prepare a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. During any 365-day-period, the Company will have the ability to suspend the availability of such Shelf Registration Statement for up to three periods of up to 30 consecutive days, but no more than an aggregate 60 days during any 365-day period, if any event shall occur as a result of which it shall be necessary, in the good faith determination of the Board of Directors, to amend the Shelf Registration Statement or to amend or supplement any prospectus or prospectus supplement thereunder in order that each such document not include any untrue statement of fact or omit to state a material fact necessary to make the statements therein not misleading in light of the circumstances under which such statements were made. The Company agrees to notify, or direct that a notice be issued by the Trustee to, each Holder to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and each Holder hereby agrees to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission. At such time as such public disclosure is otherwise made or the Company determines that such disclosure is not necessary, in each case to 18 correct any misstatement of a material fact or to include any omitted material fact, the Company agrees promptly to notify each selling Holder of such determination and to furnish each selling Holder such number of copies of the Prospectus (without the information incorporated therein by reference), as amended or supplemented, as such Holder may reasonably request; (l) obtain CUSIP numbers for all Exchange Notes, or Registrable Notes, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with global certificates (or, if requested, physical certificates) for the Exchange Notes or the Registrable Notes, as the case may be, in a form eligible for deposit with the Depositary; (m) (i) cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), in connection with the registration of the Exchange Notes, or Registrable Notes, as the case may be, (ii) cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and use its reasonable efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (n) in the case of a Shelf Registration, enter into agreements (including underwriting agreements, if applicable) and take all other customary and appropriate actions (including those reasonably requested by the Majority Holders) in order to expedite or facilitate the disposition of such Registrable Notes, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: (i) make such representations and warranties to the Holders of such Registrable Notes and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by them; (ii) obtain opinions of counsel to the Company and its subsidiaries and updates thereof (which counsel and opinions (in form, scope and 19 substance) shall be reasonably satisfactory to the managing underwriters, if any, and the holders of a majority in principal amount of the Registrable Notes being sold) addressed to each selling Holder and the underwriters, if any, to the effect provided to the Initial Purchasers on the Closing Date and covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (iii) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the underwriters, if any, and use its reasonable efforts to have such letters addressed to the selling Holders of Registrable Notes, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with similar underwritten offerings; (iv) enter into a securities sales agreement with the selling Holders and an agent of the selling Holders providing for, among other things, the appointment of such agent for the selling Holders for the purpose of soliciting purchases of Registrable Notes, which agreement shall be in form, substance and scope customary for similar offerings; (v) if an underwriting agreement is entered into, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Article V hereof with respect to the underwriters and all other parties to be indemnified pursuant to said Article; and (vi) deliver such documents and certificates as are customarily delivered in similar offerings and as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Notes being sold and the managing underwriters, if any. The above shall be done at (i) the effectiveness of such Shelf Registration Statement (and, if appropriate, each post-effective amendment thereto) and (ii) each closing under any underwriting or similar agreement as 20 and to the extent required thereunder. In the case of any underwritten offering, the Company shall cause to be sent a written notice to the Holders of all Registrable Notes of such underwritten offering at least 20 calendar days prior to the filing of a prospectus supplement for such underwritten offering. Such notice shall (x) offer each such Holder the right to participate in such underwritten offering, (y) specify a date, which shall be no earlier than 10 calendar days following the date of such notice, by which such Holder must inform the Company of its intent to participate in such underwritten offering and (z) include the instructions such Holder must follow in order to participate in such underwritten offering; (o) in the case of a Shelf Registration, make available for inspection by representatives of the selling Holders of the Registrable Notes and any underwriters participating in any disposition pursuant to a Shelf Registration Statement and any counsel or accountant retained by such Holders or underwriters, all financial and other records, pertinent corporate documents and properties of the Company reasonably requested by any such persons, and cause the respective officers, directors, employees, and any other agents of the Company to supply all information reasonably requested by any such representative, underwriter, special counsel or accountant in connection with such Shelf Registration Statement. (p) (i) in the case of an Exchange Offer, a reasonable time prior to the filing of any Exchange Offer Registration Statement, any Prospectus (except for the materials incorporated therein by reference) forming a part thereof, any amendment to an Exchange Offer Registration Statement or amendment or supplement to a Prospectus, provide copies of such document to the Initial Purchasers, and make such changes in any such document prior to the filing thereof as any of the Initial Purchasers or their counsel may reasonably request; (ii) in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement, any Prospectus (except for the materials incorporated therein by reference) forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the selling Holders of Registrable Notes, to the Initial Purchasers, to counsel on behalf of the selling Holders and to the underwriter or underwriters of an underwritten offering of Registrable Notes, if any, and 21 make such changes in any such document prior to the filing thereof as the selling Holders of Registrable Notes, the Initial Purchasers on behalf of such Holders, their counsel and any underwriter may reasonably request; and (iii) cause the representatives of the Company and its subsidiaries to be available for discussion of such document as shall be reasonably requested by the selling Holders of Registrable Notes, the Initial Purchasers on behalf of such Holders or any underwriter and not at any time make any filing of any such document of which such Holders, the Initial Purchasers on behalf of such Holders, their counsel or any underwriter shall not have previously been advised and furnished a copy or to which such Holders, the Initial Purchasers on behalf of such Holders, their counsel or any underwriter shall reasonably object; (q) in the case of a Shelf Registration, use its reasonable efforts to cause all Registrable Notes to be listed on any securities exchange on which similar debt securities issued by the Company are then listed if requested by the Majority Holders or by the underwriter or underwriters of an underwritten offering of Registrable Notes, if any; (r) in the case of a Shelf Registration, unless the rating in effect for the Notes applies to the Exchange Notes and the Notes to be sold pursuant to a Shelf Registration, use its reasonable efforts to cause the Registrable Notes to be rated by an appropriate rating agency, if so requested by the Majority Holders or by the underwriter or underwriters of an underwritten offering of Registrable Notes, if any, unless the Registrable Notes are already so rated; (s) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder; and (t) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter and its counsel (including, any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD). 22 In the case of a Shelf Registration Statement, the Company may (as a condition to a selling Holder's participation in the Shelf Registration) require each selling Holder of Registrable Notes to furnish to the Company (1) a notice that such Holder wishes to sell Registrable Notes and (2) such information regarding such Holder, securities of the Company beneficially owned by such Holder and the proposed distribution by such Holder of such Registrable Notes as the Company may from time to time reasonably request in writing. In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company of the happening of any event or the discovery of any facts, each of the kind described in Article III(e)(ii)- (vii) hereof, such Holder will forthwith discontinue disposition of Registrable Notes pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus (without the information incorporated therein by reference) contemplated by Article III(k) hereof, and, if so directed by the Company, such Holder will deliver to the Company (at its expense) all copies in its possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Notes current at the time of receipt of such notice. If the Company shall give any such notice to suspend the disposition of Registrable Notes pursuant to a Shelf Registration Statement as a result of the happening of any event or the discovery of any facts, each of the kind described in Article III(e)(vi) hereof, the Company shall be deemed to have used its best efforts to keep the Shelf Registration Statement effective during such period of suspension provided that the Company shall use its best efforts to file and to have declared effective (in the case of an amendment) as soon as practicable an amendment or supplement to the Shelf Registration Statement and shall extend the period during which the Shelf Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the selling Holders shall have received copies of the supplemented or amended Prospectus (without the information incorporated therein by reference) necessary to resume such dispositions. 23 Article IV Underwritten Registration If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the holders of a majority in principal amount of such Registrable Notes included in such offering and shall be reasonably acceptable to the Company. No Holder of Registrable Notes may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the persons entitled thereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. Article V Indemnification and Contribution (a) The Company shall indemnify and hold harmless each Initial Purchaser, each Holder, including Participating Broker-Dealers, each underwriter who participates in an offering of Registrable Notes, their respective affiliates, and their respective directors, officers, employees, agents and each Person, if any, who controls any of such parties within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act (the "indemnified parties") as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Exchange Notes or Registrable Notes were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the 24 statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Article V(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expenses whatsoever, as incurred (including fees and disbursements of counsel chosen by any indemnified party), reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Article V(a); provided, however, that this indemnity shall not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Initial Purchasers or any Holder, including Participating Broker-Dealers, or any underwriter expressly for use in the Registration Statement (or any amendment or supplement thereto) or the Prospectus (or any amendment or supplement thereto); and provided further, that the Company will not be liable to an indemnified party with respect to any preliminary Prospectus to the extent the Company shall sustain the burden of proving that any such loss, liability, claim, damage or expense resulted from the fact that such indemnified party, in contravention of a requirement of this Agreement or applicable law, sold Registrable Notes to a person to whom such indemnified party failed to send or give, at or prior to the Closing Time, a copy of the final Prospectus, as then amended or supplemented if: (A) the Company has previously furnished copies thereof (sufficiently in advance of the Closing Time to allow for distribution by the Closing Time) to the Initial Purchaser and the loss, liability, claim, damage or expense of such indemnified party resulted from a misstatement or omission of a material fact contained in or omitted from the 25 preliminary Prospectus which was corrected in the final Prospectus as, if applicable, amended or supplemented prior to the Closing Time and such final Prospectus was required by law to be delivered at or prior to the written confirmation of sale to such person and (B) such failure to give or send such final Prospectus by the Closing Time to the party or parties asserting such loss, liability, claim, damage or expense would have constituted the sole defense to the claim asserted by such person. (b) In the case of a Shelf Registration, each selling Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, each Initial Purchaser, each underwriter who participates in an offering of Registrable Note and the other selling Holders and each of their respective directors and officers (including each officer of the Company who signed the Shelf Registration Statement) and each Person, if any, who controls the Company, any Initial Purchaser, any underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Article V(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Shelf Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Holder, as the case may be, expressly for use in the Shelf Registration Statement (or any amendment thereto), or the Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Notes pursuant to such Shelf Registration Statement. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above, such indemnified party shall give notice as promptly as reasonably practicable to each person against whom such indemnity may be sought (the "indemnifying party"), but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity. An indemnifying party may participate at its own expense in the defense of such action; provided, however, that counsel to the indemnifying party shall not (except 26 with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded (based upon advice of counsel) that there may be one or more legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Article V for any subsequent legal or other expenses incurred pursuant to such action, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, selected by any indemnified party in the case of Article V(a), representing the indemnified parties under such paragraph (a) who are parties to such action or actions) or (ii) the indemnifying party does not promptly retain counsel satisfactory to the indemnified party or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. After such notice from the indemnifying party to such indemnified 27 party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the consent of the indemnifying party. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Article V hereof (whether or not the indemnified parties are actual or potential parties thereof), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Except with respect to fees and expenses not required to be reimbursed pursuant to the assumption of the defense of an action in accordance with Article V(c) above, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Article V(a)(ii) hereof effected without its written consent if (i) such settlement is entered into more than 45 calendar days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 calendar days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) If the indemnification provided for in any of the indemnity provisions set forth in this Article V is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, in such proportion as is appropriate to reflect the relative fault of such indemnifying party or parties on the one hand, and such indemnified party or parties on the other hand, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party or parties on the 28 one hand, and such indemnified party or parties on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or parties and such indemnified party or parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Initial Purchasers and the Holders of the Registrable Notes agree that it would not be just and equitable if contribution pursuant to this Article V were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity, and the Holders were treated as one entity, for such purpose) or by another method of allocation which does not take into account the equitable considerations referred to above in Article V. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Article V shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by an governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresenta tion. For purposes of this Article V, each Person, if any, who controls an Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser or Holder, and each director of the Company, each officer of the Company who signed the Registration Statement, and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. 6.Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the Company is subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act, the Company covenants that it will file the reports required to be filed by it under Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder, that if it ceases to be so required to file such reports, it will upon the request of any Holder of Registrable Notes (i) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (ii) deliver such information to a prospective purchaser as is 29 necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will take such further action as any Holder of Registrable Notes may reasonably request, and (iii) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Notes without registration under the 1933 Act within the limitation of the exemptions provided by (x) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, (y) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (z) any similar rules or regulations hereafter adopted by the SEC. Upon the written request of any Holder of Registrable Notes, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. (b) No Conflicting Agreements. The Company has not entered into nor will the Company on or after the date of this Agreement enter into any agreement which conflicts with the rights granted to the Holders of Registrable Notes in this Agreement. The rights granted to the Holders hereunder do not in any way conflict with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Notes affected by such amendment, modification, supplement, waiver or departure; provided, however, that no amendment, modification, supplement or waiver or consent to any departure from the provisions of Article V hereof shall be effective as against any Holder of Registrable Notes unless consented to in writing by such Holder. (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder (other than an Initial Purchaser), at the most current address set forth on the records of the Registrar under the Indenture, (ii) if to an Initial Purchaser, at the most current address given by such Initial Purchaser to the Company by means of a notice given in accordance with the provisions of this Article VI(d), which address initially is the address set forth in the Purchase Agreement, and (iii) if to the Company, initially 30 at the address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Article VI(d) . All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to a courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture. (e) Successors and Assign. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Notes in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Notes, in any manner, whether by operation of law or otherwise, such Registrable Notes shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Notes, such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (f) Third Party Beneficiaries. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent they deem such enforcement necessary or advisable to protect their rights. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 31 (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of [The rest of this page has been left intentionally blank] 32 any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. CD RADIO INC. by ______________________________ Name: Title: Confirmed and accepted as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED LEHMAN BROTHERS INC. BEAR, STEARNS & CO. INC. NATIONSBANC MONTGOMERY SECURITIES LLC U.S. BANCORP LIBRA by MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED by ______________________________________ Name: Title: 32 any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. CD RADIO INC. by /s/ Patrick L. Donnelly ------------------------------- Name: Patrick L. Donnelly Title: Executive Vice President & General Counsel Confirmed and accepted as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED LEHMAN BROTHERS INC. BEAR, STEARNS & CO. INC. NATIONSBANC MONTGOMERY SECURITIES LLC U.S. BANCORP LIBRA by MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED by /s/ Marcey Becker -------------------------------------------- Name: Marcey Becker Title: Vice President EX-4 4 EXHIBIT 4.4.2 EXHIBIT 4.4.2 ================================================================================ INDENTURE Between CD RADIO INC. and UNITED STATES TRUST COMPANY OF NEW YORK Trustee -------------------- $200,000,000 principal amount 14 1/2% Senior Secured Notes due 2009 Dated as of May 15, 1999 ================================================================================ [RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939 AND INDENTURE
TRUST INDENTURE ACT SECTION INDENTURE SECTION 'SS' 310(a)(1) ..................................6.07 (a)(2) ..................................6.07 (b) ..................................6.07, 6.08 'SS' 312(c) ..................................7.01 'SS' 314(a) ..................................7.03 (a)(4) ..................................10.08(a) (c)(1) ..................................1.02 (c)(2) ..................................1.02 (e) ..................................1.02 'SS' 315(b) ..................................6.01 'SS' 316(a)(last sentence) ..................................1.01 ("Outstanding") (a)(1)(A) ..................................5.02, 5.12 (a)(1)(B) ..................................5.13 (b) ..................................5.08 (c) ..................................1.04(d) 'SS' 317(a)(1) ..................................5.03 (a)(2) ..................................5.04 (b) ..................................10.03 'SS' 318(a) ..................................1.11
TABLE OF CONTENTS
Page ---- ARTICLE I Definitions and Other Provisions of General Application SECTION 1.01. Definitions.......................................................2 SECTION 1.02. Compliance Certificates and Opinions.............................35 SECTION 1.03. Form of Documents Delivered to Trustee...........................36 SECTION 1.04. Acts of Holders..................................................36 SECTION 1.05. Notices, Etc., to Trustee and Company............................38 SECTION 1.06. Notice to Holders; Waiver........................................38 SECTION 1.07. Effect of Headings and Table of Contents.........................39 SECTION 1.08. Successors and Assigns...........................................39 SECTION 1.09. Separability Clause..............................................39 SECTION 1.10. Benefits of Indenture............................................39 SECTION 1.11. Governing Law....................................................39 SECTION 1.12. Legal Holidays...................................................40 ARTICLE II Note Forms SECTION 2.01. Form of Note and Trustee's Certificate of Authentication.........40 ARTICLE III The Notes SECTION 3.01. Title and Terms..................................................41 SECTION 3.02. Denominations....................................................41 SECTION 3.03. Execution, Authentication, Delivery and Dating...................41 SECTION 3.04. Temporary Notes..................................................43 SECTION 3.05. Registration, Registration of Transfer and Exchange..............43 SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Notes......................45 SECTION 3.07. Payment of Interest; Interest Rights Preserved...................45 SECTION 3.08. Persons Deemed Owners............................................47 SECTION 3.09. Cancelation......................................................47 SECTION 3.10. Computation of Interest..........................................48 SECTION 3.11. CUSIP Number.....................................................48
2 ARTICLE IV Satisfaction and Discharge SECTION 4.01. ................................................................48 SECTION 4.02. Application of Trust Money......................................50 ARTICLE V Remedies SECTION 5.01. Events of Default...............................................50 SECTION 5.02. Acceleration of Maturity; Rescission and Annulment..............52 SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee.........................................54 SECTION 5.04. Trustee May File Proofs of Claim................................55 SECTION 5.05. Trustee May Enforce Claims Without Possession of Notes..........56 SECTION 5.06. Application of Money Collected..................................56 SECTION 5.07. Limitation on Suits.............................................56 SECTION 5.08. Unconditional Right of Holders to Receive Principal, Premium and Interest...............................57 SECTION 5.09. Restoration of Rights and Remedies..............................57 SECTION 5.10. Rights and Remedies Cumulative..................................58 SECTION 5.11. Delay or Omission Not Waiver....................................58 SECTION 5.12. Control by Holders..............................................58 SECTION 5.13. Waiver of Past Defaults.........................................59 SECTION 5.14. Waiver of Stay or Extension Laws................................59 ARTICLE VI The Trustee SECTION 6.01. Notice of Defaults..............................................59 SECTION 6.02. Certain Rights of Trustee.......................................61 SECTION 6.03. Trustee Not Responsible for Preamble or Issuance of Notes.......63 SECTION 6.04. May Hold Notes..................................................63 SECTION 6.05. Money Held in Trust.............................................63 SECTION 6.06. Compensation and Reimbursement..................................64 SECTION 6.07. Corporate Trustee Required; Eligibility; Conflicting Interests..............................65 SECTION 6.08. Resignation and Removal; Appointment of Successor...............65 SECTION 6.09. Acceptance of Appointment by Successor..........................66
3 SECTION 6.10. Merger, Conversion, Consolidation or Succession to Business....67 ARTICLE VII Holders Lists and Reports by Trustee and Company SECTION 7.01. Disclosure of Names and Addresses of Holders...................68 SECTION 7.02. Reports by Trustee.............................................68 SECTION 7.03. Reports by Company.............................................68 ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms...........69 SECTION 8.02. Successor Substituted..........................................71 SECTION 8.03. Notes To Be Secured in Certain Events..........................72 ARTICLE IX Supplemental Indentures SECTION 9.01. Supplemental Indentures Without Consent of Holders.............72 SECTION 9.02. Supplemental Indentures with Consent of Holders................74 SECTION 9.03. Execution of Supplemental Indentures...........................75 SECTION 9.04. Effect of Supplemental Indentures..............................75 SECTION 9.05. Conformity with Trust Indenture Act............................76 SECTION 9.06. Reference in Notes to Supplemental Indentures..................76 SECTION 9.07. Notice of Supplemental Indentures..............................76 ARTICLE X Covenants SECTION 10.01. Payment of Principal, Premium, if any, and Interest............76 SECTION 10.02. Maintenance of Office or Agency................................76 SECTION 10.03. Money for Note Payments To Be Held in Trust....................77 SECTION 10.04. Corporate Existence............................................79 SECTION 10.05. Payment of Taxes and Other Claims..............................79
4 SECTION 10.06. Maintenance of Properties.......................................79 SECTION 10.07. Insurance.......................................................80 SECTION 10.08. Statement by Officers as to Default.............................81 SECTION 10.09. Provision of Financial Statements...............................82 SECTION 10.10. Purchase of Notes upon Change in Control........................82 SECTION 10.11. Limitation on Indebtedness......................................83 SECTION 10.12. Limitation on Restricted Payments...............................84 SECTION 10.13. Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries.....................................88 SECTION 10.14. Limitation on Transactions with Affiliates......................88 SECTION 10.15. Limitation on Liens.............................................89 SECTION 10.16. Limitation on Sale of Assets....................................89 SECTION 10.17. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries..............92 SECTION 10.18. Waiver of Certain Covenants.....................................93 SECTION 10.19. Required Stock Ownership........................................93 SECTION 10.20. Further Assurances..............................................93 SECTION 10.21. Limitation on Subsidiary Business Activities....................93 SECTION 10.22. Limitation on Sale-Leaseback Transactions.......................93 ARTICLE XI Redemption of Notes SECTION 11.01. Right of Redemption.............................................94 SECTION 11.02. Applicability of Article........................................95 SECTION 11.03. Election to Redeem; Notice to Trustee...........................95 SECTION 11.04. Selection by Trustee of Notes To Be Redeemed....................95 SECTION 11.05. Notice of Redemption............................................96 SECTION 11.06. Deposit of Redemption Price.....................................97 SECTION 11.07. Notes Payable on Redemption Date................................97 SECTION 11.08. Notes Redeemed in Part..........................................97 ARTICLE XII Security and Pledge of Collateral SECTION 12.01. Collateral Documents............................................98 SECTION 12.02. Trustee May Perform.............................................98 SECTION 12.03. Collateral Trust Arrangements...................................98 SECTION 12.04. Certificates and Opinions.......................................99
5 ARTICLE XIII Defeasance and Covenant Defeasance SECTION 13.01. Company's Option to Effect Defeasance or Covenant Defeasance....99 SECTION 13.02. Defeasance and Discharge........................................99 SECTION 13.03. Covenant Defeasance............................................100 SECTION 13.04. Conditions to Defeasance or Covenant Defeasance................100 SECTION 13.05. Deposited Money and U.S. Government Obligations To Be Held in Trust: Other Miscellaneous Provisions...................103 SECTION 13.06. Reinstatement..................................................104
Rule 144 A Appendix - Exhibit 1 - Form of Initial Note Exhibit A - Form of Exchange Note Exhibit B - Form of Trustee Certificate of Authentication INDENTURE, dated as of May 15, 1999, between CD RADIO INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 1221 Avenue of the Americas, New York, NY 10020, and UNITED STATES TRUST COMPANY OF NEW YORK, a bank duly organized and existing under the laws of the State of New York, Trustee (herein called the "Trustee"). The Company has duly authorized the creation of an issue of 14 1/2% Senior Secured Notes due 2009 (herein called the "Initial Notes") and, if and when issued pursuant to a registered exchange for Initial Notes, the 14 1/2% Senior Secured Notes due 2009 (herein called the "Exchange Notes", together with the Initial Notes, the "Notes") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. The Notes have been issued as part of 200,000 Units, each unit consisting of $1,000 principal amount of Notes and three Warrants to purchase 3.65 shares of the Company's Common Stock (the "Warrants"). The Company has determined to secure its obligations in respect of the Notes and duly authorized the execution and delivery of the Collateral Documents (as defined herein) to which it is a party. This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. All things necessary have been done to make the Notes, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company and to make this Indenture a valid agreement of the Company, in accordance with their and its terms. For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: ARTICLE I Definitions and Other Provisions of General Application SECTION 1.01. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article I have the meanings assigned to them in this Article I, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self- liquidating paper", as used in TIA Section 311, shall have the meanings assigned to them in the rules of the Commission adopted under the Trust Indenture Act; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with United States generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Acquired Indebtedness" means Indebtedness of a Person (1) existing at the time such Person becomes a Restricted Subsidiary or (2) assumed in connection with the acquisition of assets from such Person, in each case, other than Indebtedness incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary or such acquisition; provided that, for purposes of Section 10.11, such Indebtedness shall be deemed to be incurred on the date of the related acquisition of assets -2- from any Person or the date the acquired Person becomes a Restricted Subsidiary. "Act", when used with respect to any Holder, has the meaning specified in Section 1.04. "Adjusted Consolidated Operating Cash Flow" means Consolidated Operating Cash Flow for the latest four fiscal quarters for which consolidated financial statements of Company are available, taken as a whole. For purposes of calculating "Consolidated Operating Cash Flow" for any four fiscal quarter period for purposes of this definition, (1) all Restricted Subsidiaries of the Company on the date of the transaction giving rise to the need to calculate "Adjusted Consolidated Operating Cash Flow" (the "Transaction Date") shall be deemed to have been Restricted Subsidiaries at all times during such four fiscal quarter period and (2) any Unrestricted Subsidiary on the Transaction Date shall be deemed to have been an Unrestricted Subsidiary at all times during such four fiscal quarter period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated Operating Cash Flow" shall be calculated after giving effect on a pro forma basis for the applicable four fiscal quarter period to, without duplication, (1) any Asset Sales or Asset Acquisitions (including any Asset Acquisition giving rise to the need to make such calculation as a result of the Company or a Restricted Subsidiary (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the period commencing on the first day of such four fiscal quarter period to and including the Transaction Date (the "Reference Period"), as if such Asset Sale or Asset Acquisition occurred on the first day of the Reference Period and (2) any incurrence or repayment, retirement or permanent reduction of any Indebtedness of the Company or any Restricted Subsidiary during the Reference Period, as if such incurrence, repayment, retirement or reduction occurred on the first day of the Reference Period. -3- "Affiliate" means, with respect to any specified Person, (1) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person or (2) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Voting Stock or any executive officer or director of any such specified Person or other Person or, with respect to any natural Person, any Person having a relationship with such Person by blood, marriage or adoption not more remote than first cousin. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Acquisition" means (1) any capital contribution (by means of transfers of cash or other property to others or payments for property or services for the account or use of others, or otherwise) by the Company or any Restricted Subsidiary in any other Person, or any acquisition or purchase of Capital Stock of any other Person by the Company or any Restricted Subsidiary, in either case pursuant to which such Person shall become a Restricted Subsidiary or shall be merged with or into the Company or any Restricted Subsidiary or (2) any acquisition by the Company or any Restricted Subsidiary of the assets of any Person which constitute substantially all of an operating unit or line of business of such Person or which is otherwise outside of the ordinary course of business. "Asset Sale" means any direct or indirect sale, conveyance, transfer or lease (that has the effect of a disposition and is not for security purposes) or other disposition (that is not for security purposes) to any Person other than the Company or a Restricted Subsidiary in one transaction or a series of related transactions, of (1) any Capital Stock of any Restricted Subsidiary, (2) any material license or other authorization of the Company or any Restricted Subsidiary, (3) any assets of the Company or any Restricted Subsidiary which constitute substantially all of an operating unit or line of business of the Company and the Restricted Subsidiaries or -4- (4) any other property or asset of the Company or any Restricted Subsidiary outside of the ordinary course of business. For the purposes of this definition, the term "Asset Sale" shall not include (1) any disposition of properties and assets of the Company that is governed by the provisions of Article VIII, (2) sales of property or equipment that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any Restricted Subsidiary, as the case may be, (3) sales of accounts receivable by the Company for cash in an amount at least equal to the fair market value of such accounts receivable, (4) for purposes of Section 10.16 any sale, conveyance, transfer, lease or other disposition of any property or asset, whether in one transaction or a series of related transactions, involving assets with a Fair Market Value not in excess of $250,000 in any 12-month period and (5) sales of rights to the Company's transmissions outside the continental United States and outside the ordinary course of the Company's business if (a) after giving effect to such sale and for a six-month period thereafter, the Company and the Restricted Subsidiaries shall have no Indebtedness outstanding under any Bank Credit Agreement, (b) the consideration received by the Company for such sale is at least 80% cash or Cash Equivalents and (c) the proceeds of such sale are used by the Company for working capital or as provided Section 10.16(b)(1) or (2). "Attributable Indebtedness" means with respect to an operating lease included in any Sale and Leaseback Transaction at the time of determination, the present value (discounted at the interest rate implicit in the lease or, if not known, at the Company's incremental borrowing rate) of the obligations of the lessee of the property subject to such lease for rental payments during the remaining term of the lease included in such transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended, or until the earliest date on -5- which the lessee may terminate such lease without penalty or upon payment of penalty (in which case the rental payments shall include such penalty), after excluding from such rental payments all amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water, utilities and similar charges. "Average Life" means, as of the date of determination with respect to any Indebtedness, the quotient obtained by dividing (1) the sum of the products of (a) the number of years from the date of determination to the date or dates of each successive scheduled principal payment (including any sinking fund requirements) of such Indebtedness multiplied by (b) the amount of each such principal payment by (2) the sum of all such principal payments. "Bank Credit Agreement" means any one or more credit agreements (which may include or consist of revolving credit agreements or similar arrangements) between the Company or any Restricted Subsidiary and one or more banks or other financial institutions providing financing for the business of the Company and its Restricted Subsidiaries. "Bankruptcy Law" means Title 11 of the United States Code, as amended, or any similar United States Federal or state law, or any similar law of any other jurisdiction, relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Board of Directors" means the Board of Directors of the Company or any duly authorized committee thereof. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Bond Collateral" means (1) shares of Satellite CD Radio, Inc. or (2) any license owned by Satellite CD Radio, Inc. that is required to operate a CD Radio Business. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. -6- "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations, rights in or other equivalents (however designated) of such Person's capital stock or other equity participations, including partnership interests, whether general or limited, in such Person, including any Preferred Stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock, whether now outstanding or issued after the Issue Date. "Capitalized Lease Obligation" of any Person means any obligation of such Person and its subsidiaries on a consolidated basis under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of this Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means (1) any evidence of Indebtedness with a maturity of 365 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (2) certificates of deposit or acceptances with a maturity of 365 days or less of any financial institution that is a member of the Federal Reserve System, in each case having combined capital and surplus and undivided profits of not less than $500,000,000; (3) commercial paper with a maturity of 270 days or less issued by a corporation that is not an Affiliate of the Company and is organized under the laws of any state of the United States or the District of Columbia and rated at least A-1 by S&P or at least P-1 by Moody's; and (4) any money market mutual fund organized under the laws of the United States or any state thereof whose assets consist solely of cash or the foregoing instruments. -7- "CD Radio Assets" means all assets, rights, services and properties, whether tangible or intangible, used or intended for use in connection with a CD Radio Business, including satellites, terrestrial repeating stations, uplink facilities, musical libraries and other recorded programming, furniture, fixtures and equipment and telemetry, tracking, monitoring and control equipment. "CD Radio Business" means the business of transmitting digital radio programming throughout the United States by satellite to be received by paying subscribers, including any business in which the Company was engaged on the date of this Indenture, and any business reasonably related thereto. "Change of Control" means the occurrence of any of the following events: (1) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total outstanding Voting Stock of the Company; (2) the Company consolidates with, or merges with or into another Person or conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with or merges with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (a) the outstanding Voting Stock of the Company is not converted or exchanged at all (except to the extent necessary to reflect a change in the jurisdiction of incorporation of the Company) or is converted into or exchanged for (i) Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation or (ii) Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation and cash, securities and other -8- property (other than Capital Stock of the Surviving Entity) in an amount that could be paid by the Company as a Restricted Payment as described under Section 10.12 and (b) immediately after such transaction, no "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total outstanding Voting Stock of the surviving or transferee corporation; (3) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election to such Board of Directors, or whose nomination for election by the stockholders of the Company, was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (4) the Company is liquidated or dissolved or a special resolution is passed by the shareholders of the Company approving the plan of liquidation or dissolution other than in a transaction which complies with the provisions of Article VIII. "Collateral Agent" means initially IBJ Whitehall Bank & Trust Company and thereafter any successor Collateral Agent that is a financial institution in the State of New York selected by the Trustee, acting as the agent and designee of the Trustee pursuant to the Intercreditor Agreement, that (a) is a financial intermediary (not a clearing corporation) within the meaning of Section 8-313(4) of the Uniform Commercial Code from time to time in effect in the State of New York carrying on business in the State of New York; -9- (b) issues (or whose parent issues) commercial paper or certificates of deposit rated as described in clause (c) of the definition of Cash Equivalents; (c) has combined capital and surplus and undivided profits of not less than $50,000,000; and (d) enters into the Intercreditor Agreement. "Collateral Documents" means the Indenture, the Intercreditor Agreement, the Pledge Agreement and the Collateral Pledge Agreement. "Collateral Pledge Agreement" means the Collateral Pledge and Security Agreement dated as of May 15, 1999 between the Company and the Trustee, governing the disbursement of funds from the Pledge Account. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means, with respect to any Person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of such Person's common stock or ordinary shares, whether outstanding at the date of this Indenture or thereafter issued, and includes all series and classes of such common stock or ordinary shares. "Company" means the Person named as the "Company" in the first paragraph of this Indenture, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman, its Chief Executive Officer, its President, any Vice President, its Treasurer or an Assistant Treasurer, and delivered to the Trustee. "Consolidated Income Tax Expense" means, with respect to any period, the provision for United States corporation, local, foreign and other income taxes of the -10- Company and the Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, for any period, without duplication, the sum of (1) the interest expense of the Company and the Restricted Subsidiaries for such period, including (a) amortization of original issue discount, (b) the net cost of Interest Rate Agreements (including amortization of discounts), (c) the interest portion of any deferred payment obligation, (d) accrued interest, (e) the consolidated amount of any interest capitalized by the Company and (f) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, plus (2) the interest component of Capitalized Lease Obligations of the Company and the Restricted Subsidiaries paid, accrued or scheduled to be paid or accrued during such period, in each case as determined on a consolidated basis in accordance with GAAP, plus (3) cash and noncash dividends paid on Redeemable Capital Stock by the Company and any Restricted Subsidiary (to any Person other than the Company and any Restricted Subsidiary), in each case as determined on a consolidated basis in accordance with GAAP minus (4) to the extent included in the calculation of interest expense, the amortization of underwriting discounts and commissions and fees related to the issuance of the Units and the Discount Notes; provided, however, that the Consolidated Interest Expense attributable to interest on any Indebtedness computed on a pro forma basis and (A) bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period and (B) which was not outstanding during the period for which the computation is being made but which bears, at -11- the option of the Company, a fixed or floating rate of interest, shall be computed by applying, at the option of the Company, either the fixed or the floating rate. "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of the Company and all Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted by excluding, without duplication, (1) any net after-tax extraordinary gains or losses (less all fees and expenses relating thereto), (2) any net after-tax gains or losses (less all fees and expenses relating thereto) attributable to asset dispositions other than in the ordinary course of business, (3) the portion of net income (or loss) of any Person (other than the Company or a Restricted Subsidiary), including Unrestricted Subsidiaries, in which the Company or any Restricted Subsidiary has an ownership interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any Restricted Subsidiary in cash dividends or distributions during such period, (4) net income (or loss) of any Person combined with the Company or any Restricted Subsidiary on a "pooling of interests" basis attributable to any period prior to the date of combination, (5) the net income of any Restricted Subsidiary, to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary is not at the date of determination permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary or its stockholders and (6) any non-cash items of the Company and any Restricted Subsidiary (including monetary corrections) increasing or decreasing Consolidated Net Income for such period (other than items that will result in the receipt or payment of cash). "Consolidated Net Worth" means, at any date, the stockholders' equity of the Company or any Surviving Entity -12- less the amount of such stockholders' equity attributable to Redeemable Capital Stock or treasury stock of the Company, such Surviving Entity and any Restricted Subsidiary, as determined on a consolidated basis in accordance with GAAP. "Consolidated Operating Cash Flow" means, with respect to any period, the Consolidated Net Income of the Company and its Restricted Subsidiaries for such period increased by (in each case to the extent included in computing consolidated Net Income) the sum of (1) the Consolidated Income Tax Expense of the Company and its Restricted Subsidiaries accrued according to GAAP for such period (other than taxes attributable to extraordinary, unusual or nonrecurring gains or losses); (2) Consolidated Interest Expense for such period; (3) depreciation of the Company and its Restricted Subsidiaries for such period; and (4) amortization of the Company and its Restricted Subsidiaries for such period, including amortization of capitalized debt issuance costs for such period, all determined on a consolidated basis in accordance with GAAP. "Corporate Trust Office" means the principal corporate trust office of the Trustee, at which at any particular time its corporate trust business shall be administered which office at the date of execution of this Indenture is located at 114 West 47th Street, New York, New York 10036, except that with respect to presentation of Notes for payment or for registration of transfer or exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate agency business shall be conducted. "Cumulative Available Cash Flow" means, as at any date of determination, the positive cumulative Consolidated Operating Cash Flow realized during the period commencing on December 1, 1997 and ending on the last day of the most recent fiscal quarter immediately preceding the date of determination for which consolidated financial information of the Company is available or, if such cumulative Consolidated Operating Cash Flow for such period is negative, the negative amount by which cumulative Consolidated Operating Cash Flow is less than zero. -13- "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement entered into by a Person that is designed to protect such Person against fluctuations in currency values. "Default" means any event that after notice or passage of time or both would be an Event of Default. "Defaulted Interest" has the meaning specified in Section 3.07. "Depository" means The Depository Trust Company, its nominees and their respective successors. "Discount Notes Indenture" means the indenture dated as of November 26, 1997, between the Company and the trustee of the Discount Notes. "Discount Notes" means the Company's 15% Senior Secured Discount Notes due 2007. "Disinterested Director" means, with respect to any transaction or series of transactions in respect of which the Board of Directors is required to deliver a resolution of the Board of Directors under this Indenture, a member of the Board of Directors who does not have any material direct or indirect financial interest in or with respect to such transaction or series of transactions. "Equity Offering" means an underwritten primary public offering of Common Stock of the Company pursuant to an effective registration statement under the Securities Act or any offering or placement of Qualified Capital Stock of the Company, in each case resulting in gross proceeds equal to or greater than $50 million. "Event of Default" has the meaning specified in Section 5.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. "Generally Accepted Accounting Principles" or "GAAP" means generally accepted accounting principles in the -14- United States, consistently applied, that were in effect on November 26, 1997. "guarantee" means, as applied to any obligation, (1) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (2) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of nonperformance) of all or any part of such obligation, including the payment of amounts drawn down by letters of credit. "Holder" or "Noteholder" means a Person in whose name a Note is registered in the Note Register. "Indebtedness" means, with respect to any Person, without duplication, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (1) all liabilities of such Person for borrowed money (including overdrafts) or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities (including outstanding disbursements) incurred in the ordinary course of business (whether or not evidenced by a note), but including all obligations, contingent or otherwise, of such Person in connection with any letters of credit and acceptances issued under letter of credit facilities, acceptance facilities or other similar facilities, (2) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (3) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (4) all Capitalized Lease Obligations of such Person, (5) all Indebtedness referred to in (but not excluded from) the preceding clauses of other Persons -15- and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or with respect to property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (6) all guarantees by such Person of Indebtedness referred to in this definition of any other Person, (7) all Redeemable Capital Stock of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends, (8) all obligations of such Person under or in respect of Interest Rate Agreements or Currency Agreements and (9) all Attributable Indebtedness of such Person. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Redeemable Capital Stock, such fair market value shall be determined in good faith by the board of directors of the issuer of such Redeemable Capital Stock. For purposes of Section 10.11 and Section 10.12 and the definitions of "Events of Default" and "Permitted Indebtedness", in determining the principal amount of any Indebtedness to be incurred by the Company or a Restricted Subsidiary or which is outstanding at any date, (x) the principal amount of any Indebtedness which provides that an amount less than the principal amount at maturity thereof shall be due upon any declaration of acceleration thereof shall be the accreted value thereof at the date of determination for purposes of determining the amount that would be payable thereon in the event of the occurrence of an event of default (or similar) event under such Indebtedness, (y) the sum of the principal amount of any Indebtedness and the principal amount of any other Indebtedness to the extent incurred to refinance such -16- Indebtedness shall be reduced by an amount equal to the Fair Market Value, on the date of incurrence of such Indebtedness, of cash, Cash Equivalents or U.S. Government Obligations constituting the collateral securing such Indebtedness on a perfected basis, and dedicated for disbursement to the payment of principal of or interest on such Indebtedness and (z) effect shall be given to the impact of any Currency Agreement with respect to such Indebtedness. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability of any guarantees at such date; provided, however, that for purposes of calculating the amount of Discount Notes outstanding at any date, the amount of Discount Notes shall be the accreted value thereof as of such date, unless cash interest has commenced to accrue pursuant to the terms of the Discount Notes and the Discount Notes Indenture, in which case the amount of such Discount Notes outstanding at such date shall be the aggregate principal amount thereof at Stated Maturity and provided further, however, that for purposes of calculating the amount of noninterest bearing or other discount security (other than the Discount Notes), such Indebtedness shall be deemed to be the principal amount thereof that would be shown on the balance sheet of the Person dated such date prepared in accordance with GAAP but that such security shall be deemed to have been incurred only on the date of the original issuance thereof. "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Intercreditor Agreement" means the agreement between the Trustee, the trustee for the Discount Notes and the Collateral Agent that provides for the holding of the Bond Collateral in accordance with the terms of the Indenture and the other Secured Debt. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes. "Interest Rate Agreements" means any interest rate protection agreement and other types of interest rate hedging agreements or arrangements (including interest rate swaps, caps, floors, collars and similar agreements) designed to protect against or manage exposure to fluctuations in interest rates in respect of Indebtedness. -17- "Investment" means, with respect to any Person, any direct or indirect advance, loan or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase, acquisition or ownership by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued or owned by any other Person and all other items that would be classified as investments on a balance sheet prepared in accordance with GAAP. In addition, the Fair Market Value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary at such time. "Investments" shall exclude extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. "Issue Date" means the date on which the Notes are originally issued. "LIBOR" means, on any date of determination, for purposes of calculating the effective annual interest rate on any Indebtedness referred to in clause (o) of the definition of Permitted Liens, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, as the rate for dollar deposits with a maturity comparable to such Indebtedness. "Lien" means any mortgage, charge, pledge, lien (statutory or otherwise), privilege, security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind, real or personal, movable or immovable, now owned or hereafter acquired. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Loral Satellite Contract" means the Amended and Restated Contract No. SS/L-TP93002-01, dated as of June 30, -18- 1998, between the Company and Space Systems/Loral, Inc., as amended, modified or supplemented from time to time. "Maturity" means, with respect to any Note, the date on which any principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity with respect to such principal or by declaration of acceleration, call for redemption or purchase or otherwise. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, (1) with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations or escrowed funds, but only when received in the form of, or stock or other assets when disposed for, cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary), net of (a) brokerage commissions and other fees and expenses (including fees and expenses of legal counsel, accountants, consultants and investment banks) related to such Asset Sale, (b) provisions for all taxes payable as a result of such Asset Sale, (c) payments made to retire Indebtedness where payment of such Indebtedness is secured by the assets or properties the subject of such Asset Sale or becomes due and payable as a result thereof, (d) amounts required to be paid to any Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale and (e) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including pension and other post- -19- employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an Officers' Certificate delivered to the Trustee and (2) with respect to any capital contribution or issuance or sale of Capital Stock as referred to under Section 10.12, the proceeds of such capital contribution, issuance or sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations when received in the form of, or stock or other assets when disposed for, cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary), net of attorney's fees, accountant's fees and brokerage, consulting, financial, advisory, underwriting and other fees and expenses actually incurred in connection with such capital contribution, issuance or sale and net of taxes paid or payable as a result thereof. "Notes" has the meaning stated in the preamble of this Indenture and more particularly means any Notes authenticated and delivered under this Indenture. "Note Register" and "Note Registrar" have the respective meanings specified in Section 3.05. "Officers' Certificate" means a certificate signed by the Chairman, the Chief Executive Officer, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, including an employee of the Company, and who shall be reasonably acceptable to the Trustee. "Outstanding", when used with respect to Notes, means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: (i) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancelation; (ii) Notes, or portions thereof, for whose payment or redemption money in the necessary amount has -20- been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Notes; provided that, if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Notes, except to the extent provided in Sections 13.02 and 13.03, with respect to which the Company has effected defeasance or covenant defeasance as provided in Article XIII; and (iv) Notes which have been paid pursuant to Section 3.06 or in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture, other than any such Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Notes are held by a bona fide purchaser in whose hands the Notes are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Notes have given any request, demand, authorization, direction, consent, notice or waiver hereunder, and for the purpose of making the calculations required by TIA Section 313, Notes owned by the Company or any other obligor upon the Notes or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or such other obligor. "Pari Passu Indebtedness" means Indebtedness of the Company that is pari passu in right of payment to the Notes. "Paying Agent" means any Person (including the Company acting as Paying Agent) authorized by the Company to pay the principal of (and premium, if any) or interest on any Notes on behalf of the Company. -21- "Permitted Holder" means Loral Space & Communications Ltd., and its successors. "Permitted Indebtedness" means any of the following: (a) Pari Passu Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount which, when taken together with the then outstanding principal amount of (x) Pari Passu Indebtedness incurred pursuant to this clause (a), (y) the Notes and (z) any refinancing of such Pari Passu Indebtedness or the Notes pursuant to clause (k) below, does not exceed the sum of (1) $350 million and (2) an amount equal to 125% of Total Incremental Equity as of the date of such incurrence; (b) Indebtedness of the Company or any Restricted Subsidiary incurred pursuant to the Tranche A Credit Facility in an amount which, after giving effect to the incurrence thereof, the aggregate principal amount of Indebtedness incurred under this clause (b) and any refinancings thereof pursuant to clause (k) below and then outstanding, does not exceed $115 million; (c) Indebtedness of the Company pursuant to the Notes or of any Restricted Subsidiary pursuant to a guarantee of the Notes; (d) Indebtedness of the Company or any Restricted Subsidiary outstanding on the Issue Date, including amounts not yet advanced on the Issue Date but which the Company is entitled to defer or incur under the Loral Satellite Contract; (e) Indebtedness of the Company owing to any Restricted Subsidiary; provided that any Indebtedness of the Company owing to any such Restricted Subsidiary is subordinated in right of payment to the Notes from and after such time as the Notes shall become due and payable (whether at Stated Maturity, acceleration or otherwise) to the payment and performance of the Company's obligations under the Notes; provided further that any disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to the Company or another Restricted Subsidiary) shall be deemed to be an incurrence of such -22- Indebtedness by the Company not permitted by this clause (e); (f) Indebtedness of a Restricted Subsidiary owing to the Company or to a Restricted Subsidiary; provided that any disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to the Company or a Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness by such Restricted Subsidiary not permitted by this clause (f); (g) obligations of the Company entered into in the ordinary course of business (i) pursuant to bona fide Interest Rate Agreements designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates in respect of Indebtedness of the Company or any Restricted Subsidiary, which obligations do not exceed the aggregate principal amount of such Indebtedness, and (ii) pursuant to bona fide Currency Agreements entered into by the Company or any of its Restricted Subsidiaries and designed to protect such Person against fluctuation in currency values in respect of its assets or obligations; (h) Capitalized Lease Obligations and Purchase Money Obligations of the Company, the aggregate value (in the case of Capitalized Lease Obligations) or principal amount (in the case of Purchase Money Obligations) of which (including any refinancings (as defined in clause (k) below) thereof) does not exceed $20 million at any one time outstanding; (i) unsecured Subordinated Indebtedness of the Company incurred to finance the operation of CD Radio Assets or the construction, expansion, development or acquisition of music libraries and other recorded music programming, furniture, fixtures and equipment if such Indebtedness has an Average Life longer than the Average Life of the Notes and has a final Stated Maturity of principal after the final Stated Maturity of principal of the Notes; (j) in addition to the items referred to in clauses (a) through (i) above, Indebtedness of the Company having an aggregate principal amount not to exceed $15 million at any time outstanding; and -23- (k) Indebtedness of the Company or any Restricted Subsidiary to the extent it represents a replacement, renewal, refinancing, refunding or extension of outstanding Indebtedness of the Company or any Restricted Subsidiary incurred or outstanding pursuant to clauses (a), (b), (c), (d), (h), and (i) of this definition or the proviso of Section 10.11; provided, however, that (i) Indebtedness of the Company may not be replaced, renewed, refinanced, refunded or extended to such extent under this clause (k) with Indebtedness of any Restricted Subsidiary and (ii) any such replacement, renewal, refinancing, refunding or extension (a) shall not result in a lower Average Life of such Indebtedness as compared with the Indebtedness being replaced, renewed, refinanced, refunded or extended, (b) shall not exceed the sum of the principal amount (or, (x) if such Indebtedness provides for a lesser amount to be due and payable upon a declaration of acceleration thereof, an amount no greater than such lesser amount or (y), in the case of Indebtedness the principal amount of which was calculated pursuant to clause (y) of the last paragraph of the definition of Indebtedness, the face amount of such Indebtedness) of the Indebtedness being replaced, renewed, refinanced, refunded or extended plus the amount of accrued interest thereon and the amount of any reasonably determined prepayment premium necessary to accomplish such replacement, renewal, refinancing, refunding or extension and the reasonable fees and expenses incurred in connection therewith, and (c) in the case of any replacement, renewal, refinancing, refunding or extension by the Company of Pari Passu Indebtedness, the Notes or Subordinated Indebtedness, such new Indebtedness is made pari passu with or subordinate to the Notes, at least to the same extent as the Indebtedness being replaced, renewed, refinanced or extended. "Permitted Investments" means (1) Cash Equivalents; (2) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers' compensation, performance and other similar deposits; (3) loans and advances to employees made in the ordinary course of business; -24- (4) Interest Rate Agreements and Currency Agreements; (5) bonds, notes, debentures or other securities received as a result of Asset Sales permitted under Section 10.16; provided, however, that the Company or the Restricted Subsidiaries, as the case may be, have received at least 80% of the aggregate consideration therefrom in cash or Cash Equivalents; (6) Investments by the Company or any Restricted Subsidiary in another Person, if as a result of such Investment (i) such other Person becomes a Restricted Subsidiary or (ii) such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to, the Company or a Restricted Subsidiary; (7) Investments in the Company or in any Restricted Subsidiary; (8) Investments in preferred stock of corporations (x) organized and validly existing under the laws of any state of the United States of America, (y) conducting business principally in the State of New York and (z) whose long term unsecured debt rating is rated one of the four highest rating categories by S&P, Moody's or another nationally recognized securities rating agency, in an aggregate amount not to exceed $35 million at any one time outstanding; and (9) Investments not otherwise permitted by the foregoing clauses (1) through (8) in an amount not to exceed $5.0 million at any one time outstanding. "Permitted Liens" means the following types of Liens: (a) Liens existing on the date of this Indenture; (b) Liens on Bond Collateral securing Pari Passu Indebtedness incurred pursuant to clause (a) of the definition of Permitted Indebtedness or any refinancing Indebtedness in respect thereof incurred pursuant to clause (k) of the definition of Permitted Indebtedness; provided, however, that such Lien shall be equal in priority to the Lien on the Bond Collateral securing the Notes; -25- (c) Liens on any property or assets of a Restricted Subsidiary granted in favor of the Company or any other Restricted Subsidiary; (d) Liens securing the Notes; (e) Liens securing Acquired Indebtedness created prior to (and not in connection with or in contemplation of) the incurrence of such Indebtedness by the Company or any Restricted Subsidiary; provided that such Lien does not extend to any property or assets of the Company or any Restricted Subsidiary other than the assets acquired in connection with the incurrence of such Acquired indebtedness; (f) any interest or title of a lessor under any Capitalized Lease Obligation or any Purchase Money Obligation, in each case as permitted under clause (h) of the definition of "Permitted Indebtedness"; provided, however, that such interest or title shall not extend to any property or assets other than the assets that are the subject of such Capitalized Lease Obligation or Purchase Money Obligation; (g) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repair-men or other like Liens arising in the ordinary course of business of the Company or any Restricted Subsidiary and with respect to amounts not yet delinquent or being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (h) Liens for taxes, assessments, government charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (i) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance bonds and other obligations of a like nature incurred in the ordinary course of business (other than contracts for the payment of money); -26- (j) easements, rights-of-way, encroachments and survey defects restrictions and other similar charges or encumbrances incurred in the ordinary course of business not interfering in any material respect with the business of the Company or any Restricted Subsidiary; (k) Liens arising by reason of any judgment, decree or order of any court or arbitration proceeding so long as such Lien is adequately bonded and any appropriate legal proceedings that may have been duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (l) Liens securing obligations of the Company under Interest Rate Agreements or Currency Agreements or any collateral (other than Bond Collateral) for the Indebtedness to which such Interest Rate Agreements or Currency Agreements relate; (m) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (n) Liens securing reimbursement obligations of the Company or any Restricted Subsidiary with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof so long as such Liens do not extend to Bond Collateral; (o) Liens on the satellites of the Company which are not one of the first three satellites, or on contractual rights to acquire such satellites, securing Indebtedness of the Company; provided, however, that such Indebtedness shall not be secured by Bond Collateral; provided further, however, that such Lien on the satellites of the Company which are not one of the first three satellites, or on contractual rights to acquire such satellites, may only secure up to $110 million of such Indebtedness (plus the interest thereon and other amounts payable in respect thereof) and such Indebtedness (a) shall not have an effective annual interest rate greater than LIBOR + 600 basis points and (b) by its terms does not entitle the holders of such Indebtedness to receive Common Stock or warrants exercisable for Common Stock in an amount -27- greater than 2.25% of the Company's outstanding Common Stock on a fully diluted basis (after giving pro forma effect to such offering of Common Stock or warrants exercisable for Common Stock) and, in the event that such Indebtedness is in an amount less than $110 million, the provisions of clause (b) of the immediately preceding proviso shall be pro rated accordingly; (p) any extension, renewal or replacement, in whole or in part, of any Lien described in the foregoing clauses (a) and (c) through (o); provided that any such extension, renewal or replacement shall be no more restrictive in any material respect than the Lien so extended, renewed or replaced and shall not extend to any additional property or assets; (q) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary with respect to obligations that do not exceed $5 million at any one time outstanding; and (r) Liens on cash, Cash Equivalents or U.S. Government Obligations securing Indebtedness up to the Fair Market Value, on the date of incurrence of such Indebtedness, of the cash, Cash Equivalents and U.S. Government Obligations constituting the collateral securing such Indebtedness on a perfected basis and dedicated for disbursement to the payment of principal and/or interest on such Indebtedness. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Pledge Account" means an account established with the Trustee pursuant to the terms of the Collateral Pledge Agreement for the deposit of the Pledged Securities. "Pledge Agreement" means the Amended and Restated Pledge Agreement dated as of May 15, 1999, among the Company, as Pledgor, IBJ WHITEHALL BANK & TRUST COMPANY, as Collateral Agent, the Trustee and the trustee for the Discount Notes, as amended, modified or supplemented from time to time. "Pledged Securities" means the U.S. Government obligations (as defined in Section 13.04) purchased by the -28- Company with a portion of the net proceeds from the Units offering to be deposited in the Pledge Account. "Pledged Stock" means the capital stock of Satellite CD Radio, Inc., a Delaware corporation, that is pledged to secure the Notes. "Predecessor Note" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 3.06 in exchange for a mutilated security or in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's preferred or preference stock whether now outstanding, or issued after the Issue Date, and including all classes and series of preferred or preference stock of such Person. "Purchase Money Obligations" means Indebtedness of the Company or any Restricted Subsidiary (1) issued to finance or refinance the purchase or construction of any assets of the Company or any Restricted Subsidiary, (2) issued to finance the construction of satellite dish antennas or radio adapters to receive the Company's services or (3) secured by a Lien on any assets of the Company or any Restricted Subsidiary where the lender's sole recourse is to the assets so encumbered, (a) in the case of clauses (1) or (3) above, to the extent the purchase or construction prices for such assets are or should be included in "addition to property, plant or equipment" in accordance with GAAP and (b) in each case, if the purchase or construction of such assets is not part of any acquisition of a Person or business unit. "Qualified Capital Stock" of any person means any and all Capital Stock of such Person other than Redeemable Capital Stock. -29- "Redeemable Capital Stock" means any class or series of Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is, or upon the happening of an event or passage of time would be, required to be redeemed prior to the final Stated Maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to such final Stated Maturity, or is convertible into or exchangeable for debt securities at any time prior to such final Stated Maturity; provided, however, that Redeemable Capital Stock shall not include any Common Stock the holder of which has a right to put to the Company upon certain terminations of employment; and provided further, however, that any class or series of Capital Stock that would not constitute Redeemable Capital Stock but for provisions thereof giving holders thereof the right to require the issuer of such Capital Stock to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the final Stated Maturity of the Notes shall not constitute Redeemable Capital Stock if the "asset sale" or "change of control" provisions applicable to such class or series of Capital Stock are no more favorable to the holders of such Capital Stock in any material respect than the provisions of Section 10.10 and Section 10.16 and such class or series of Capital Stock specifically provides that the issuer of such Capital Stock will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Notes as are required to be purchased pursuant to Section 10.10 and Section 10.16, as applicable. "Redemption Date", when used with respect to any Note to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Note to be redeemed, means the price at which it is to be. redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date means the May 1 or November 1 (whether or not a Business Day or legal holiday), as the case may be, next preceding such Interest Payment Date. "Responsible Officer", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the secretary, any assistant secretary, the treasurer, any -30- assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above-designated officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Subsidiary" means a Subsidiary other than an Unrestricted Subsidiary. "S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill, Inc. and its successors. "Sale and Leaseback Transaction" means an arrangement by the Company or a Restricted Subsidiary with any lender or investor or to which such lender or investor is a party providing for the leasing by the Company or such Restricted Subsidiary of any property or asset of the Company or such Restricted Subsidiary which has been or is being sold or transferred by the Company or such Restricted Subsidiary not more than 270 days after the acquisition thereof to such lender or investor or any Affiliate thereof or to any Person to whom funds have been or are to be advanced by such lender or investor or any Affiliate thereof on the security of such property or asset. "Satellite Assets" means satellites, terrestrial repeating stations, uplink facilities and telemetry, tracking, monitoring and control equipment. "Secured Debt" means, as of any date, (i) the unpaid principal of, and any accrued interest and premium, if any, on any Indebtedness secured by a Lien permitted by clause (b) of the definition of Permitted Liens, and (ii) fees, expenses and charges (including indemnification obligations) due or owing to any Secured Party arising under this Agreement or any Collateral Document. "Secured Party" means holders of Indebtedness secured by a Lien permitted by clause (b) of the definition of Permitted Liens and the Trustee or any other obligee or indemnified party under any Collateral Document. "Securities Act" means the Securities Act of 1933. "Series C Preferred Stock" means the 10-1/2% Series C Convertible Preferred Stock of the Company. -31- "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07. "Stated Maturity" means, when used with respect to any Note or any installment of interest thereon, the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable, and, when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. "Subordinated Indebtedness" means Indebtedness of the Company that is expressly subordinated in right of payment to the Notes. "Subsidiary" means any Person a majority of the equity ownership or Voting Stock of which is at the time owned, directly or indirectly, by the Company or by one or more other Subsidiaries or by the Company and one or more other Subsidiaries. "Total Consolidated Indebtedness" means, at any date of determination, an amount equal to the aggregate amount of all Indebtedness of the Company and the Restricted Subsidiaries outstanding as of the date of determination. "Total Incremental Equity" means, at any date of determination, the sum of, without duplication, (1) the aggregate cash proceeds received by the Company after the Issue Date from the issuance or sale of Qualified Capital Stock of the Company (excluding any proceeds received from the issuance of the Company's 9.2% Series B Junior Cumulative Convertible Preferred Stock but including Capital Stock issued upon the conversion of convertible Indebtedness or from the exercise of options, warrants or rights to purchase Qualified Capital Stock of the Company) to any Person other than a Subsidiary; plus (2) an amount equal to the sum of (a) the net reduction in Investments in any Person (other than Permitted Investments) resulting from the payment in cash of dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any -32- Restricted Subsidiary after the Issue Date from such Person and (b) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that in the case of (a) or (b) above the foregoing sum shall not exceed the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary and that constitutes a Restricted Payment that has been deducted from Total Incremental Equity pursuant to clause (3) below, minus (3) the aggregate amount of all Restricted Payments declared or made on or after the Issue Date and minus (4) the aggregate amount paid pursuant to clauses (1), (2), (3), (4), (6) and (8) of the second paragraph of Section 10.12. "Trading Day" with respect to a securities exchange or automated quotation system means a day on which such exchange or system is open for a full day of trading. "Tranche A Credit Facility" means the term loan facility under the Credit Agreement, dated as of June 30, 1998, among the Company, Bank of America National Trust and Savings Association ("Bank of America") and other financial institutions from time to time parties thereto and Bank of America, as administrative agent, as the same may be amended, modified or supplemented from time to time. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unit" means $1,000 aggregate principal amount of the Notes and three warrants to purchase Common Stock. -33- "Unrestricted Subsidiary" means (1) any Subsidiary that at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors, as provided below) and (2) any subsidiary of an Unrestricted Subsidiary; provided, however, that in no event shall any Person that is a Restricted Subsidiary on the Issue Date become an Unrestricted Subsidiary. The Board of Directors may designate any newly acquired or newly formed Subsidiary to be an Unrestricted Subsidiary so long as (1) neither the Company nor any Restricted Subsidiary is directly or indirectly liable for any Indebtedness of such Subsidiary, (2) no default with respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity, (3) neither the Company nor any Restricted Subsidiary has a contract, agreement, arrangement, understanding or obligation of any kind, whether written or oral, with such Subsidiary other than those that might be obtained at the time from persons who are not Affiliates of the Company and (4) neither the Company nor any Restricted Subsidiary has any obligation (a) to subscribe for additional shares of Capital Stock or other equity interests in such Subsidiary or (b) to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing a Board Resolution with the Trustee giving effect to such designation. The Board of Directors may designate any Unrestricted Subsidiary as a Restricted Subsidiary if immediately after giving effect to such designation, there would be no Default or Event of Default under this Indenture and the Company could incur $1.00 of additional Indebtedness -34- (other than Permitted Indebtedness) pursuant to Section 10.11. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Voting Stock" means, with respect to any Person, any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). SECTION 1.02. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 10.08(a)) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or -35- investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such -36- action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 1.04. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) The principal amount and serial numbers of Notes held by any Person, and the date of holding the same, shall be proved by the Note Register. (d) If the Company shall solicit from the Holders of Notes any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of -37- the requisite proportion of Outstanding Notes have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Notes shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 1.05. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention of Corporate Trust Administration, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.06. Notice to Holders; Waiver. Where this Indenture provides for notice of any event to Holders by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where -38- notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. SECTION 1.07. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.08. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.09. Separability Clause. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.10. Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any Notes Registrar and their successors hereunder, and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.11. Governing Law. This Indenture and the Notes shall be governed by and construed in accordance with the law of the State of New York. This Indenture is -39- subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 1.12. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Stated Maturity or Maturity of any Note shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes) payment of principal (or premium, if any) or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity or Maturity; provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Stated Maturity or Maturity, as the case may be, to the next Business Day. ARTICLE II Note Forms SECTION 2.01. Form of Note and Trustee's Certificate of Authentication. Provisions relating to the Initial Notes and the Exchange Notes are set forth in the Rule 144A Appendix attached hereto (the "Appendix") which is hereby incorporated in and expressly made part of this Indenture. The Notes and the Trustee's certificate of authentication shall be in substantially the forms set forth in the Appendix or in Exhibit B hereto, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Notes, as evidenced by their execution of the Notes. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note. The definitive Notes shall be printed, lithographed or engraved on steel-engraved borders or may be produced in any other manner, all as determined by the officers of the Company executing such Notes, as evidenced by their execution of such Notes. -40- ARTICLE III The Notes SECTION 3.01. Title and Terms. The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is limited to $200,000,000, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 3.04, 3.05, 3.06, 9.06, 10.10, 10.16 or 11.08. The Notes shall be known and designated as the "14-1/2% Senior Secured Notes due 2009" of the Company. Their Stated Maturity shall be May 15 , 2009, and they shall bear interest at the rate of 14-1/2% per annum from May 18, 1999 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, payable on November 15, 1999 and semiannually thereafter on May 15 and November 15 in each year and at said Stated Maturity, until the principal thereof is paid or duly provided for. Interest on any overdue principal amount shall be payable on demand. The principal of (premium, if any, on) and interest on the Notes shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose; provided, however, that at the option of the Company interest may be paid by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Note Register. The Notes shall be redeemable as provided in Article XI. SECTION 3.02. Denominations. The Notes shall be issuable only in registered form without coupons and only denominations of $1,000 and any integral multiple thereof. SECTION 3.03. Execution, Authentication, Delivery and Dating. The Notes shall be executed on behalf of the Company by its Chairman, its Chief Executive Officer, its President or a Vice President, and attested by its Secretary or an Assistant Secretary. The signature of any of these officers on the Notes may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Notes. -41- Notes bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Notes executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Notes, and the Trustee in accordance with such Company Order shall authenticate and deliver such Notes. Each Note shall be dated the date of its authentication. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. In case the Company, pursuant to Article VIII, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article VIII, any of the Notes authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Notes executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Notes surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Notes as specified in such request for the purpose of such exchange. If Notes -42- shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section 3.03 in exchange or substitution for or upon registration of transfer of any Notes, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Notes at the time Outstanding for Notes authenticated and delivered in such new name. SECTION 3.04. Temporary Notes. Pending the preparation of definitive Notes, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as conclusively evidenced by their execution of such Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for such purpose pursuant to Section 10.02, without charge to the Holder. Upon surrender for cancelation of any one or more temporary Notes, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. SECTION 3.05. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.02 being herein sometimes referred to as the "Note Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. The Note Register shall be in written form or any other form capable of being converted into written form within a reasonable time. At all reasonable times, the Note Register shall be open to inspection by the Trustee. The Trustee is hereby initially appointed as note registrar (the "Note Registrar") for the -43- purpose of registering Notes and transfers of Notes as herein provided. Upon surrender for registration of transfer of any Note at the office or agency of the Company designated pursuant to Section 10.02, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denomination or denominations of a like aggregate principal amount. At the option of the Holder, Notes may be exchanged for other Notes of any authorized denomination and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Note Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Note Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange or redemption of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 3.04, 9.06, 10.10, 10.16 or 11.08 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the selection of Notes to be redeemed under Section 11.04 and ending at the close of business on the day of such mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Note so selected -44- for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Notes. If (i) any mutilated Note is surrendered to the Trustee, or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. Upon the issuance of any new Note under this Section 3.06, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Note issued pursuant to this Section 3.06 in lieu of any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section 3.06 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 3.07. Payment of Interest; Interest Rights Preserved. Interest on any Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such -45- interest at the office or agency of the Company maintained for such purpose pursuant to Section 10.02; provided, however, that each installment of interest may at the Company's option be paid by (i) mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 3.08, to the address of such Person as it appears in the Note Register or (ii) transfer to an account located in the United States maintained by the payee. Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Notes (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date, and in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to the Holders in the manner provided for in Section 1.06, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so given, such Defaulted Interest -46- shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section 3.07, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. SECTION 3.08. Persons Deemed Owners. Prior to the due presentment of a Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 3.05 and 3.07) interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.09. Cancelation. All Notes surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Notes previously authenticated hereunder which the Company has not issued and sold, and all Notes so delivered shall be promptly canceled by the Trustee. If the Company shall so acquire any of the Notes, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation. No Notes shall be authenticated in lieu of or -47- in exchange for any Notes canceled as provided in this Section 3.09, except as expressly permitted by this Indenture. All canceled Notes held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures and certification of their disposal delivered to the Company unless by Company Order the Company shall direct that canceled Notes be returned to it. SECTION 3.10. Computation of Interest. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 3.11. CUSIP Number. The Company, in issuing the Notes may use a "CUSIP" number, and if so, such CUSIP number shall be included in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company will promptly notify the Trustee of any such CUSIP number used by the Company in connection with the issuance of the Securities and of any change in the CUSIP number. ARTICLE IV Satisfaction and Discharge SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Notes expressly provided for herein or pursuant hereto) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when (1) either (a) all Notes theretofore authenticated and delivered (other than (i) Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (ii) Notes for whose payment money has theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in -48- Section 10.03) have been delivered to the Trustee for cancellation; or (b) all Notes not theretofore delivered to the Trustee for cancelation (i) have become due and payable, (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancelation, for the aggregate principal amount of, premium, if any, and interest on the Notes to the date of such deposit (in the case of Notes which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable under this Indenture, the Notes and the Collateral Documents by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided in this Indenture relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.06 and, if money shall have been deposited with the Trustee pursuant to subclause (ii) of clause (1) of this Section 4.01, the obligations of the Trustee under Section 4.02 and the last paragraph of Section 10.03 shall survive. SECTION 4.02. Application of Trust Money. Subject to the provisions of the last paragraph of -49- Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the aggregate principal amount of, premium, if any, and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. ARTICLE V Remedies SECTION 5.01. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) as to any Interest Payment Date occurring on or prior to May 15, 2002, default in the payment of any interest on any Note when it becomes due and payable; and as to any Interest Payment Date thereafter, any default in the payment of interest on any Note and continuance of such default for a period of 30 days; (2) default in the payment of the principal of or premium, if any, on any Note at its Maturity; (3) default in the performance, or breach, of the provisions of Article VIII, the failure to make or consummate a Change of Control Offer in accordance with the provisions of Section 10.10 or the failure to make or consummate an Excess Proceeds Offer in accordance with the provisions of Section 10.16; (4) default in the performance, or breach, of any covenant or agreement of the Company in this Indenture (other than a default in the performance, or breach, of a covenant or warranty which is specifically dealt with elsewhere in this Indenture), and continuance of such default or breach for a period of 30 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the -50- Trustee by the Holders of at least 25% in principal amount of the Outstanding Notes a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; (5) any provision of the Collateral Documents shall cease, for any reason, to be in full force and effect in any material respect, or the Company shall so assert in writing; or the Trustee or the Collateral Agent, as the case may be, shall cease to have a first priority perfected security interest in the Pledged Stock or the Pledged Securities or the Pledge Account, as the case may be, for the benefit of the Trustee and the Holders (other than by reason of the release of any such security interest in accordance with the Collateral Documents), or any representation, warranty or certification of the Company made in or pursuant to the Collateral Documents shall be false in any material respect as of the date when made; (6) (A) one or more defaults in the payment of principal of or premium, if any, on Indebtedness of the Company or any Subsidiary aggregating $10.0 million or more, when the same becomes due and payable at the Stated Maturity thereof, and such default or defaults shall have continued after any applicable grace period and shall not have been cured or waived or (B) Indebtedness of the Company or any Subsidiary aggregating $10.0 million or more shall have been accelerated or otherwise declared due and payable, or required to be prepaid or repurchased (other than by regularly scheduled required prepayment), prior to the Stated Maturity thereof; (7) one or more final judgments, orders, or decrees of any court or regulatory agency shall be rendered against the Company or any Subsidiary or their respective properties for the payment of money, either individually or in an aggregate amount in excess of $10.0 million and either (A) an enforcement proceeding shall have been commenced by any creditor upon such judgment or order or (B) there shall have been a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of pending appeal or otherwise, was not in effect; (8) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company or any Subsidiary a bankrupt or insolvent, or -51- approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Subsidiary under any Bankruptcy Law or any other applicable Federal or state law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or (9) the institution by the Company or any Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any Bankruptcy Law or any other applicable Federal or state law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due. SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.01(8) or (9)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Notes by written notice to the Company (and to the Trustee if such notice is given by the Holders), may, and the Trustee upon the written request of such Holders shall, declare the principal amount of, premium, if any, and accrued interest on all of the Outstanding Notes immediately due and payable, and upon any such declaration all such amounts payable in respect of the Notes shall become immediately due and payable. If an Event of Default specified in Section 5.01(8) or (9) occurs and is continuing, then the principal of, premium, if any, and accrued interest on all of the Outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after a declaration of acceleration has been made and before a judgment or decree for payment of -52- the money due has been obtained by the Trustee as hereinafter provided in this Article V, the Holders of a majority in principal amount of the Outstanding Notes, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if, (a) the Company has paid or deposited with the Trustee a sum sufficient to pay, (i) all overdue interest on all Outstanding Notes, (ii) all unpaid principal of and premium, if any, on any Outstanding Notes that have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, (iii) to the extent that payment of such interest is lawful, interest on overdue interest and overdue principal at the rate borne by the Notes, and (iv) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (b) all Events of Default, other than the non- payment of amounts of principal of, premium, if any, or interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent default or impair any right consequent thereon. Notwithstanding the preceding paragraph, in the event of a declaration of acceleration in respect of the Notes because of an Event of Default specified in Section 5.01(5) shall have occurred and be continuing, such declaration of acceleration shall be automatically annulled if the Indebtedness that is the subject of such Event of Default has been discharged or the Holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness, and written notice of such discharge or rescission, as the case may be, shall have been given to the Trustee by the Company and countersigned by the holders of such Indebtedness or a trustee, fiduciary or agent for such holders, within 30 days after such declaration of -53- acceleration in respect of the Notes, and no other Event of Default has occurred during such 30-day period which has not been cured or waived during such period. SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (a) default is made in the payment of any installment of interest on any Note when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of (or premium, if any, on) any Note at the Maturity thereof, the Company will, upon demand of the Trustee, pay to the Trustee for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal (and premium, if any) and interest, and interest on any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installment of interest, at the rate borne by the Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Notes or against the Collateral and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. -54- SECTION 5.04. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Notes or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.06. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.05. Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or -55- the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. SECTION 5.06. Application of Money Collected. Any money collected by the Trustee pursuant to this Article V shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.06; SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal (and premium, if any) and interest, respectively; and THIRD: The balance, if any, to the Person or Persons entitled thereto. The Trustee may fix a record date and a payment date for any payments to be made to Holders pursuant to this Section 5.06. At least 15 days before such record date, the Company shall direct the Trustee to mail to each Holder a notice that states the record date, the payment date and the amount to be paid. SECTION 5.07. Limitation on Suits. No Holder of any Notes shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; -56- (2) the Holders of not less than 25% in principal amount of the Outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority or more in principal amount of the Outstanding Notes; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 5.08. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment, as provided herein (including, if applicable, Article XIII) and in such Note of the principal of (and premium, if any) and (subject to Section 3.07) interest on such Note on the respective Stated Maturities expressed in such Note (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively -57- to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 5.12. Control by Holders. The Holders of not less than a majority in principal amount of the Outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with any provisions of this Indenture or the Collateral Documents, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) the Trustee need not take any action which might involve it in personal liability or be unjustly prejudicial to the Holders not consenting. -58- SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Notes may, on behalf of the Holders of all the Notes, waive any past defaults under this Indenture and their consequences, except a default (1) in respect of the payment of the principal of (or premium, if any) or interest on any Note, or (2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Note affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 5.14. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VI The Trustee SECTION 6.01. Notice of Defaults. (a) Within 30 days after the Trustee receives notice of the occurrence of any Default or an Event of Default hereunder, the Trustee shall transmit in the manner and to the extent provided in TIA Section 313(c), notice of such Default hereunder known to the Trustee, unless such Default or Event of Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of (or premium, if any) or interest on any Note, the Trustee shall be protected in withholding such notice if -59- and so long as the Board of Directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders; and provided further that in the case of any Default of the character specified in Section 5.01(4) no such notice to Holders shall be given until at least 30 days after the occurrence thereof. (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part or manifest error, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinion which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved form liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (b) and (c) of this Section. -60- (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) Every provision of this Indenture relating to the conduct or affecting the liability of or a affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. (h) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses (including reasonable attorneys' fees and expenses) and liabilities that might be incurred by it in compliance with such request or direction. (i) The Trustee shall not be charged with knowledge of any Default or Event of Default, of the identity of any Restricted Subsidiary or the existence of any Change of Control or Asset Sale unless either (i) a Trust Officer shall have actual knowledge thereof or (ii) the Trustee shall have received written notice thereof from the Company or any Holder. SECTION 6.02. Certain Rights of Trustee. Subject to the provisions of TIA Sections 315(a) through 315(d): (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a -61- matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate or Opinion of Counsel and shall not be liable for any action it takes or omits to take in reliance in good faith on such Officers' Certificate or Opinion of Counsel; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or the other Collateral Documents at the request or direction of any of the Holders pursuant to this Indenture or the other Collateral Documents, unless such Holders shall have offered to the Trustee security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction reasonably satisfactory to the Trustee; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the -62- discretion or rights or powers conferred upon it by this Indenture; and (9) the permissive right of the Trustee to act hereunder will not be construed as a duty. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 6.03. Trustee Not Responsible for Preamble or Issuance of Notes. The preamble contained herein and in the Notes, except for the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Notes and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility on Form T-1 supplied to the Company are true and accurate, subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of Notes or the proceeds thereof. SECTION 6.04. May Hold Notes. The Trustee, any Paying Agent, any Note Registrar or any other agent of the Company or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and, subject to TIA Sections 3.10(b) and 3.11, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Note Registrar or such other agent. SECTION 6.05. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. -63- SECTION 6.06. Compensation and Reimbursement. The Company agrees: (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its gross negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligations of the Company under this Section 6.06 to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. As security for the performance of such obligations of the Company, the Trustee shall have a claim prior to the Notes upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Notes. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.01(7) or (8), the expenses (including the reasonable charges and expenses of its counsel) of and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law. The provisions of this Section 6.06 shall survive the termination of this Indenture. -64- SECTION 6.07. Corporate Trustee Required; Eligibility; Conflicting Interests. There shall be at all times a Trustee hereunder which shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of Federal, State, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section 6.07, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.07, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VI. SECTION 6.08. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article VI shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.09. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.09 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of not less than a majority in principal amount of the Outstanding Notes, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, or (2) the Trustee shall cease to be eligible under Section 6.07 and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, or -65- (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, by a Board Resolution, may remove the Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders of Notes in the manner provided for in Section 1.06. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 6.09. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall -66- become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article VI. SECTION 6.10. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article VI, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. In case at that time any of the Notes shall not have been authenticated, any successor Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor Trustee. In all such cases such certificates shall have the full force and effect which this Indenture provides for the certificate of authentication of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Notes in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. -67- ARTICLE VII Holders Lists and Reports by Trustee and Company SECTION 7.01. Disclosure of Names and Addresses of Holders. Every Holder of Notes, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company or the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with TIA Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). SECTION 7.02. Reports by Trustee. Within 60 days after May 15 of each year commencing with the first May 15 after the first issuance of Notes, the Trustee shall transmit to the Holders, in the manner and to the extent provided in TIA Section 313(c), a brief report dated as of such May 15 if required by TIA Section 313(a). SECTION 7.03. Reports by Company. The Company shall: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional -68- information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit by mail to all Holders, in the manner and to the extent provided in TIA Section 313(c), within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section 7.03 as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms. The Company will not in a single transaction or a series of related transactions consolidate with or merge with or into any other Person or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to any Person or Persons, and the Company will not permit any Restricted Subsidiary to enter into any such transaction, or series of transactions, if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries on a consolidated basis to any Person or Persons, unless: (i) either (a) the Company shall be the surviving corporation or (b) the Person (if other than the Company) formed by such consolidation or into which the Company or the Company and its Restricted Subsidiaries is merged or the Person which acquires by sale, conveyance, transfer, lease or other disposition, all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, as the case may be, (the "Surviving Entity") -69- (1) shall be a corporation organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and (2) shall expressly assume, by an indenture supplemental to this Indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, the Company's obligations for the due and punctual payment of the principal of (or premium, if any, on) and interest on all the Notes and the performance and observance of every covenant of this Indenture on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any obligation of the Company or any Restricted Subsidiary in connection with or as a result of such transaction as having been incurred of the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction or series of transactions on a pro forma basis (on the assumption that the transaction or series of transactions occurred on the first day of the latest four fiscal quarters for which consolidated financial statements of the Company are available prior to the consummation of such transaction or series of transactions with the appropriate adjustments with respect to the transaction or series of transactions, including the incurrence and repayment of any Indebtedness incident to such transaction, being included in such pro forma calculation), the Company (or the Surviving Entity if the Company is not the continuing obligor under this Indenture) could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the proviso to Section 10.11; provided, however, that this clause (iii) shall not apply to a consolidation, merger or sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries if (a) all Liens and Indebtedness of the Company or the Surviving Entity, as the case may be, and its Restricted Subsidiaries outstanding -70- immediately after such transaction would, if incurred at such time, have been permitted to be incurred (and all such Liens and Indebtedness, other than the Liens and Indebtedness of the Company and its Restricted Subsidiaries outstanding immediately prior to the transaction, shall be deemed to have been incurred at such time) for all purposes of this Indenture and (b) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any obligation of the Company or any Restricted Subsidiary incurred in connection with or as a result of such transaction or series of transactions as having been incurred at the time of such transaction), the Consolidated Net Worth of the Company (or of the Surviving Entity if the Company is not the continuing obligor under this Indenture) is equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction or series of transactions; (iv) if any of the property or assets of the Company or any of its Restricted Subsidiaries would thereupon become subject to any Lien, the provisions of Section 10.15 are complied with; and (v) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition and such supplemental indenture comply with this Article VIII and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 8.02. Successor Substituted. Upon any consolidation of the Company with or merger of the Company with or into any other corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person in accordance with Section 8.01, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named -71- as the Company herein, and in the event of any such conveyance or transfer, the Company (which term shall for this purpose mean the Person named as the "Company" in the first paragraph of this Indenture or any successor Person which shall theretofore become such in the manner described in Section 8.01), except in the case of a lease, shall be discharged of all obligations and covenants under this Indenture and the Notes and may be dissolved and liquidated. SECTION 8.03. Notes To Be Secured in Certain Events. If, upon any such consolidation of the Company with or merger of the Company into any other corporation, or upon any conveyance, lease or transfer of the property of the Company substantially as an entirety to any other Person, any property or assets of the Company would thereupon become subject to any Lien, then unless such Lien could be created pursuant to Section 10.15 without equally and ratably securing the Notes, the Company, prior to or simultaneously with such consolidation, merger, conveyance, lease or transfer, will as to such property or assets, secure the Notes Outstanding (together with, if the Company shall so determine, any other Indebtedness of the Company now existing or hereinafter created which is not subordinate in right of payment to the Notes) equally and ratably with (or prior to) the Indebtedness which upon such consolidation, merger, conveyance, lease or transfer is to become secured as to such property or assets by such Lien, or will cause such Notes to be so secured; provided that, for the purpose of providing such equal and ratable security, the principal amount of the Notes shall mean that amount which would at the time of making such effective provision be due and payable pursuant to Section 5.02 upon a declaration of acceleration of the Maturity thereof, and the extent of such equal and ratable security shall be adjusted, to the extent permitted by law, as and when said amount changes over time as provided in Section 5.02. ARTICLE IX Supplemental Indentures SECTION 9.01. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form -72- satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor obligor of the covenants of the Company contained in this Indenture, in the Collateral Documents and in the Notes in accordance with Section 8.01; (2) to add to the covenants of the Company or any obligor upon the Notes for the benefit of the Holders or to surrender any right or power herein conferred upon the Company or any other obligor upon the Notes for the benefit of the Holders, as applicable, in this Indenture or in the Notes; (3) to add any additional Events of Default; (4) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee pursuant to the requirements of Section 6.09; (5) to cure any ambiguity, to correct or supplement any provision herein or in the Collateral Documents or the Notes which may be inconsistent with any other provision herein or in the Collateral Documents or the Notes, or to make any other provisions with respect to matters or questions arising under this Indenture or the Notes; provided that such action shall not adversely affect the interests of the Holders in any material respect; (6) to secure the Notes pursuant to the requirements of Section 8.03 or otherwise; (7) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act; (8) to add a guarantor of the securities under this Indenture; (9) to mortgage, pledge, hypothecate or grant a security interest in favor of the Trustee for the benefit of the Holders as additional security for the payment and performance of the Company's obligations under this Indenture, in any property, or assets, including any of which are required to be mortgaged, pledged or hypothecated, or in which a security -73- interest is required to be granted to the Trustee pursuant to this Indenture or otherwise; or (10) to convey, transfer, assign, mortgage or pledge to the Trustee or the Custodian Agent as security for the Notes and the other Secured Debt any property or assets. The Trustee is hereby authorized to join in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer, assignment, mortgage or pledge of any property thereunder, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Notes, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby: (i) change the Stated Maturity of the principal of or any installment of interest on any Note, or reduce the principal amount thereof (or premium, if any) or the rate of interest thereon or any premium payable upon the redemption thereof or reduce the amount of the principal of the Notes that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02 or the amount thereof provable in bankruptcy pursuant to Section 5.04, or change the coin or currency in which any Note or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); (ii) reduce the percentage in principal amount of the Outstanding Notes, the consent of whose Holders is -74- required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture; (iii) modify any of the provisions of this Article IX, Article V or Section 10.18, except to increase any such percentage of outstanding Notes required for such actions or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Note affected thereby; (iv) amend, change or modify the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or an Excess Proceeds Offer in connection with any Asset Sale or modify any of the provisions or definitions with respect thereto; or (v) make any change in any of the provisions relating to the Collateral Documents not authorized by Article XII that materially adversely affects the Holders. It shall not be necessary for any Act of Holders under this Section 9.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article IX or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustees own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article IX, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of -75- Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article IX shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 9.06. Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article IX may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Notes. SECTION 9.07. Notice of Supplemental Indentures. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 9.01 or Section 9.02, the Company shall give notice thereof to the Holders of each Outstanding Note affected, in the manner provided for in Section 1.06, setting forth in general terms the substance of such supplemental indenture. ARTICLE X Covenants SECTION 10.01. Payment of Principal, Premium, if any, and Interest. The Company covenants and agrees for the benefit of the Holders that it will duly and punctually pay the principal of (and premium, if any) and interest on the Notes in accordance with the terms of the Notes and this Indenture. SECTION 10.02. Maintenance of Office or Agency. The Company will maintain in The City of New York, an office or agency where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Corporate Trust Office of the Trustee shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company will -76- give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. SECTION 10.03. Money for Note Payments To Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (or premium, if any) or interest on any of the Notes, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal of (or premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for the Notes, it will, on or before each due date of the principal of (or premium, if any) or interest on any Notes, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. The Company will cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the -77- Trustee, subject to the provisions of this Section 10.03, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Notes) in the making of any payment of principal (and premium, if any) or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (or premium, if any) or interest on any Note and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from -78- the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.04. Corporate Existence. Subject to Article VIII, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of the Company and each Subsidiary; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.05. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any Restricted Subsidiary or upon the income, profits or property of the Company or any Restricted Subsidiary and (b) all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a lien upon the property of the Company or any Restricted Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.06. Maintenance of Properties. The Company will cause all properties owned by the Company or any Restricted Subsidiary or used or held for use in the conduct of its business or the business of any Restricted Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly conducted at all times; provided, however, that nothing in this Section 10.06 shall prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. -79- SECTION 10.07. Insurance. (a) The Company shall maintain launch insurance with respect to each satellite launch covering the period from the launch to 180 days following the launch of each satellite in an amount equal to or greater than the sum of (i) the cost to replace such satellite with a satellite of comparable or superior technological capability (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and having at least as much transmission capacity as the satellite to be replaced, (ii) the cost to launch a replacement satellite pursuant to the contract whereby a replacement satellite will be launched and (iii) the cost of launch insurance for such replacement or, in the event that the Company has reason to believe that the cost of obtaining comparable insurance for a replacement would be materially higher, the Company's best estimate of the cost of such comparable insurance. Notwithstanding the foregoing, the Company shall not be obligated to maintain insurance pursuant to this paragraph (a) with respect to (i) the launch of its first satellite and (ii) any subsequent launch not preceded by a launch failure or failure of any satellite within 180 days from the date of its launch; provided, however, that the Company's spare satellite shall be under construction in accordance with the terms of the Loral Satellite Contract or the Company shall have otherwise obtained a spare satellite. (b) The Company shall maintain full in-orbit insurance with respect to each satellite it or a Restricted Subsidiary owns and launches in an amount at least equal to (i) the cost to replace such satellite with a satellite of comparable or superior technological capability (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and having at least as much transmission capacity as the satellite to be replaced, (ii) the cost to launch a replacement satellite pursuant to the contract pursuant to which a replacement satellite will be launched and (iii) the cost of launch insurance for such replacement or, in the event that the Company has reason to believe that the cost of obtaining comparable insurance for a replacement would be materially higher, the Company's best estimate of the cost of such comparable insurance. The in-orbit insurance required by this paragraph shall provide that if 50% or more of a satellite's capacity is lost, the full amount of insurance shall become due and payable, and that if a satellite is able to maintain more than 50% but less that 100% of its capacity, a portion of such insurance will become due and payable. -80- (c) In the event that the Company receives proceeds from insurance relating to any satellite, the Company is entitled to use all or a portion of such proceeds to repay any vendor or third-party purchase money financing pertaining to such satellite that is required to be repaid by reason of the loss giving rise to such insurance proceeds. The Company shall use the remainder of such proceeds to develop and construct a replacement satellite; provided that (i) such replacement satellite is of comparable or superior technological capability as compared with the satellite being replaced and has at least as much transmission capacity as the satellite being replaced (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution); (ii) the Company will have sufficient funds (together with the proceeds of any business interruption insurance) to service the Company's projected debt service requirements until the scheduled launch of the Company's spare satellite and for one year thereafter and to develop and construct such replacement satellite; and (iii) that the Company's spare satellite is scheduled to be launched within 12 months of the receipt of such proceeds. Any such proceeds not used as permitted by this paragraph shall constitute "Excess Proceeds" for purposes of Section 10.16. SECTION 10.08. Statement by Officers as to Default. (a) The Company shall deliver to the Trustee, within 60 days after the end of each fiscal quarter (90 days after the end of the last fiscal quarter of each fiscal year), a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this Section 10.08(a), such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. (b) When any Default has occurred and is continuing under this Indenture, or if the trustee for or the holder of any other evidence of Indebtedness of the Company or any Subsidiary gives any notice or takes any other action with respect to a claimed default (other than with respect to Indebtedness in an aggregate principal amount of less than $1,000,000), the Company shall deliver to the Trustee by registered or certified mail or by telegram, telex or facsimile transmission an Officers' Certificate specifying such event, notice or other action within five Business Days of its occurrence. -81- SECTION 10.09. Provision of Financial Statements and Reports. (a) The Company shall file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15 of the Exchange Act. (b) The Company shall also (i) file with the Trustee, and provide to each holder of Notes, without cost to such holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company would be required to file such reports and documents if the Company were so required and (ii) if the filing of such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to supply at the Company's cost copies of such reports and documents to any prospective holder of Notes promptly upon written request. SECTION 10.10. Purchase of Notes upon Change in Control. (a) If a Change of Control shall occur at any time, then each Holder shall have the right to require that the Company purchase such Holder's Notes in whole or in part in integral multiples of $1,000 principal amount, at a purchase price (the "Change of Control Purchase Price") in cash in an amount equal to 101% of the principal amount of such Notes as of the date of purchase plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Purchase Date"), pursuant to the offer described below (the "Change of Control Offer"), in accordance with the procedures set forth in paragraphs (b) and (c) of this Section 10.10. (b) Within 15 days following any Change of Control, the Company shall notify the Trustee thereof and give to each Holder of the Notes in the manner provided in Section 1.06 a notice stating: (1) that a Change in Control has occurred and that such Holder has the right to require the Company to repurchase such Holder's Notes at the Change of Control Purchase Price; (2) the circumstances and relevant facts regarding such Change in Control (including but not limited to information with respect to pro forma historical -82- income, cash flow and capitalization after giving effect to such Change in Control); (3) the Change of Control Purchase Price and the Change of Control Purchase Date which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed or such later date as is necessary to comply with requirements under the Exchange Act or any applicable securities laws or regulations; (4) that any Notes not tendered will continue to accrue interest; (5) that, unless the Company defaults in the payment of the Change of Control Purchase Price, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Purchase Date; and (6) the instructions a Holder must follow in order to have its Notes repurchased in accordance with paragraph (b) of this Section 10.10. The Company shall have no obligation to purchase any Notes in a Change of Control Offer if no Notes are tendered by the Holders thereof. (c) Holders electing to have Notes purchased will be required to surrender such Notes to the Company at the address specified in the notice at least five Business Days prior to the Change of Control Purchase Date. Holders will be entitled to withdraw their election if the Company receives, not later than three Business Days prior to the Change of Control Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes delivered for purchase by the Holder as to which his election is to be withdrawn and a statement that such Holder is withdrawing his election to have such Notes purchased. Holders whose Notes are purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. SECTION 10.11. Limitation on Indebtedness. The Company shall not, and shall not permit any Restricted Subsidiary to, create, assume, issue, guarantee or in any manner become directly or indirectly liable for or with respect to the payment of, or otherwise incur (collectively, to "incur"), any Indebtedness, except for Permitted -83- Indebtedness; provided, however, that (i) the Company shall be permitted to incur Indebtedness and (ii) a Restricted Subsidiary shall be permitted to incur Acquired Indebtedness, if, in either case, after giving pro forma effect to such incurrence (including the application of the net proceeds therefrom), the ratio of (x) Total Consolidated Indebtedness to (y) Adjusted Consolidated Operating Cash Flow for the latest four fiscal quarters for which consolidated financial statements of the Company are available preceding the date of such incurrence, taken as a whole, would be greater than zero and less than or equal to 4.0 to 1.0. SECTION 10.12. Limitation on Restricted Payments. (a) The Company shall not make, and shall not permit any Restricted Subsidiary to make, directly or indirectly, any of the following: (i) the declaration or payment of any dividend or any other distribution on Capital Stock of the Company or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company (other than dividends or distributions payable solely in Qualified Capital Stock of the Company or in options, warrants or other rights to purchase Qualified Capital Stock of the Company); (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company (other than any such Capital Stock owned by the Company or a Restricted Subsidiary) or any affiliate of the Company (other than any Restricted Subsidiary); (iii) the making of any principal payment on, or the repurchase, redemption, defeasance or other acquisition or retirement for value of, prior to any scheduled principal payment, sinking fund payment or maturity, any Subordinated Indebtedness (other than any Subordinated Indebtedness held by a Restricted Subsidiary); or (iv) the making of any Investment (other than a Permitted Investment) in any Person (such payments or other actions described in (but not excluded from) clauses (i) through (iv) are collectively referred to as "Restricted Payments"), unless, in each case: (A) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Restricted Payment; (B) immediately after giving effect to such Restricted Payment, the Company would be able to incur at least $1.00 of Indebtedness (other than Permitted Indebtedness) under the proviso of Section 10.11; and -84- (C) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments declared or made on or after November 26, 1997, would not exceed an amount equal to the sum of (a) the difference between (x) the Cumulative Available Cash Flow determined at the time of such Restricted Payment and (y) 150% of the cumulative Consolidated Interest Expense of the Company determined for the period commencing on November 26, 1997 and ending on the last day of the latest fiscal quarter for which consolidated financial statements of the Company are available preceding the date of such Restricted Payment plus (b) the aggregate Net Cash Proceeds received by the Company from the issue or sale (other than to any Restricted Subsidiary) of Qualified Capital Stock of the Company after January 1, 1998, plus (c) the aggregate Net Cash Proceeds received after November 26, 1997, by the Company from the issuance or sale (other than to any Restricted Subsidiary) of debt securities or Redeemable Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company, together with the aggregate Net Cash Proceeds received by the Company at the time of such conversion or exchange, plus (d) to the extent not otherwise included in the Consolidated Operating Cash Flow of the Company, an amount equal to the sum of (1) the net reduction in Investments in any Person (other than the Permitted Investments) resulting from the payment in cash of dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary after November 26, 1997, from such Person and (2) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that in the case of (1) or (2) above the foregoing sum shall not exceed the aggregate amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary, minus (e) the sum of 80% of the outstanding principal amount of the Notes and all Indebtedness incurred pursuant to clause (a)(2) of the definition of Permitted Indebtedness. For purposes of determining the amount expended for Restricted Payments, property other than cash shall be valued at its Fair Market Value. -85- (b) The provisions of this Section 10.11(a) shall not prohibit, so long as, with respect to clauses (ii) through (viii) below, no Default or Event of Default shall have occurred and be continuing, (i) the payment of any dividend or other distribution within 60 days after the date of declaration thereof if at such date of declaration such payment complied with the provisions of this Indenture, and such payment will be deemed to have been paid on the date of declaration for purposes of the calculation in the foregoing paragraph; (ii) the purchase, redemption, retirement or other acquisition of any shares of Capital Stock of the Company in exchange for, or out of the Net Cash Proceeds of a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of, shares of Qualified Capital Stock of the Company; (iii) the purchase, redemption, retirement, defeasance or other acquisition or retirement for value of Subordinated Indebtedness made by exchange for, or out of the Net Cash Proceeds of a substantially concurrent issue or sale (other than to a Restricted Subsidiary) of, Qualified Capital Stock of the Company; (iv) the purchase of (A) any Subordinated Indebtedness at a purchase price not greater than 101% of the principal amount or accreted value thereof, as the case may be, together with accrued interest, if any, in the event of a Change of Control in accordance with provisions similar to Section 10.10 or (B) any Preferred Stock at a purchase price not greater than 101% of the liquidation preference thereof, together with accrued dividends, if any, in the event of a Change of Control in accordance with provisions similar to Section 10.10; provided, however, that, in each case, prior to such purchase the Company has made the Change of Control Offer as provided in Section 10.10 with respect to the Notes and has purchased all Notes validly tendered for payment in connection with such Change of Control Offer; (v) the purchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Indebtedness in exchange for, or out of the Net Cash Proceeds of a substantially concurrent incurrence (other than to a Restricted Subsidiary) of, new Subordinated Indebtedness so long as -86- (A) the principal amount of such new Subordinated Indebtedness does not exceed the principal amount (or, if such Subordinated Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) of the Subordinated Indebtedness being so purchased, redeemed, defeased, acquired or retired, plus the lesser of the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Subordinated Indebtedness being refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing, plus, in either case, the amount of expenses of the Company incurred in connection with such refinancing, (B) such new Subordinated Indebtedness is subordinated to the Notes to the same extent as such Subordinated Indebtedness so purchased, redeemed, defeased, acquired or retired and (C) such new Subordinated Indebtedness has an Average Life longer than the Average Life of the Notes and a final Stated Maturity of principal later than the Stated Maturity of principal of the Notes; (vi) the purchase of any Subordinated Indebtedness at a purchase price not greater than 100% of the principal amount or accreted value thereof, as the case may be, together with accrued interest, if any, following an Asset Sale in accordance with provisions similar to Section 10.16; provided, however, that prior to making any such purchase the Company has made the Excess Proceeds Offer as provided in such covenant with respect to the Notes and has purchased all Notes validly tendered for payment in connection with such Excess Proceeds Offer; (vii) the payment of cash dividends on outstanding shares of Series C Preferred Stock of the Company out of the Net Cash Proceeds of a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of Common Stock of the Company; and (viii) any other Restricted Payments in an aggregate amount not to exceed $15.0 million. In determining the amount of Restricted Payments permissible under this covenant, amounts expended pursuant -87- to clauses (i), (ii), (iii), (iv), (vi), (vii) and (viii) above shall be included as Restricted Payments. SECTION 10.13. Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries. The Company (a) shall not permit any Restricted Subsidiary to issue any Capital Stock (other than to the Company or a Restricted Subsidiary) and (b) shall not permit any Person (other than the Company or a Restricted Subsidiary) to own any Capital Stock of any Restricted Subsidiary; provided, however, that this covenant shall not prohibit (i) the issuance and sale of all, but not less than all, of the issued and outstanding Capital Stock of any Restricted Subsidiary owned by the Company or any Restricted Subsidiary in compliance with the other provisions of this Indenture or (ii) the ownership by directors of directors' qualifying shares or the ownership by foreign nationals of Capital Stock of any Restricted Subsidiary, to the extent mandated by applicable law. SECTION 10.14. Limitation on Transactions with Affiliates. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including the sale, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any Affiliate of the Company (other than the Company or a Restricted Subsidiary) unless (i) such transaction or series of related transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution, than those that could have been obtained in an arm's-length transaction with unrelated third parties who are not Affiliates, (ii) with respect to any transaction or series of related transactions involving aggregate consideration equal to or greater than $2,500,000, the Company shall have delivered an officers' certificate to the Trustee certifying that such transaction or series of related transactions complies with clause (i) above and such transaction or series of related transactions has been approved by a majority of the Disinterested Directors of the Board of Directors of the Company, or the Company has obtained a written opinion from a nationally recognized investment banking firm to the effect that such transaction or series of related transactions is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view and (iii) with respect to any transaction or series of related transactions including aggregate consideration in excess of $10,000,000, or in the event no members of the -88- Board of Directors of the Company are Disinterested Directors with respect to any transaction or series of transactions included in clause (ii), the Company shall obtain an opinion from a nationally recognized investment banking firm as described above; provided, however, that this Section 10.14 will not restrict (1) any transaction by the Company or any Restricted Subsidiary with an Affiliate directly related to the purchase, sale or distribution of products in the ordinary course of business consistent with industry practice, (2) the Company from paying reasonable and customary regular compensation and fees to directors of the Company or any Restricted Subsidiary who are not employees of the Company or any Restricted Subsidiary, (3) the payment of compensation (including stock options and other incentive compensation) to officers and other employees the terms of which are approved by the Board of Directors, (4) the Company or any Restricted Subsidiary from making any Restricted Payment in compliance with Section 10.12 (including pursuant to paragraph (b) thereof), (5) transactions between the Company and Batchelder & Partners Inc. pursuant to agreements in effect on November 26, 1997; provided that the Company shall not, and shall not permit any Restricted Subsidiary to amend, modify or in any way alter, other than an extension of the term thereof, the terms of any such agreement in a manner materially adverse to the holders of the Notes, (6) transactions among the Company and its Restricted Subsidiaries, (7) amendments to the Loral Satellite Contract; provided, however, that the Company will not amend, modify or in any way alter the terms of such agreement in a manner materially adverse to the holders of the Notes. SECTION 10.15. Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind, other than Permitted Liens, on or with respect to any of its property or assets, including any shares of stock or indebtedness of any Restricted Subsidiary, whether owned at the date of this Indenture or thereafter acquired, or any income, profits or proceeds therefrom, or assign or otherwise convey any right to receive income thereon, unless (x) in the case of any Lien securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Lien and (y) in the case of any other Lien, the Notes are equally and ratably secured. SECTION 10.16. Limitation on Sale of Assets. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, engage in -89- any Asset Sale unless (i) the consideration received by the Company or such Restricted Subsidiary for such Asset Sale is not less than the Fair Market Value of the shares or assets sold (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) the consideration received by the Company or the relevant Restricted Subsidiary in respect of such Asset Sale consists of at least 80% cash or Cash Equivalents. (b) If the Company or any Restricted Subsidiary engages in an Asset Sale, the Company shall be entitled to use the Net Cash Proceeds thereof within 12 months after the later of such Asset Sale or the receipt of such Net Cash Proceeds (i) to permanently repay or prepay any then outstanding Pari Passu Indebtedness, (ii) to invest in any one or more businesses, capital expenditures or other tangible assets of the Company or any Restricted Subsidiary, in each case, engaged, used or useful in the CD Radio Business (or enter into a legally binding agreement to do so within six months); or (iii) to invest in properties or assets that replace the properties and assets that are the subject to such Asset Sale (or enter into a legally binding agreement to do so within six months). If any such legally binding agreement to invest such Net Cash Proceeds is terminated, then the Company may, within 90 days of such termination or within 12 months of such Asset Sale, whichever is later, apply or invest such Net Cash Proceeds as provided in clause (i), (ii) or (iii) (without regard to the parenthetical contained in clause (ii) or (iii)) above. The amount of such Net Cash Proceeds not so used as set forth above in this paragraph (b) constitutes "Excess Proceeds". (c) When the aggregate amount of Excess Proceeds exceeds $10,000,000 the Company shall (i) comply with the provisions of Section 1016(c) of the Discount Notes Indenture that require the Company to make an offer to purchase Discount Notes, if applicable, and (ii) within 30 business days after the completion of such offer, or if such provisions are not applicable, within 30 days after the time Excess Proceeds exceed $10,000,000, make an offer to purchase (an "Excess Proceeds Offer") from all holders of Notes and, if the Company so elects, from Holders of Pari Passu Indebtedness, on a pro rata basis, in accordance with the procedures set forth below, the maximum principal amount (expressed as a multiple of $1,000) of Notes and, if applicable, such Pari Passu Indebtedness that may be purchased with the Excess Proceeds. In the case of other Pari Passu Indebtedness that is issued at a discount to its -90- face amount, the requirement that Notes and other Pari Passu Indebtedness be purchased on a "pro rata basis" means that the amount of such other Pari Passu Indebtedness to be purchased will be based on the amount to which the Pari Passu Indebtedness has accreted in value for purposes of determining the amount that would be payable thereon in the event of the occurrence of an event of default (or similar event) under such other Pari Passu Indebtedness. The offer price as to each Note and such other Pari Passu Indebtedness shall be payable in cash in an amount equal to 100% of the accreted value, as the case may be, of such Note or other Pari Passu Indebtedness (without premium) as of the date of purchase plus accrued interest, if any (the "Offered Price"), to the date such Excess Proceeds Offer is consummated (the "Offer Date"). To the extent that the aggregate principal amount, or accreted value, as the case may be, of Notes and such other Pari Passu Indebtedness tendered pursuant to an Excess Proceeds Offer is less than the Excess Proceeds relating thereto, the Company may use such additional Excess Proceeds for general corporate purposes or to fund an offer to redeem any outstanding Subordinated Indebtedness in accordance with provisions similar to this Section 10.16. If the aggregate principal amount of Notes and such other Pari Passu Indebtedness validly tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, Notes and such other Pari Passu Indebtedness to be purchased will be selected on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset to zero. (d) If the Company becomes obligated to make an Excess Proceeds Offer pursuant to clause (c) above, the Notes shall be purchased by the Company, at the option of the holder thereof, in whole or in part in integral multiples of $1,000, on a date that is not earlier than 30 days and not later than 60 days from the date the notice is given to holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act or any other applicable securities laws or regulations, subject to proration in the event the amount of Excess Proceeds is less than the aggregate Offered Price of all Notes and such other Pari Passu Indebtedness tendered. (e) The Company shall comply to the extent applicable with the requirements of the tender offer rules, including Rule 14e-1 under the Exchange Act, and any other applicable securities laws and regulations in connection with an Excess Proceeds Offer. -91- SECTION 10.17. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make Investments in the Company or any other Restricted Subsidiary, (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary or (e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) any agreement in effect on the Issue Date, (ii) applicable law or judicial or regulatory action, (iii) customary nonassignment provisions of any lease governing a leasehold interest of the Company or any Restricted Subsidiary, (iv) any agreement or other instrument of a Person acquired by the Company or any Restricted Subsidiary in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired and the Subsidiaries of such Person, (v) any mortgage or other Lien on real property acquired or improved by the Company or any Restricted Subsidiary after the date of this Indenture that prohibit transfers of the type described in (d) above with respect to such real property, (vi) any encumbrance or restriction contained in contracts for sales of assets permitted by Section 10.16 with respect to the assets to be sold pursuant to such contract; (vii) any such customary encumbrance or restriction contained in a security document creating a Permitted Lien to the extent relating to the property or asset subject to such Permitted Lien; (viii) any agreement or other instrument governing any Pari Passu Indebtedness if such encumbrance or restriction applies only (x) to amounts which at any point in time (other than during such periods as are described in clause (y)) (1) exceed amounts due and payable (or which are to become due and payable within 30 days) in respect of the Notes or this Indenture for interest, premium and principal (after giving effect to any realization by the Company under any applicable Currency Agreement), or (2) if paid, would result in an event described in the following clause (y) of this sentence, or (y) during the pendency of any event that causes, permits or, after notice or lapse of time, would cause or permit the holder(s) of the -92- Indebtedness governed by such agreement or instrument to declare any such Indebtedness to be immediately due and payable or require cash collateralization or cash cover for such Indebtedness for so long as such cash collateralization or cash cover has not been provided; or (ix) the refinancing of Indebtedness incurred under the agreements described in clause (v) above, so long as such encumbrances or restrictions are no less favorable in any material respect to the Company or any Restricted Subsidiary than those contained in the respective agreement as in effect on the Issue Date. SECTION 10.18. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Section 8.03, Sections 10.07 or 10.09 through 10.17, inclusive, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Notes, by Act of such Holders, waive such compliance in such instance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. SECTION 10.19. Required Stock Ownership. The Company will at all times be the legal and beneficial owner of the Pledged Stock and will not sell, transfer or otherwise dispose of any Capital Stock of Satellite CD Radio, Inc. SECTION 10.20. Further Assurances. The Company will promptly execute and deliver such additional instruments and do such further acts as in the opinion of the Trustee may be reasonably necessary or proper to carry out the purposes of this Indenture and the Collateral Documents. SECTION 10.21. Limitation on Subsidiary Business Activities. Satellite CD Radio, Inc., shall not engage in any trade or business other than holding an FCC license to build, launch and operate a national satellite radio broadcast system. SECTION 10.22. Limitation on Sale-Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into any sale-leaseback transaction involving any of its assets -93- or properties whether now owned or hereafter acquired, whereby the Company or a Restricted Subsidiary sells or transfers such assets or properties and then or thereafter leases such assets or properties or any part thereof or any other assets or properties which the Company or such Restricted Subsidiary, as the case may be, intends to use for substantially the same purpose or purposes as the assets sold or transferred. The foregoing restriction does not apply to any sale-leaseback transaction if (a) the lease is for a period, including renewal rights, of not in excess of three years;(b) the transaction is solely between the Company and any Restricted Subsidiary or solely between Restricted Subsidiaries; (c) the Company or such Restricted Subsidiary, within 12 months after the sale or transfer of any assets or properties is completed, applies an amount not less than the net proceeds received from such sale in accordance with paragraph (b) of Section 10.16. SECTION 10.23. Pledge Account. (a) Upon the closing of the offering of the Securities by the Company, the Company shall purchase, and deposit in the Pledge Account for the benefit of Holders and owners of beneficial ownership interests in the Notes, Pledged Securities in an amount which, in the opinion of an internationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, will result in the receipt of United States dollars in immediately available funds in amounts and at times sufficient to provide for payment in full when due of the six regularly scheduled interest payments due on the Notes from November 15, 1999 through May 15, 2002 upon receipt of scheduled principal and interest payments on the Pledged Securities. (b) The Company hereby agrees that all of its rights and obligations with respect to the Pledged Securities shall be as set forth in the Collateral Pledge Agreement. ARTICLE XI Redemption of Notes SECTION 11.01. Right of Redemption. The Notes may be redeemed, at the election of the Company, as a whole or from time to time in part, at any time on or after May 15, 2004, subject to the conditions and at the -94- Redemption Prices specified in the form of Note, together with accrued interest to the Redemption Date. In addition, at any time or from time to time prior to May 15, 2002, the Company may redeem up to a maximum of 35% of the original aggregate principal amount of the Notes with the net proceeds of one or more Equity Offerings at a redemption price (expressed as a percentage of principal amount on the redemption date) of 114.5% plus accrued interest to the redemption date; provided, however, that immediately after giving effect to such redemption, at least 65% of the original aggregate principal amount of the Notes remains outstanding; provided further, however, that notice of such redemption shall be given within 60 days of the closing of such Equity Offering. SECTION 11.02. Applicability of Article. Redemption of Notes at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article XI. SECTION 11.03. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Notes pursuant to Section 11.01 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee in writing of such Redemption Date and of the principal amount of Notes to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Notes to be redeemed pursuant to Section 11.04. SECTION 11.04. Selection by Trustee of Notes To Be Redeemed. If less than all the Notes are to be redeemed, the particular Notes to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee by such method as the Trustee shall deem fair and appropriate; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Note not redeemed to less than $1,000. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. -95- For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Notes shall relate, in the case of any Note redeemed or to be redeemed only in part, to the portion of the principal amount of such Note which has been or is to be redeemed. SECTION 11.05. Notice of Redemption. Notice of redemption shall be given in the manner provided for in Section 1.06 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Notes to be redeemed. All notices of redemption shall state: (1) the Redemption Date; (2) the Redemption Price and the amount of accrued interest to the Redemption Date payable as provided in Section 11.07, if any; (3) if less than all Outstanding Notes are to be redeemed, the identification (and, in the case of a partial redemption, the principal amount) of the particular Notes to be redeemed; (4) in case any Note is to be redeemed in part only, the notice which relates to such Note shall state that on and after the Redemption Date, upon surrender of such Note, the holder will receive, without charge, a new Note or Notes of authorized denominations for the principal amount thereof remaining unredeemed; (5) that on the Redemption Date the Redemption Price (and accrued interest, if any, to the Redemption Date payable as provided in Section 11.07) will become due and payable upon each such Note, or the portion thereof, to be redeemed, and that interest thereon will cease to accrue on and after said date; and (6) the name and address of the Paying Agent where such Notes are to be surrendered for payment of the Redemption Price and accrued interest, if any. (7) that Notes call for redemption must be surrendered to the Paying Agent to collect the Redemption Price, (8) the CUSIP number, and that no representation is made as to the accuracy or correctness of the CUSIP -96- number, if any, listed in such notice or printed on the Notes, and (9) the paragraph of the Notes pursuant to which the Notes are to be redeemed. Notice of redemption of Notes to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 11.06. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money sufficient to pay the Redemption Price of, and accrued interest on, all the Notes which are to be redeemed on that date. SECTION 11.07. Notes Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Notes shall cease to accrue interest. Upon surrender of any such Note for redemption in accordance with said notice, such Note shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Notes, or one or more Predecessor Notes, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.07. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Notes. SECTION 11.08. Notes Redeemed in Part. Any Note which is to be redeemed only in part (pursuant to the provisions of this Article XI) shall be surrendered at the office or agency of the Company maintained for such purpose pursuant to Section 10.02 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company -97- and the Trustee duly executed by, the Holder thereof or such Holders attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal amount of the Note so surrendered. ARTICLE XII Security and Pledge of Collateral SECTION 12.01. Collateral Documents. Each Holder of a Note, by its acceptance thereof, (i) consents and agrees to the terms of the Collateral Documents, (ii) authorizes and ratifies the entering into by the Trustee and the Collateral Agent of each of the Collateral Documents to which they are a party and (iii) authorizes and directs the Trustee and the Collateral Agent to perform their respective obligations and exercise their rights thereunder in accordance therewith. SECTION 12.02. Trustee May Perform. If the Company fails to perform any agreement contained in this Article XII, the Trustee may, but shall not be obligated to, itself perform, or cause performance of, such agreement, and the expenses of the Trustee incurred in connection therewith shall be payable by the Company under Section 6.06. SECTION 12.03. Collateral Trust Arrangements. (a) The Trustee shall, upon request of the Company and upon receipt of the Opinion of Counsel and Officer's Certificate described in paragraph (c) of this Section 12.03 (i) amend, revise and supplement the Pledge Agreement to assign and pledge to the Collateral Agent for the benefit of the Holders of the Notes the holders of the Discount Notes and the equal and ratable benefit of the Secured Parties a security interest in the Bond Collateral and (ii) enter into an amended Intercreditor Agreement that provides for the enforcement of the payment of Indebtedness under this Indenture equally and ratably with all other Secured Debt. (b) Upon any such assignment or pledge pursuant to paragraph (a) above, the Bond Collateral shall be held in trust under and subject to the terms and conditions of the Collateral Documents and the amended Intercreditor Agreement for the benefit of the Secured Parties and for the enforcement of the payment of Indebtedness under this -98- Indenture equally and ratably with all other Secured Debt and for the performance of and compliance with the covenants and conditions of this Indenture and the other Collateral Documents. It is intended that this Indenture and the other Collateral Documents shall be construed and enforced to give effect to such intention. (c) Prior to giving effect to any assignment or pledge of the Bond Collateral to the Collateral Agent as set forth in Section 12.03(a), the Trustee shall receive, and shall be fully protected in relying upon, an Opinion of Counsel and an Officer's Certificate as to the validity and perfection of a first-priority lien on the Bond Collateral for the equal and ratable benefit of the Secured Parties. SECTION 12.04. Certificates and Opinions. The Company shall comply with (a) TIAss.314(b), relating to Opinions of Counsel regarding the Lien of this Indenture and (b) TIAss.314(d), relating to, among other matters, the release of Bond Collateral from the Lien of this Indenture and Officers' Certificates or other documents regarding fair value of the Bond Collateral, to the extent such provisions are applicable. Any certificate or opinion required by TIA ss.314(d) may be executed and delivered by an Officer of the Company to the extent permitted by TIA'SS'314(d). ARTICLE XIII Defeasance and Covenant Defeasance SECTION 13.01. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may, at its option by Board Resolution, at any time, with respect to the Notes, elect to have either Section 13.02 or Section 13.03 be applied to all Outstanding Notes upon compliance with the conditions set forth below in this Article XIII. SECTION 13.02. Defeasance and Discharge. Upon the Company's exercise under Section 13.01 of the option applicable to this Section 13.02, the Company shall be deemed to have been discharged from its obligations with respect to all Outstanding Notes on the date the conditions set forth in Section 13.04 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the Outstanding Notes, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 13.05 and the other Sections of this Indenture referred to in (A) and (B) below, and to have -99- satisfied all its other obligations under such Notes, this Indenture and the Collateral Pledge Agreement insofar as such Notes are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Notes to receive, solely from the trust fund described in Section 13.04 and as more fully set forth in Section 13.04, payments in respect of the principal of (and premium, if any, on) and interest on such Notes when such payments are due, (B) the Company's obligations with respect to such Notes under Sections 3.04, 3.05, 3.06, 10.02 and 10.03, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article XIII. Subject to compliance with this Article XIII, the Company may exercise its option at any time under this Section 13.02 notwithstanding the prior exercise of its option under Section 13.03 with respect to the Notes. SECTION 13.03. Covenant Defeasance. Upon the Company's exercise under Section 13.01 of the option applicable to this Section 13.03, the Company shall be released from its obligations under any covenant contained in Section 8.03 and in Sections 10.07 through 10.17 with respect to the Outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Notes shall thereafter be deemed not to be "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 5.01(4), but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. SECTION 13.04. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions -100- to application of either Section 13.02 or Section 13.03 to the Outstanding Notes: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.07 who shall agree to comply with the provisions of this Article XIII applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Notes, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants, or a nationally recognized investment banking firm, expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, at the principal of (and premium, if any) and interest on the Outstanding Notes at their Stated Maturity (or Redemption Date, if applicable) of such principal (and premium, if any) or installment of interest on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Notes; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Notes. Before such a deposit, the Company may give to the Trustee, in accordance with Section 11.03 hereof, a notice of its election to redeem all of the Outstanding Notes at a future date in accordance with Article XI hereof, which notice shall be irrevocable. Such irrevocable redemption notice, if given, shall be given effect in applying the foregoing. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer -101- thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. (2) No Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit or, insofar as paragraphs (8) and (9) of Section 5.01 hereof are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (3) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound. (4) In the case of an election under Section 13.02, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since May 13, 1999, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (5) In the case of an election under Section 13.03, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Notes will not recognize income, gain or loss for federal income tax purposes as -102- a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (6) In the case of an election under Section 13.02 or Section 13.03, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States to the effect that after the 91st day following the deposit or after the date such opinion is delivered, the trust funds will not be subject to the effect of any applicable Bankruptcy Law. (7) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the Notes over the other creditors of the Company with the intent of hindering, delaying or defrauding creditors of the Company. (8) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 13.02 or the covenant defeasance under Section 13.03 (as the case may be) have been complied with. SECTION 13.05. Deposited Money and U.S. Government Obligations To Be Held in Trust: Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 10.03, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 13.05, the "Trustee") pursuant to Section 13.04 in respect of the Outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Governmental Obligations deposited pursuant -103- to Section 13.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Notes. Anything in this Article XIII to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 13.04 which, in the opinion of a nationally recognized firm of independent public accountants, or a nationally recognized investment banking firm, expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance, as applicable, in accordance with this Article XIII. SECTION 13.06. Reinstatement. If the Trustee or any Paying Agent is unable to apply any money in accordance with Section 13.05 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 13.02 or 13.03, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 13.05; provided, however, that if the Company makes any payment of principal of (or premium, if any) or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. -104- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. CD RADIO INC., by /s/ Patrick L. Donnelly -------------------------------- Name:Patrick L. Donnelly Title:Executive Vice President & General Counsel UNITED STATES TRUST COMPANY OF NEW YORK, by /s/ Patricia Gallagher -------------------------------- Name:Patricia Callagher Title:Assistant Vice President -105- RULE 144A/APPENDIX FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A AND TO INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)). PROVISIONS RELATING TO INITIAL NOTES AND EXCHANGE NOTES 1. Definitions 1.1 Definitions For the purposes of this Appendix the following terms shall have the meanings indicated below: "Definitive Note" means a certificated Initial Note bearing the restricted securities legend set forth in Section 2.3(d) and which is held by an IAI in accordance with Section 2.1(c). "Depository" means The Depository Trust Company, its nominees and their respective successors. "Exchange Notes" means the 14-1/2% Senior Secured Notes due 2009 to be issued pursuant to this Indenture in connection with a Registered Exchange Offer pursuant to the Registration Rights Agreement. "IAI" means an institutional "accredited investor" as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Initial Purchasers" means Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers, Bear, Stearns & Co. Inc., NationsBanc Montgomery Securities LLC and U.S. Bancorp Libra. "Initial Notes" means the 14-1/2% Senior Secured Notes due 2009, issued under this Indenture on or about the date hereof. "Notes" means the Initial Notes and the Exchange Notes, treated as a single class. "Notes Custodian" means the custodian with respect to a Global Note (as appointed by the Depository), or any successor person thereto and shall initially be the Trustee. "Purchase Agreement" means the Purchase Agreement dated May 13, 1999, between the Company and the Initial Purchasers. 2 "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registered Exchange Offer" means the offer by the Company, pursuant to the Registration Rights Agreement, to certain Holders of Initial Notes, to issue and deliver to such Holders, in exchange for the Initial Notes, a like aggregate principal amount of Exchange Notes registered under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement dated May 13, 1999, among the Company and the Initial Purchasers. "Securities Act" means the Securities Act of 1933. "Shelf Registration Statement" means the registration statement issued by the Company, in connection with the offer and sale of Initial Notes, pursuant to the Registration Rights Agreement. "Transfer Restricted Notes" means Definitive Notes and Notes that bear or are required to bear the legend set forth in Section 2.3(d)hereto. Capitalized terms used herein without definition are used herein as defined in the Indenture dated as of May 15, 1999 to which this Appendix is attached. 1.2 Other Definitions
Defined in Term Section: ---- ---------- "Agent Members"..........................................................2.1(b) "Global Note"............................................................2.1(a) "Rule 144A"..............................................................2.1(a)
2. The Notes. 2.1 Form and Dating. The Initial Notes are being offered and sold by the Company pursuant to the Purchase Agreement. (a) Global Notes. Initial Notes offered and sold to a QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") as provided in the Purchase Agreement, shall be issued initially in the form of one or more permanent global Notes in definitive, fully registered form without interest coupons with the global notes legend and restricted notes 3 legend set forth in Exhibit 1 hereto (each, a "Global Note"), which shall be deposited on behalf of the purchasers of the Initial Notes represented thereby with the Trustee, at its New York office, as custodian for the Depository (or with such other custodian as the Depository may direct), and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as hereinafter provided. (b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a Global Note deposited with or on behalf of the Depository. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b), authenticate and deliver initially one or more Global Notes that (a) shall be registered in the name of the Depository for such Global Note or Global Notes or the nominee of such Depository and (b) shall be delivered by the Trustee to such Depository or pursuant to such Depository's instructions or held by the Trustee as custodian for the Depository. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository or by the Trustee as the custodian of the Depository or under such Global Note, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices of such Depository governing the exercise of the rights of a holder of a beneficial interest in any Global Note. (c) Certificated Notes. Except as provided in this Section 2.1 or Section 2.3 or 2.4, owners of beneficial interests in Global Notes will not be entitled to receive physical delivery of certificated Notes. Purchasers of Initial Notes who are IAIs and are not QIBs will receive Definitive Notes; provided, however, that upon transfer of such Definitive Notes to a QIB, such Definitive Notes will, unless the Global Note has previously been exchanged, be exchanged for an interest in a Global Note pursuant to the provisions of Section 2.3. 4 2.2 Authentication. The Trustee shall authenticate and deliver: (1) Initial Notes for original issue in an aggregate principal amount of $200,000,000 14-1/2% Senior Secured Notes due 2009 and (2) Exchange Notes for issue only in a Registered Exchange Offer pursuant to the Registration Rights Agreement, for a like principal amount of Initial Notes, in each case upon a Company Order. Such order shall specify the amount of the Notes to be authenticated and the date on which the original issue of Notes is to be authenticated and whether the Notes are to be Initial Notes or Exchange Notes. 2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive Notes. When Definitive Notes are presented to the Trustee with a request: (x) to register the transfer of such Definitive Notes; or (y) to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations, the Trustee shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Definitive Notes surrendered for transfer or exchange: (i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Trustee or co-registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (ii) are being transferred or exchanged pursuant to an effective registration statement under the Securities Act, pursuant to Section 2.3(b) or pursuant to clause (A), (B) or (C) below, and are accompanied by the following additional information and documents, as applicable: (A) if such Definitive Notes are being delivered to the Trustee by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in the form set forth on the reverse of the Note); or (B) if such Definitive Notes are being transferred to any of the Globalstar Parties, a certification to that effect (in the form set forth on the reverse of the Note); or 5 (C) if such Definitive Notes are being transferred (w) pursuant to an exemption from registration in accordance with Rule 144; or (x) in reliance on another exemption from the registration requirements of the Securities Act: (i) a certification to that effect (in the form set forth on the reverse of the Security) and (ii) if the Company or Trustee so requests, an opinion of counsel or other evidence reasonably satisfactory to them as to the compliance with the restrictions set forth in the legend set forth in Section 2.3(d)(i). (b) Restrictions on Transfer of a Definitive Note for a Beneficial Interest in a Global Note. A Definitive Note may not be exchanged for a beneficial interest in a Global Note except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (i) certification, in the form set forth on the reverse of the Note, that such Definitive Note is being transferred (A) to a QIB in accordance with Rule 144A, or (B) outside the United States in an offshore transaction within the meaning of Regulation S and in compliance with Rule 904 under the Securities Act; and (ii) written instructions directing the Trustee to make an adjustment on its books and records with respect to such Global Note to reflect an increase in the aggregate principal amount of the Securities represented by the Global Note, such instructions to contain information regarding the Depositary account to be credited with such increase, then the Trustee shall cancel such Definitive Note and cause, in accordance with the standing instructions and procedures existing between the Depositary and the Trustee, the aggregate principal amount of Notes represented by the Global Note to be increased by the aggregate principal amount of the Definitive Note to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Note equal to the principal amount of the Definitive Note so cancelled. If no Global Notes are then outstanding, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the form of an Officers' Certificate, a new Global Note in the appropriate aggregate principal amount. (c) Transfer and Exchange of Global Notes. (i) The transfer and exchange of Global Notes or beneficial interests 6 therein shall be effected through the Depository, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depository therefor. A transferor of a beneficial interest in a Global Note shall deliver to the Trustee a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in the Global Note. The Trustee shall, in accordance with such instructions instruct the Depositary to credit to the account of the Person specified in such instructions a beneficial interest in the Global Note and to debit the account of the Person making the transfer the beneficial interest in the Global Note being transferred. (ii) Notwithstanding any other provisions of this Appendix (other than the provisions set forth in Section 2.4), a Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (iii) In the event that a Global Note is exchanged for Notes in definitive registered form pursuant to Section 2.4 hereof or Section 3.04 of the Indenture, prior to the consummation of a Registered Exchange Offer or the effectiveness of a Shelf Registration Statement with respect to such Notes, such Notes may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements set forth on the reverse of the Initial Notes intended to ensure that such transfers comply with Rule 144A and such other procedures as may from time to time be adopted by the Company. (d) Legend. (i) Except as permitted by the following para graphs (ii), (iii) and (iv), each Note certificate evidencing the Global Notes and the Definitive Notes (and all Notes issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form: "THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, 7 SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH BELOW. "EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER ("RULE 144A"). BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) OR AN INSTITUTIONAL "ACCREDITED INVESTOR" AND (2) AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE THE UNITED STATES, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT." "FOR PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), THIS SECURITY HAS ORIGINAL ISSUE DISCOUNT. FOR PURPOSES OF SECTION 1273 OF THE CODE, THE ISSUE PRICE IS $843.09 AND THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $156.91, IN EACH CASE PER $1,000 PRINCIPAL AMOUNT OF THIS SECURITY. FOR PURPOSES OF SECTION 1275 OF THE CODE, THE ISSUE DATE OF THIS SECURITY IS MAY 18, 1999. FOR PURPOSES OF SECTION 1272 OF THE CODE, THE YIELD TO MATURITY (COMPOUNDED SEMIANNUALLY) IS 17.99%." (ii) Upon any sale or transfer of a Transfer Restricted Note (including any Transfer Restricted Note represented by a Global Note) pursuant to Rule 144 under the Securities Act: (A) in the case of any Transfer Restricted Note that is a Definitive Note, the Trustee shall permit 8 the Holder thereof to exchange such Transfer Restricted Note for a certificated Note that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Note; and (B) in the case of any Transfer Restricted Note that is represented by a Global Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Note for a certificated Note that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Note, if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Note). (iii) After a transfer of any Initial Notes during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Notes, all require ments pertaining to legends on such Initial Note will cease to apply, the requirements requiring any such Initial Note issued to certain Holders be issued in global form will cease to apply, and a certificated Initial Note without legends will be available to the transferee of the Holder of such Initial Notes upon exchange of such transferring Holder's certificated Initial Note or directions to transfer such Holder's interest in the Global Note, as applicable. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Notes pursuant to which Holders of such Initial Notes are offered Exchange Notes in exchange for their Initial Notes, all requirements pertaining to such Initial Notes that Initial Notes issued to certain Holders be issued in global form will cease to apply and certificated Initial Notes with the restricted notes legend set forth in Exhibit 1 hereto will be available to Holders of such Initial Notes that do not exchange their Initial Notes, and Exchange Notes in certificated or global form will be available to Holders that exchange such Initial Notes in such Registered Exchange Offer. (e) Cancellation or Adjustment of Global Note. At such time as all beneficial interests in a Global Note have either been exchanged for certificated or Definitive Notes, redeemed, repurchased or canceled, such Global Note shall be returned to the Depository for cancellation or retained and canceled by the Trustee. At any time prior to such 9 cancellation, if any beneficial interest in a Global Note is exchanged for certificated or Definitive Notes, redeemed, repurchased or canceled, the principal amount of Notes represented by such Global Note shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Notes Custodian for such Global Note) with respect to such Global Note, by the Trustee, to reflect such reduction. (f) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Note, a member of, or a participant in the Depository or other Person with respect to the accuracy of the records of the Depository or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the Holders and all payments to be made to Holders under the Notes shall be given or made only to or upon the order of the registered Holders (which shall be the Depository or its nominee in the case of a Global Note). The rights of beneficial owners in any Global Note shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depository participants, members or beneficial owners in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 2.4 Certificated Notes. (a) A Global Note deposited with the Depository or with the Trustee as custodian for the Depository pursuant to 10 Section 2.1 shall be transferred to the beneficial owners thereof in the form of certificated Notes in an aggregate principal amount equal to the principal amount of such Global Note, in exchange for such Global Note, only if such transfer complies with Section 2.3 and (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Note or if at any time such Depository ceases to be a "clearing agency" registered under the Exchange Act and a successor depositary is not appointed by the Company within 90 days of such notice, or (ii) an Event of Default has occurred and is continuing or (iii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Notes under this Indenture. (b) Any Global Note that is transferable to the beneficial owners thereof pursuant to this Section shall be surrendered by the Depository to the Trustee located in the Borough of Manhattan, The City of New York, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Note, an equal aggregate principal amount of certificated Initial Notes of authorized denominations. Any portion of a Global Note transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depository shall direct. Any certificated Initial Note delivered in exchange for an interest in the Global Note shall, except as otherwise provided by Section 2.3(d), bear the restricted notes legend set forth in Exhibit 1 hereto. (c) Subject to the provisions of Section 2.4(b), the registered Holder of a Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. (d) In the event of the occurrence of either of the events specified in Section 2.4(a), the Company will promptly make available to the Trustee a reasonable supply of certificated Notes in definitive, fully registered form without interest coupons. [Draft--May 5, 1999] EXHIBIT 1 to RULE 144A APPENDIX [FORM OF FACE OF INITIAL NOTE] [Global Notes Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Notes Legend] THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH BELOW. "EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER ("RULE 144A"). BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) OR AN INSTITUTIONAL "ACCREDITED INVESTOR" AND (2) AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT 2 WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE THE UNITED STATES, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. FOR PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), THIS SECURITY HAS ORIGINAL ISSUE DISCOUNT. FOR PURPOSES OF SECTION 1273 OF THE CODE, THE ISSUE PRICE IS $843.09 AND THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $156.91, IN EACH CASE PER $1,000 PRINCIPAL AMOUNT OF THIS SECURITY. FOR PURPOSES OF SECTION 1275 OF THE CODE, THE ISSUE DATE OF THIS SECURITY IS MAY 18, 1999. FOR PURPOSES OF SECTION 1272 OF THE CODE, THE YIELD TO MATURITY (COMPOUNDED SEMIANNUALLY) IS 17.99%. 3 CUSIP No. No. $ 14-1/2% Senior Secured Notes Due 2009 CD RADIO INC., a Delaware corporation, promises to pay to Merrill Lynch, Pierce, Fenner & Smith Incorporated, or registered assigns, the principal sum of $1,000,000 Dollars on May 15, 2009. Interest Payment Dates: May 15 and November 15. Record Dates: May 1 and November 1. Additional provisions of this Note are set forth on the other side of this Note. Dated: CD RADIO INC., by ----------------------- Name: Title: Attested by: - ----------------------------- Patrick L. Donnelly Executive Vice President, General Counsel and Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, certifies that this is one of the Notes referred to in the Indenture. by ----------------------------- Authorized Signatory 4 [FORM OF REVERSE SIDE OF INITIAL NOTE] 14-1/2% Senior Secured Note due 2009 1. Interest. CD RADIO INC., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above; provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional interest will accrue on this Note at a rate of 0.50% per annum with respect to the first 90-day period following any such Registration Default. The amount of the additional interest will increase by an additional one-half of one percent (0.50%) to a maximum of one and one-half percent (1.50%) per annum for each subsequent 90-day period until such Registration Default has been cured. The Company will pay interest semiannually on May 15 and November 15 of each year. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from May 18, 1999. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Notes plus 1% per annum, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered holders of Notes at the close of business on the May 1 or November 1 next preceding the interest payment date even if Notes are canceled after the record date and on or before the interest payment date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Notes represented by a Global Note (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company will make all payments in respect of a certificated Note (including principal, premium and interest) by mailing a check to the registered address of each Holder thereof; 5 provided, however, that payments on a certificated Note will be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the paying agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. Paying Agent and Registrar. Initially, United States Trust Company of New York, a New York banking corporation ("Trustee"), will act as paying agent and registrar. The Company may appoint and change any paying agent, registrar or co-registrar without notice. The Company or any of its domestically incorporated wholly owned subsidiaries may act as paying agent, registrar or co-registrar. 4. Indenture. The Company issued the Notes under an Indenture dated as of May 15, 1999 ("Indenture"), between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. 'SS''SS' 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Notes are secured obligations of the Company. The Initial Notes issued on the Issue Date and all Exchange Notes issued in exchange therefore will be treated as a single class for all purposes under the Indenture. The Indenture limits, among other things, (i) the incurrence of additional debt by the Company and its subsidiaries, (ii) the payment of dividends on capital stock of the Company and the purchase, redemption or retirement of capital stock or subordinated indebtedness, (iii) the creation of certain liens, (iv) certain transaction with affiliates, (v) sales of assets, including capital stock of subsidiaries, (vi) sale and leaseback transactions, (vii) restrict dividend or other payments to the Company, (viii) the issuance and sale of shares in restricted subsidiaries, and (ix) certain consolidations, mergers and transfers of assets. The Indenture also prohibits certain restrictions on distributions from subsidiaries. All of those 6 limitations and prohibitions, however, are subject to a number of important qualifications contained in the Indenture. 5. Optional Redemption. Except as set forth in the next paragraph, the Notes may not be redeemed prior to May 15, 2004. On and after that date, the Company may redeem the Notes in whole at any time or in part from time to time at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date): if redeemed during the 12-month period beginning May 15,
Period Percentage ------ ---------- 2004........................................... 107.250% 2005........................................... 104.833% 2006........................................... 102.417% 2007 and thereafter............................ 100.000%
In addition, at any time prior to May 15, 2002, the Company may redeem up to 35% of the aggregate principal amount of Notes with the proceeds of an Equity Offering, at any time or from time to time, at a redemption price (expressed as a percentage of principal amount) of 114.50%, plus accrued interest to redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date); provided, however, that immediately after giving effect to such redemption, at least 65% of the original aggregate principal amount of the Notes outstanding; provided further, however, that notice of such redemption shall be given within 60 days of the closing of such Equity Offering. 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at his registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest 7 on all Notes (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Notes (or such portions thereof) called for redemption. 7. Security. The Notes will be secured by a first priority perfected security interest in all the issued and outstanding common stock of Satellite CD Radio, Inc., the Company's wholly owned subsidiary, on an equal basis with holders of the Discount Notes pursuant to the Pledge Agreement. Further, as set forth in the Indenture, a portion of the net proceeds of the Units offering will be used to purchase the Pledged Securities in such amount as will be sufficient, upon receipt of scheduled interest on and principal payments of such securities, to provide for payment in full of the first six scheduled interest payments due on the Notes. The Pledged Securities will be pledged by the Company to the Trustee for the benefit of the holders of the Notes pursuant to the Collateral Pledge Agreement and will be held by the Trustee in the Pledge Account. 8. Put Provisions. Upon a Change of Control, any Holder of Notes will have the right to cause the Company to repurchase all or any part of the Notes of such Holder at a repurchase price equal to 101% of the principal amount of the Notes to be repurchased plus accrued interest to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture. 9. Denominations; Transfer; Exchange. The Notes are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Notes in accordance with the Indenture. The Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. 8 10. Persons Deemed Owners. The registered Holder of this Note may be treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. Discharge and Defeasance. Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Notes and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Notes to redemption or maturity, as the case may be. 13. Amendment, Waiver. Subject to certain exceptions set forth in the Indenture, (i) the Indenture, the Collateral Documents or the Notes may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Notes and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount outstanding of the Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Notes to cure any ambiguity, omission, defect or inconsistency, or to comply with Article VIII of the Indenture, or to provide for uncertificated Notes in addition to or in place of certificated Notes, or to add guarantees with respect to the Notes or to secure the Notes, or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder. 9 14. Defaults and Remedies. Under the Indenture, Events of Default include (i) as to any interest payment date occurring on or prior to May 15, 2002, default in the payment of interest on the Notes when it becomes due and payable; and as to any interest payment date thereafter, default for 30 days in payment of interest on the Notes; (ii) default in payment of principal on the Notes at maturity, upon redemption pursuant to paragraph 5 of the Notes, upon acceleration or otherwise, or failure by the Company to redeem or purchase Notes when required; (iii) failure by the Company to comply with other agreements in the Indenture or the Notes, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds $10.0 million; (v) certain events of bankruptcy or insolvency with respect to the Company and the Significant Subsidiaries; and (vi) certain judgments or decrees for the payment of money in excess of $10.0 million. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes may declare all the Notes to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives indemnity or security reasonably satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of the Holders. 15. Trustee Dealings with the Company. Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 10 16. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company or the Trustee shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Securityholder waives and releases all such liability. The waiver and release are part of the considera tion for the issue of the Notes. 17. Authentication. This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Note. 18. Abbreviations. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 19. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 20. Holders' Compliance with Registration Rights Agreement. Each Holder of a Note, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including, without limitation, the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein. 11 21. Governing Law. THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Company will furnish to any Securityholder upon written request and without charge to the Security holder a copy of the Indenture which has in it the text of this Note in larger type. Requests may be made to: CD Radio Inc. 1221 Avenue of the Americas New York, NY 10020 Attention of Patrick L. Donnelly, Esq. 12 ________________________________________________________________________________ ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ________________ Your Signature:__________________________________________ ________________________________________________________________________________ Sign exactly as your name appears on the other side of this Note. In connection with any transfer of any of the Notes evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act after the later of the date of original issuance of such Notes and the last date, if any, on which such Notes were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Notes are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) [ ] to the Company; or (2) [ ] pursuant to an effective registration statement under the Securities Act of 1933; or (3) [ ] inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in 13 reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (4) [ ] outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933; or (5) [ ] pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (4) or (5) is checked, the Trustee may require, prior to registering any such transfer of the Notes, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. ________________________ Signature Signature Guarantee: ____________________________ __________________________ Signature must be guaranteed Signature ________________________________________________________________________________ TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to 14 request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ________________ ______________________________ NOTICE: To be executed by an executive officer 15 [TO BE ATTACHED TO GLOBAL NOTES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE The following increases or decreases in this Global Note have been made: DATE OF AMOUNT OF DECREASE AMOUNT OF INCREASE PRINCIPAL AMOUNT OF SIGNATURE OF EXCHANGE IN PRINCIPAL IN PRINCIPAL AMOUNT THIS GLOBAL NOTE AUTHORIZED OFFICER AMOUNT OF THIS OF THIS GLOBAL NOTE FOLLOWING SUCH OF TRUSTEE OR NOTES GLOBAL NOTE DECREASE OR CUSTODIAN INCREASE)
16 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 10.10 or 10.16 of the Indenture, check the box: [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 10.10 or 10.16 of the Indenture, state the amount in principal amount: $ Date: _______________ Your Signature: ____________________________ (Sign exactly as your name appears on the other side of this Note.) Signature Guarantee: _______________________________________ (Signature must be guaranteed) EXHIBIT A [FORM OF FACE OF EXCHANGE NOTE] [(*)] No.1 $ 14-1/2% Senior Secured Notes Due 2009 CD RADIO INC., a Delaware corporation, promises to pay to , or registered assigns, the principal sum of Dollars on May 15, 2009. . Interest Payment Dates: May 15 and November 15. Record Dates: May 1 and November 1. Additional provisions of this Note are set forth on the other side of this Note. Dated: CD RADIO INC. by ________________________ Name: Title: Attested by: _____________________________ Patrick L. Donnelly Executive Vice President, General Counsel and Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, certifies that this is one of the Notes referred to in the Indenture. by_______________________________ Authorized Signatory 2 ___________________ (*) [If the Note is to be issued in global form add the Global Notes Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL NOTES] - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE".] 3 [FORM OF REVERSE SIDE OF EXCHANGE NOTE] 14-1/2% Senior Secured Note due 2009 1. Interest. CD RADIO INC., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above; provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional interest will accrue on this Note at a rate of 0.50% per annum with respect to the first 90-day period following any such Registration Default. (***). The amount of the additional interest will increase by an additional one-half of one percent (0.50%) to a maximum of one and one-half percent (1.50%) per annum for each subsequent 90- day period until such Registration Default has been cured. The Company will pay interest semiannually on May 15 and November 15 of each year. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from May 18, 1999. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Notes plus 1% per annum, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. ___________________ (***) Insert if at the time of issuance of the Exchange Note neither the Registered Exchange Offer has been consummated nor a Shelf Registration Statement has been declared effective in accordance with the Registration Rights Agreement. 4 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered holders of Notes at the close of business on the May 1 or November 1 next preceding the interest payment date even if Notes are canceled after the record date and on or before the interest payment date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Notes (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no U.S. dollar account maintained by the payee with a bank in the United States is designated by any holder to the Trustee or the paying agent at least 30 days prior to the relevant due date for payment (or such other date as the Trustee may accept in its discretion), by mailing a check to the registered address of such holder. 3. Paying Agent and Registrar. Initially, United States Trust Company of New York, a New York banking corporation ("Trustee"), will act as paying agent and registrar. The Company may appoint and change any paying agent, registrar or co-registrar without notice. The Company or any of its domestically incorporated wholly owned subsidiaries may act as paying agent, registrar or co-registrar. 4. Indenture. The Company issued the Notes under an Indenture dated as of May 15, 1999 ("Indenture"), between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. 'SS''SS' 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Notes are secured obligations of the Company. The Initial Notes issued on the Issue Date, and all Exchange Notes issued in exchange therefor will be treated as a single class for all purposes under the Indenture. The Indenture limits, among other things, (i) the incurrence of additional 5 debt by the Company and its subsidiaries, (ii) the payment of dividends on capital stock of the Company and the purchase, redemption or retirement of capital stock or subordinated indebtedness, (iii) the creation of certain liens, (iv) certain transactions with affiliates, (v) sales of assets, including capital stock of subsidiaries, (vi) sale and leaseback transactions, (vii) restrict dividend or other payments to the company, (viii) the issuance and sale of shares in restricted subsidiaries, and (ix) certain consolidations, mergers and transfers of assets. The Indenture also prohibits certain restrictions on distributions from subsidiaries. All of these limitations and prohibitions, however, are subject to a number of important qualifications contained in the Indenture. 5. Optional Redemption. Except as set forth in the next paragraph, the Notes may not be redeemed prior to May 15, 2004. On and after that date, the Company may redeem the Notes in whole at any time or in part from time to time at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date): if redeemed during the 12-month period beginning May 15,
Period Percentage ------ ---------- 2004........................................... 107.250% 2005........................................... 104.833% 2006........................................... 102.417% 2007 and thereafter............................ 100.000%
In addition, at any time prior to May 15, 2002, the Company may redeem up to 35% of the aggregate principal amount of Notes with the proceeds of an Equity Offering, at any time or from time to time, at a redemption price (expressed as a percentage of principal amount) of 114.50%, plus accrued interest to redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date); provided, however, that immediately after giving effect to such redemption, at least 65% of the original aggregate principal amount of the Notes outstanding; provided further, however, that notice of such 6 redemption shall be given within 60 days of the closing of such Equity Offering. 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at his registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Notes (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Notes (or such portions thereof) called for redemption. 7. Security. The Notes will be secured by a first priority perfected security interest in all the issued and outstanding common stock of Satellite CD Radio Inc., the Company's wholly owned subsidiary, on an equal basis with holders of the Discount Notes pursuant to the Pledge Agreement. Further, as set forth in the Indenture, a portion of the net proceeds of the Units offering will be used to purchase the Pledged Securities in such amount as will be sufficient, upon receipt of scheduled interest on and principal payments of such securities, to provide for payment in full of the first six scheduled interest payments due on the Notes. The Pledged Securities will be pledged by the Company to the Trustee for the benefit of the holders of the Notes pursuant to the Collateral Pledge Agreement and will be held by the Trustee in the Pledge Account. 8. Put Provisions. Upon a Change of Control, any Holder of Notes will have the right to cause the Company to repurchase all or any part of the Notes of such Holder at a repurchase price equal to 101% of the principal amount of the Notes to be repurchased plus accrued interest to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture. 7 9. Denominations; Transfer; Exchange. The Notes are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Notes in accordance with the Indenture. The Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. 10. Persons Deemed Owners. The registered Holder of this Note may be treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. Discharge and Defeasance. Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Notes and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Notes to redemption or maturity, as the case may be. 13. Amendment, Waiver. Subject to certain exceptions set forth in the Indenture, (i) the Indenture, the Collateral Documents or the Notes may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Notes and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount outstanding of the Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Notes to cure any ambiguity, omission, defect or inconsistency, or to comply with 8 Article VIII of the Indenture, or to provide for uncertificated Notes in addition to or in place of certificated Notes, or to add guarantees with respect to the Notes or to secure the Notes, or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder. 14. Defaults and Remedies. Under the Indenture, Events of Default include (i) as to any interest payment date occurring on or prior to May 15, 2002, default in the payment of interest on the Notes when it becomes due and payable; and as to any interest payment date thereafter, default for 30 days in payment of interest on the Notes; (ii) default in payment of principal on the Notes at maturity, upon redemption pursuant to paragraph 5 of the Notes, upon acceleration or otherwise, or failure by the Company to redeem or purchase Notes when required; (iii) failure by the Company to comply with other agreements in the Indenture or the Notes, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds $10.0 million; (v) certain events of bankruptcy or insolvency with respect to the Company and the Significant Subsidiaries; and (vi) certain judgments or decrees for the payment of money in excess of $10.0 million. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes may declare all the Notes to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Notes being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives indemnity or security reasonably satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of the Holders. 9 15. Trustee Dealings with the Company. Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 16. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company or the Trustee shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Securityholder waives and releases all such liability. The waiver and release are part of the considera tion for the issue of the Notes. 17. Authentication. This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Note. 18. Abbreviations. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of 10 redemption and reliance may be placed only on the other identification numbers placed thereon. 20. Holders' Compliance with Registration Rights Agreement. Each Holder of a Note, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including, without limitation, the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein. 21. Governing Law. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Company will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture which has in it the text of this Note in larger type. Requests may be made to: CD Radio Inc. 1221 Avenue of the Americas New York, NY 10020 Attention of Patrick L. Donnelly, Esq. 11 ________________________________________________________________________________ ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ________________ Your Signature:__________________________________________ ________________________________________________________________________________ Sign exactly as your name appears on the other side of this Note. 12 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 10.10 or 10.16 of the Indenture, check the box: [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 10.10 or 10.16 of the Indenture, state the amount: $ Date: __________________ Your Signature: _______________________________________ (Sign exactly as your name appears on the other side of the Note) Signature Guarantee:____________________________________________________________ (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) EXHIBIT B UNITED STATES TRUST COMPANY OF NEW YORK 114 West 47th Street New York, NY 10036 May 18, 1999 CD Radio Inc. 1221 Avenue of the Americas New York, NY 10020 Re: AUTHENTICATION AND DELIVERY OF 14-1/2% SENIOR SECURED NOTES DUE 2009 Ladies and Gentlemen: In accordance with the written order dated May 18, 1999, of CD Radio Inc., (the "Company"), and pursuant to Section 2.2 of the Rule 144A Appendix to the Indenture dated as of May 15, 1999, between the Company and the undersigned, as Trustee, relating to $200,000,000 principal amount of the Company's 14-1/2% Senior Secured Notes due 2009 (the "Notes"), we deliver to Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc., Bear, Stearns & Co. Inc., NationsBanc Montgomery Securities LLC and U.S. Bancorp Libra (collectively, the "Initial Purchasers"), an aggregate of $200,000,000 principal amount of the Notes, all duly authenticated and represented by the certificate numbers and registered in the names and for the principal amounts set forth on Schedule A hereto. At the Initial Purchasers' direction we are holding Certificate No.QIB-1 (CUSIP No. 125127AC4) as custodian for The Depository Trust Company. Very truly yours, UNITED STATES TRUST COMPANY OF NEW YORK, as trustee by____________________________ Name: Title: EX-4 5 EXHIBIT 4.4.4 EXHIBIT 4.4.4 EXECUTION COPY ================================================================================ WARRANT AGREEMENT between CD RADIO INC. and UNITED STATES TRUST COMPANY OF NEW YORK Warrant Agent Dated as of May 15, 1999 ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I Certain Definitions SECTION 1.01. Definitions......................................................2 ARTICLE II Original Issue of Warrants SECTION 2.01. Form of Warrant Certificates..................................... 8 SECTION 2.02. Restrictive Legends.............................................. 9 SECTION 2.03. Execution and Delivery of Warrant Certificates.....................................................10 SECTION 2.04. Loss or Mutilation...............................................11 SECTION 2.05. CUSIP Number.....................................................11 SECTION 2.06. Certificated Warrants............................................11 ARTICLE III Exercise Price; Exercise of Warrants SECTION 3.01. Exercise Price...................................................12 SECTION 3.02. Exercise; Restrictions on Exercise...............................12 SECTION 3.03. Method of Exercise...............................................13 SECTION 3.04. Issuance of Warrant Shares.......................................14 SECTION 3.05. Fractional Warrant Shares........................................14 SECTION 3.06. Reservation of Warrant Shares....................................15 SECTION 3.07. Compliance with Law..............................................15 ARTICLE IV Antidilution Provisions SECTION 4.01. Changes in Common Stock..........................................16 SECTION 4.02. Cash Dividends and Other Distributions...........................16 SECTION 4.03. Issuance of Common Stock or Rights or Options................................................17 SECTION 4.04. Fundamental Transaction; Liquidation.............................19 SECTION 4.05. Other Events.....................................................20 SECTION 4.06. Superseding Adjustment...........................................20 SECTION 4.07. Minimum Adjustment...............................................21 SECTION 4.08. Notice of Adjustment.............................................21 SECTION 4.09. Notice of Certain Transactions...................................22
Page ---- SECTION 4.10. Adjustment to Warrant Certificate................................23 ARTICLE V Warrant Transfer Books; Restrictions On Transfer SECTION 5.01. Transfer and Exchange............................................23 SECTION 5.02. Registration; Registration of Transfer and Exchange.....................................................24 SECTION 5.03. Book-Entry Provisions for the Global Warrants..................................................26 SECTION 5.04. Surrender of Warrant Certificates................................27 ARTICLE VI Registration Rights; Indemnification SECTION 6.01. Effectiveness of Registration Statement..........................28 SECTION 6.02. Suspension.......................................................30 SECTION 6.03. Liquidated Damages...............................................30 SECTION 6.04. Piggy-Back Registration Rights...................................31 SECTION 6.05. Blue Sky.........................................................32 SECTION 6.06. Accuracy of Disclosure...........................................32 SECTION 6.07. Indemnification..................................................33 SECTION 6.08. Additional Acts..................................................37 SECTION 6.09. Expenses.........................................................37 ARTICLE VII The Warrant Agent SECTION 7.01. Duties and Liabilities...........................................38 SECTION 7.02. Right To Consult Counsel.........................................40 SECTION 7.03. Compensation; Indemnification....................................40 SECTION 7.04. No Restrictions on Actions.......................................41 SECTION 7.05. Discharge or Removal; Replacement Warrant Agent....................................................41 SECTION 7.06. Successor Warrant Agent..........................................42 ARTICLE VIII Warrant Holders SECTION 8.01. Warrant Holder Not Deemed a Holder of Common Stock...........................................42 SECTION 8.02. Right of Action..................................................43
Page ---- ARTICLE IX Miscellaneous SECTION 9.01. Payment of Taxes.................................................43 SECTION 9.02. Reports to Holders...............................................43 SECTION 9.03. Notices..........................................................44 SECTION 9.04. Severability.....................................................44 SECTION 9.05. Binding Effect...................................................44 SECTION 9.06. Third-Party Beneficiaries........................................45 SECTION 9.07. Amendments.......................................................45 SECTION 9.08. Headings.........................................................45 SECTION 9.09. GOVERNING LAW....................................................45 SECTION 9.10. Counterparts.....................................................46 EXHIBIT A Form of Warrant Certificate EXHIBIT B Form of Legend for Global Warrants EXHIBIT C Form of Legend for Warrants Issued as Part of a Unit EXHIBIT D Form of Transfer Restriction Legend
WARRANT AGREEMENT (this "Agreement") dated as of May 15, 1999, between CD RADIO INC. (the "Company"), a Delaware corporation, and UNITED STATES TRUST COMPANY OF NEW YORK, Warrant Agent (the "Warrant Agent"). Pursuant to the terms of a Purchase Agreement dated May 13, 1999 (the "Purchase Agreement") among the Company on the one hand and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers Inc., Bear, Stearns & Co., Inc., NationsBanc Montgomery Securities LLC and U.S. Bancorp Libra on the other hand (collectively, the "Initial Purchasers"), the Company has agreed to issue and sell to the Initial Purchasers warrants (each, a "Warrant") entitling the holders thereof to purchase an aggregate of 2,190,000 shares of Common Stock, par value $.001 per share, of the Company ("Common Stock"), as part of 200,000 units (the "Units"), each Unit consisting of $1,000 principal amount of 14-1/2% Senior Secured Notes due 2009 (the "Notes") to be issued pursuant to the provisions of an Indenture dated as of May 15, 1999 (the "Indenture") between the Company and United States Trust Company of New York, as trustee, and three Warrants, each to purchase 3.65 shares of Common Stock. The Note and the Warrants included in each Unit will not be separately transferable until the earliest of (a) August 16, 1999, (b) the commencement of a registered exchange offer for the Notes or the effective date of a shelf registration statement with respect to the Notes, (c) the occurrence of an Exercise Event (as defined herein), (d) the occurrence of an Event of Default (as defined in the Indenture), (e) the redemption of all or part of the Notes in accordance with the Indenture and (f) such earlier date as determined by Merrill Lynch in its sole discretion (the date of the occurrence of an event specified in clauses (a) through (f) above being the "Separability Date"). In consideration of the foregoing and of the agreements contained in the Purchase Agreement and for the purpose of defining the terms and provisions of the Warrants and the respective rights and obligations thereunder of the Company and the Warrant Agent, the Company and the Warrant Agent each hereby agree as follows for the benefit of the 2 other party and for the equal and ratable benefit of the holders of Warrants (the "Holders"): ARTICLE I Certain Definitions SECTION 1.01. Definitions. (a) As used in this Agreement, the following terms shall have the following meanings: "Affiliate" means, with respect to any specified Person, (1) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person or (2) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Voting Stock or any executive officer or director of any such specified Person or other Person or, with respect to any natural Person, any Person having a relationship with such Person by blood, marriage or adoption not more remote than first cousin. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors. "Business Day" means any day which is not a Saturday, a Sunday, or any other day on which banking institutions in New York City are not required to be open. "By-laws" means the by-laws of the Company, as the same may be amended or restated from time to time. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Cashless Exercise Ratio" means a fraction, the numerator of which is the excess of the Current Market Value per share of Common Stock on the Exercise Date over the 3 Exercise Price per share as of the Exercise Date and the denominator of which is the Current Market Value per share of the Common Stock on the Exercise Date. "Commission" means the Securities and Exchange Commission. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman, its Chief Executive Officer, its President, any Vice President, its Treasurer or an Assistant Treasurer, and delivered to the Warrant Agent. "Current Market Value" per share of Common Stock of the Company or any other security at any date means (1) if the security is not registered under the Exchange Act, (a) the value of the security, determined in good faith by the Board of Directors and certified in a board resolution, based on the most recently completed arms-length transaction between the Company and a Person other than an Affiliate of the Company and the closing of which occurs on such date or shall have occurred within the six-month period preceding such date, or (b) if no such transaction shall have occurred on such date or within such six-month period, the fair market value of the security as determined by a nationally or regionally recognized independent financial expert (provided that, in the case of the calculation of Current Market Value for determining the cash value of fractional shares, any such determination within six months that is, in the good faith judgment of the Board of Directors, a reasonable determination of value, may be utilized) or (2) if the security is registered under the Exchange Act,(a) the average of the daily closing sales prices of the securities for the 20 consecutive trading days immediately preceding such date, or (b) if the securities have been registered under the Exchange Act for less than 20 consecutive trading days before such date, then the average of the daily closing sales prices for all of trading days before such date for which closing sales prices are available, in the case of each of (2)(a) and (2)(b), as certified to the Warrant Agent by the President, any Vice President or the Chief Financial Officer of the Company. The closing sales price for each such trading day shall be: (A) in the case of a security listed or admitted to trading on any United States national securities exchange or quotation system, the closing sales price, regular way, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day; (B) in the case of a security not then listed or admitted to trading on any national securities exchange or quotation system, the last reported sale price on such day, or if no sale takes 4 place on such day, the average of the closing bid and asked prices on such day, as reported by a reputable quotation source designated by the Company; (C) in the case of a security not then listed or admitted to trading on any national securities exchange or quotation system and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 30 days prior to the date in question) for which prices have been so reported; and (D) if there are not bid and asked prices reported during the 30 days prior to the date in question, the Current Market Value shall be determined as if the securities were not registered under the Exchange Act. "DTC" means The Depository Trust Company, its nominees and their respective successors. "Event of Default" has the meaning set forth in the Indenture. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended. "Exercisability Date" means the date on which there shall have occurred an Exercise Event. "Exercise Event" means the earlier to occur of (i) immediately prior to a Warrant Change of Control and (ii) the one year anniversary of the Issue Date. "Expiration Date" means May 15, 2009. "Extraordinary Cash Dividend" means that portion, if any, of the aggregate amount of all dividends paid by the Company on the Common Stock in any fiscal year that exceeds $15 million. "Fundamental Transaction" means any transaction or series of related transactions by which the Company consolidates with or merges with or into any other Person or sells, assigns, transfers, leases, conveys or otherwise disposes of all or substantially all of its properties and assets to another Person or group of affiliated Persons or is a party to a merger or binding share exchange which reclassifies or changes its outstanding Common Stock. 5 "Issue Date" means the date on which the Warrants are originally issued. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the payment of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Rule 144A" means Rule 144A under the Securities Act. "Securities" means the Warrants and the Warrant Shares. "Securities Act" means the United States Securities Act of 1933. "Transfer Restricted Securities" means the Warrants and the Common Stock which may be issued to Holders upon exercise of the Warrants, whether or not such exercise has been effected. Each such security shall cease to be a Transfer Restricted Security when (i) it has been disposed of pursuant to a registration statement of the Company filed with the Commission and declared effective by the Commission that covers the disposition of such Transfer Restricted Security, (ii) it has been distributed pursuant to Rule 144 promulgated under the Securities Act (or any similar provisions under the Securities Act then in effect) or (iii) it may be resold without registration under the Securities Act, whether pursuant to Rule 144(k) under the Securities Act or otherwise. "Voting Stock" means, with respect to any Person, any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not, at the time, stock of any other class or 6 classes shall have, or might have, voting power by reason of the happening of any contingency). "Warrant Change of Control" is defined to mean the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder (as defined in the Indenture), is or becomes the "beneficial owner" (as defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have a "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total Voting Stock of the Company; (b) the Company consolidates with, or merges with or into another Person or conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with or merges with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding Voting Stock of the Company is not converted into or exchanged at all (except to the extent necessary to reflect a change in the jurisdiction of incorporation of the Company) or is converted into or exchanged for Voting Stock (other than Redeemable Capital Stock (as defined in the Indenture)) of the surviving or transferee corporation and cash, securities and other property (other than Capital Stock of the surviving entity) in an amount that could be paid by the Company as a Restricted Payment under the Indenture and (ii) immediately after such transaction no "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% 7 of the total outstanding Voting Stock of the surviving or transferee corporation; (c) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election to such Board of Directors or whose nomination for election by the stockholders of the Company, was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (d) the Company is liquidated or dissolved or a special resolution is passed by the shareholders of the Company approving the plan of liquidation or dissolution other than in a transaction in compliance with the Indenture. "Warrant Shares" mean the shares of Common Stock for which the Warrants are exercisable or which have been issued upon exercise of Warrants. (b) Each of the following terms is defined in the Section set forth opposite such term: 8
Term Section ---- ------- Agent Members 5.03(a) Agreement Preamble Cashless Exercise 3.03 Certificated Warrant 2.03 Common Stock Recitals Company Preamble Exercise Price 3.01 Global Warrant 2.03 Holders Recitals Indemnified Parties 6.07 Indenture Recitals Initial Purchasers Recitals Merrill Lynch Recitals Notes Recitals Purchase Agreement Recitals Separability Date Recitals Stock Transfer Agent 3.04 Successor Company 4.04(a) Units Recitals Warrant Recitals Warrant Agent Preamble Warrant Certificates 2.01 Warrant Register 5.01
ARTICLE II Original Issue of Warrants SECTION 2.01. Form of Warrant Certificates. Certificates representing the Warrants (the "Warrant Certificates") shall be in registered form only and substantially in the form attached hereto as Exhibit A. The Warrant Certificates shall be dated the date on which they are countersigned by the Warrant Agent and shall have such insertions as are appropriate or required or permitted by this Agreement and may have such letters, numbers or other marks of identification and such legends and endorsements typed, stamped, printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation pursuant thereto, or to conform to usage. The terms and provisions contained in the form of Warrant Certificate annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Agreement. 9 The definitive Warrant Certificates shall be typed, printed, lithographed or engraved or produced by any combination of these methods, all as determined by the officer of the Company executing such Warrant Certificates, as evidenced by such officer's execution of such Warrant Certificates. Pending the preparation of definitive Warrant Certificates, temporary Warrant Certificates may be issued, which may be printed, lithographed, typewritten, mimeographed or otherwise produced, and which will be substantially of the tenor of the definitive Warrant Certificates in lieu of which they are issued. If temporary Warrant Certificates are issued, the Company will cause definitive Warrant Certificates to be prepared without unreasonable delay. After the preparation of definitive Warrant Certificates, the temporary Warrant Certificates shall be exchangeable for definitive Warrant Certificates upon surrender of the temporary Warrant Certificates to the Warrant Agent, without charge to the Holder. Until so exchanged the temporary Warrant Certificates shall in all respects be entitled to the same benefits under this Agreement as definitive Warrant Certificates. SECTION 2.02. Restrictive Legends. (a) Each Global Warrant shall bear the legend set forth in Exhibit B on the face thereof. (b) Each Warrant Certificate issued prior to the Separability Date shall bear the legend set forth in Exhibit C on the face thereof. (c) Warrants offered and sold to a QIB in reliance on Rule 144A or to an institutional "accredited investor" as defined in Rule 501(a) (1), (2), (3) or (7) under the Securities Act, as provided in the Purchase Agreement, shall bear the restricted securities legend set forth in Exhibit D on the face thereof. (d) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Warrant) pursuant to Rule 144 under the Securities Act the Warrant Agent shall permit the Holder thereof to exchange such Transfer Restricted Security for a Certificated Warrant that does not bear the legend set forth in Exhibit D and rescind any restriction on the transfer of such Transfer Restricted Security. 10 (e) After a transfer of any Warrants during the period of the effectiveness of and pursuant to a Registration Statement with respect to such Warrants, the requirement pertaining to the legend set forth in Exhibit D on such Warrant will cease to apply. SECTION 2.03. Execution and Delivery of Warrant Certificates. Warrant Certificates evidencing Warrants to purchase an aggregate of up to 2,190,000 shares of Common Stock may be executed, on or after the Issue Date, by the Company and delivered to the Warrant Agent for countersignature, and the Warrant Agent shall thereupon countersign and deliver such Warrant Certificates upon the order and at the direction of the Company to the purchasers thereof on the date of issuance. The Warrant Agent is hereby authorized to countersign and deliver Warrant Certificates as required by this Section 2.03 or by Section 2.04, 2.06, 3.03 or 5.03. The Warrant Certificates shall be executed on behalf of the Company by its Chief Executive Officer, President or any Vice President, either manually or by facsimile signature printed thereon. The Warrant Certificates shall be countersigned manually by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company whose signature shall have been placed upon any of the Warrant Certificates shall cease to be such officer of the Company before countersignature by the Warrant Agent and issuance and delivery thereof, such Warrant Certificates may, nevertheless, be countersigned by the Warrant Agent and issued and delivered with the same force and effect as though such person had not ceased to be such officer of the Company. Warrants offered and sold to a QIB in reliance on Rule 144A, as provided in the Purchase Agreement, shall be issued initially in the form of one or more permanent global Warrant Certificates in definitive, fully registered form, substantially in the form set forth in Exhibit A (the "Global Warrant"), deposited with the Warrant Agent (subject to the provisions of Section 5.02 herein), as custodian for DTC, duly executed by the Company and countersigned by the Warrant Agent as hereinafter provided. The number of Warrants represented by the Global Warrant may from time to time be increased or decreased by adjustments made on the records of the Warrant Agent and DTC or its nominee as hereinafter provided. Pursuant to Section 5.03, interests in the Global Warrant may be converted into or exchanged for one or more Warrant Certificates in definitive, fully 11 registered form, substantially in the form set forth in Exhibit A ("Certificated Warrants"). SECTION 2.04. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent of evidence satisfactory to them, in their reasonable discretion, of the ownership and the loss, theft, destruction or mutilation of any Warrant Certificate and of indemnity satisfactory to them and (in the case of mutilation) upon surrender and cancelation thereof, then, in the absence of notice to the Company or the Warrant Agent that the Warrants represented thereby have been acquired by a bona fide purchaser, the Company shall execute and the Warrant Agent shall countersign and deliver to the registered Holder of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of the same tenor and for a like aggregate number of Warrants. Upon the issuance of any new Warrant Certificate under this Section 2.04, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and other expenses (including the reasonable fees and expenses of the Warrant Agent and of counsel to the Company) in connection therewith. Every new Warrant Certificate executed and delivered pursuant to this Section 2.04 in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute a contractual obligation of the Company, whether or not the allegedly lost, stolen or destroyed Warrant Certificates shall be at any time enforceable by anyone, and shall be entitled to the benefits of this Agreement equally and proportionately with any and all other Warrant Certificates duly executed and delivered hereunder. The provisions of this Section 2.04 are exclusive and shall preclude (to the extent lawful) all other rights or remedies with respect to the replacement of mutilated, lost, stolen, or destroyed Warrant Certificates. SECTION 2.05. CUSIP Number. The Company in issuing the Warrants may use a "CUSIP" number(s), and if so, the Warrant Agent shall use the CUSIP number(s) in notices as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number(s) printed in the notice or on the Warrants, and that reliance may be placed only on the other identification numbers printed on the Warrants. SECTION 2.06. Certificated Warrants. If the Depository is at any time unwilling or unable to continue as a depository for the Global Warrant and a successor depository is not appointed by the Company within 90 days, 12 the Company will issue certificated Warrants in exchange for the Global Warrant. In connection with the execution and delivery of such certificated Warrants, the Warrant Agent shall, upon receipt of the order and at the direction of the Company, reflect on its books and records a decrease in the principal amount of the relevant Global Warrant equal to the number of such certificated Warrants and the Company shall execute and the Warrant Agent shall countersign and deliver one or more certificated Warrants in an equal aggregate number. ARTICLE III Exercise Price; Exercise of Warrants SECTION 3.01. Exercise Price. Each Warrant shall, when the certificate therefor is countersigned by the Warrant Agent, entitle the Holder thereof, subject to and upon compliance with the provisions of this Agreement, to purchase 3.65 shares of Common Stock, subject to adjustment pursuant to the terms of this Agreement. The exercise price (the "Exercise Price") of each Warrant is $28.60 per share, subject to adjustment pursuant to the terms of this Agreement. SECTION 3.02. Exercise; Restrictions on Exercise. (a) Subject to the terms and conditions set forth herein, the Warrants shall be exercisable on any Business Day on or after the Exercisability Date; provided, however, that holders of Warrants will be able to exercise their Warrants only if (i) a registration statement relating to the Warrant Shares is effective or (ii) the exercise of such Warrants is exempt from the registration requirements of the Securities Act, and the Warrant Shares are qualified for sale or exempt from qualification under the applicable securities laws of the states or other jurisdictions in which such holders reside. Any Warrants not exercised by 5:00 p.m., New York City time, on the Expiration Date shall expire and all rights of the Holders of such Warrants shall terminate. (b) As soon as practicable after the occurrence of an Exercise Event which is a Warrant Change of Control, at the Company's written direction the Warrant Agent, at the expense of the Company, will send to each Holder of Warrants and each beneficial owner of Warrants, to the extent that the Warrants are held of record by a depository or other agent, by first-class mail, at the address appearing on the Warrant Register, a notice of such Exercise Event which notice shall describe the Exercise Event and the date of occurrence thereof and the date of expiration of the right 13 to exercise the Warrants shall be prominently set forth on the face of such notice. SECTION 3.03. Method of Exercise. Warrants may be exercised only in whole upon (i) surrender to the Warrant Agent at the office of the Warrant Agent of the related Warrant Certificate, together with the form of election attached thereto to purchase Common Stock on the reverse thereof duly filled in and signed by the Holder thereof and (ii) payment to the Warrant Agent, for the account of the Company, of the Exercise Price for each Warrant Share or other security issuable upon the exercise of such Warrants then exercised. Such payment shall be made (i) in cash or by certified or official bank check payable to the order of the Company or by wire transfer of funds to an account designated by the Company for such purpose or (ii) without the payment of cash, by reducing the number of shares of Common Stock obtainable upon the exercise of a Warrant and payment of the Exercise Price in cash so as to yield a number of shares of Common Stock upon the exercise of such Warrant equal to the product of (a) the number of shares of Common Stock issuable as of the Exercise Date upon the exercise of such Warrant (if payment of the Exercise Price were being made in cash) and (b) the Cashless Exercise Ratio or (iii) any combination of (i) or (ii) above; provided, that in the case of payment made pursuant to (ii) or (iii), the Company shall calculate the number of shares of Common Stock to which such Holder is entitled, and shall inform the Warrant Agent in writing of such number. An exercise of a Warrant in accordance with the immediately preceding sentence is herein called a "Cashless Exercise". Upon surrender of a Warrant Certificate representing more than one Warrant in connection with the holder's option to elect a Cashless Exercise, the number of shares of Common Stock deliverable upon a Cashless Exercise shall be equal to the number of shares of Common Stock issuable upon the exercise of Warrants that the holder specifies are to be exercised pursuant to a Cashless Exercise multiplied by the Cashless Exercise Ratio. All provisions of this Agreement shall be applicable with respect to a surrender of a Warrant Certificate pursuant to a Cashless Exercise for less than the full number of Warrants represented thereby. In the event that a Warrant Certificate is surrendered for exercise of less than all the Warrants represented by such Warrant Certificate at any time prior to the Expiration Date, a new Warrant Certificate representing the remaining Warrants shall be issued. The Warrant Agent shall countersign and deliver the required new Warrant Certificates, and the Company, at the Warrant Agent's request, shall supply the Warrant Agent with Warrant Certificates duly signed on behalf of the Company for such purpose. Upon the request of 14 the Company, the Warrant Agent shall provide to the Company information with respect to (x) the total number of Warrants which have been exercised as of the date of such request and (y) the total amount of funds which have been received pursuant to the exercise of such Warrants as of the date of such request. SECTION 3.04. Issuance of Warrant Shares. Upon the surrender of Warrant Certificates and payment of the per share Exercise Price, as set forth in Section 3.03, the Company shall issue and cause the Warrant Agent or, if appointed, a transfer agent for the Common Stock ("Stock Transfer Agent") to countersign and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the number of full Warrant Shares so purchased upon the exercise of such Warrants or other securities or property to which it is entitled, registered or otherwise, to the Person or Persons entitled to receive the same (including any depositary institution so designated by a Holder), together with cash as provided in Section 3.05 in respect of any fractional Warrant Shares otherwise issuable upon such exercise. Such certificate or certificates shall be deemed to have been issued and any Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrant Certificates and payment of the per share Exercise Price, as aforesaid; provided, however, that if, at such date, the transfer books for the Warrant Shares shall be closed, the certificates for the Warrant Shares in respect of which such Warrants are then exercised shall be issuable as of the date on which such books shall next be opened and until such date the Company shall be under no duty to deliver any certificates for such Warrant Shares; provided further, however, that such transfer books, unless otherwise required by law, shall not be closed at any one time for a period longer than 20 calendar days and shall not be closed without 10 days prior written notice to the Holders. SECTION 3.05. Fractional Warrant Shares. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be exercised in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of Warrant Shares which may be purchasable pursuant thereto. If any fraction of a Warrant Share would, except for the provisions of this Section 3.05, be issuable upon the exercise of any Warrant, the Company shall pay an amount in cash equal to the Current Market Value per Warrant Share, as determined on the day 15 immediately preceding the date the Warrant is presented for exercise, multiplied by such fraction, computed to the nearest whole cent. SECTION 3.06. Reservation of Warrant Shares. The Company shall at all times keep reserved out of its authorized shares of Common Stock a number of shares of Common Stock sufficient to provide for the exercise of all outstanding Warrants. The registrar for the Common Stock shall at all times until the Expiration Date reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Stock Transfer Agent. The Company will supply such Stock Transfer Agent with duly executed stock certificates for such purpose and will itself provide or otherwise make available any cash which may be payable as provided in Section 3.05. The Company will furnish to such Stock Transfer Agent a copy of all notices of adjustments (and certificates related thereto) transmitted to each Holder. Before taking any action which would cause an adjustment pursuant to Article IV to reduce the Exercise Price below the then par value (if any) of the Common Stock, the Company shall take any and all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock at the Exercise Price as so adjusted. The Company covenants that all Warrant Shares which may be issued upon exercise of Warrants shall, upon issue, be fully paid, nonassessable, free of preemptive rights, free from all taxes and free from all liens, charges and security interests with respect to the issue thereof. SECTION 3.07. Compliance with Law. (a) Notwith standing anything in this Agreement to the contrary, in no event shall a Holder be entitled to exercise a Warrant unless (i) a registration statement filed under the Securities Act in respect of the issuance of the Warrant Shares is then effective or (ii) in the opinion of counsel to the Company addressed to the Warrant Agent the exercise of such Warrants is exempt from the registration requirements of the Securities Act and such securities are qualified for sale or exempt from qualification under the applicable securities laws of the states or other jurisdictions in which such Holders reside. (b) If any shares of Common Stock required to be reserved for purposes of the exercise of Warrants require, 16 under any other Federal or state law or applicable governing rule or regulation of any national securities exchange, registration with or approval of any governmental authority, or listing on any such national securities exchange before such shares may be issued upon exercise, the Company will cause such shares to be duly registered or approved by such governmental authority or listed on the relevant national securities exchange, as the case may be. ARTICLE IV Antidilution Provisions SECTION 4.01. Changes in Common Stock. In the event that at any time and from time to time the Company shall (i) pay a dividend or make a distribution on Common Stock in shares of Common Stock or other shares of Capital Stock, (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) increase or decrease the number of shares of Common Stock outstanding by reclassification of its Common Stock, then the number of shares of Common Stock issuable upon exercise of each Warrant immediately after the happening of such event shall be adjusted so that, after giving effect to such adjustment, the Holder of each Warrant shall be entitled to receive the number of shares of Common Stock upon exercise of such Warrant that such Holder would have owned or have been entitled to receive had such Warrants been exercised immediately prior to the happening of the events described above (or, in the case of a dividend or distribution of Common Stock, immediately prior to the record date there for). An adjustment made pursuant to this Section 4.01 shall become effective immediately after the distribution date, retroactive to the record date therefor in the case of a dividend or distribution in shares of Common Stock or other shares of Capital Stock, and shall become effective immediately after the effective date in the case of a sub division, combination or reclassification. SECTION 4.02. Cash Dividends and Other Distribu tions. In the event that at any time and from time to time the Company shall distribute to all holders of Common Stock (i) any dividend or other distribution (including any dividend or distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of cash, evidences of its indebtedness, shares of its Capital Stock or any other properties or securities or (ii) any options, warrants or 17 other rights to subscribe for or purchase any of the foregoing (other than, in the case of clause (i) and (ii) above, (A) any dividend or distribution described in Section 4.01, (B) any rights, options, warrants or securities described in Section 4.03 or Section 4.04 and (C) any cash dividends or other cash distributions from current or retained earnings other than Extraordinary Cash Dividends), then the number of shares of Common Stock issuable upon the exercise of each Warrant immediately prior to such record date for any such dividend or distribution shall be increased to a number determined by multiplying the number of shares of Common Stock issuable upon the exercise of such Warrant immediately prior to such record date for any such dividend or distribution by a fraction, the numerator of which shall be the Current Market Value per share of Common Stock on the record date for such dividend or distribution, and the denominator of which shall be such Current Market Value per share of Common Stock less the sum of (x) the amount of cash, if any, distributed per share of Common Stock and (y) the then fair value (as determined in good faith by the Board of Directors, whose determination shall be evidenced by a board resolution filed with the Warrant Agent, a copy of which will be sent to Holders upon request) of the portion, if any, of the distribution applicable to one share of Common Stock consisting of evidences of indebtedness, shares of stock, securities, other property, warrants, options or subscription or purchase rights; and subject to Section 4.08, the Exercise Price shall be adjusted to a number determined by dividing the Exercise Price immediately prior to such record date by the above fraction. Such adjustments shall be made, and shall only become effective, whenever any dividend or distribution is made; provided, however, that the Company is not required to make an adjustment pursuant to this Section 4.02 if at the time of such distribution the Company makes the same distribution to Holders of Warrants as it makes to holders of Common Stock pro rata based on the number of shares of Common Stock for which such Warrants are exercisable (whether or not currently exercisable). No adjustment shall be made pursuant to this Section 4.02 which shall have the effect of decreasing the number of shares of Common Stock issuable upon exercise of each Warrant or increasing the Exercise Price. SECTION 4.03. Issuance of Common Stock or Rights or Options. In the event that at any time or from time to time the Company shall issue shares of Common Stock or rights, options or warrants or securities convertible or exchangeable into Common Stock for a consideration per share that is less than the Current Market Value per share of Common Stock as of the issuance date of such shares, or 18 entitling the holders of such rights, options, warrants or securities to subscribe for or purchase shares of Common Stock at a price that is less than the Current Market Value per share of Common Stock as of the issuance date of such rights, options, warrants or securities, the number of shares of Common Stock issuable upon the exercise of each Warrant immediately after such issuance date shall be determined by multiplying the number of shares of Common Stock issuable upon exercise of each Warrant immediately prior to such issuance date by a fraction, the numerator of which shall be the number of shares of Common Stock out standing immediately preceding the issuance of such shares or rights, options, warrants or securities plus the number of additional shares of Common Stock to be issued in such transaction or offered for subscription or purchase or into which such securities are convertible or exchangeable, and the denominator of which shall be the number of shares of Common Stock outstanding immediately preceding the date for the issuance of such shares or rights, options, warrants or securities plus the total number of shares of Common Stock which the aggregate consideration expected to be received by the Company upon the issuance of such shares or the exercise, conversion or exchange of such rights, options, warrants or securities (as determined in good faith by the Board of Directors, whose determination shall be evidenced by a board resolution filed with the Warrant Agent, a copy of which will be sent to Holders upon request) would pur chase at the Current Market Value per share of Common Stock as of the date of such issuance; and, subject to Section 4.08, in the event of any such adjustment, the Exercise Price shall be adjusted to a number determined by dividing the Exercise Price immediately prior to such date of issuance by the aforementioned fraction; provided, however, that no adjustment to the number of Warrant Shares issuable upon the exercise of the Warrants or to the Exercise Price shall be made as a result of (i) the exercise of the Warrants, (ii) the exercise, conversion or exchange of any right, option, warrant or security, the issuance of which has previously required an adjustment to the number of Warrant Shares issuable upon the exercise of the Warrants or to the Exercise Price pursuant to this Section 4.03, (iii) the exercise, conversion or exchange of any right, option, warrant or security outstanding on the Issue Date (to the extent such exercise, conversion or exchange is made in accordance with the terms of such right, option, warrant or security as in effect on the Issue Date), (iv) the issuance of the Company's 9.2% Series B Junior Cumulative Convertible Preferred Stock or the conversion thereof in accordance with the terms of such Convertible Preferred Stock as in effect on the Issue Date or (v) the issuance, exercise, conversion or exchange of options to acquire 19 Common Stock by officers, directors or employees of the Company; provided, however, that the aggregate number of shares of Common Stock subject to this clause (v) shall not exceed 1% of the number of shares of Common Stock outstanding on a fully diluted basis on the Issue Date. Such adjustment shall be made, and shall only become effective, whenever such shares or such rights, options, warrants or securities are issued. No adjustment shall be made pursuant to this Section 4.03 which shall have the effect of decreasing the number of shares of Common Stock issuable upon exercise of each Warrant or increasing the Exercise Price. SECTION 4.04. Fundamental Transaction; Liquidation. (a) Except as provided in Section 4.04(b), in the event of a Fundamental Transaction, each Holder shall have the right to receive upon exercise of the Warrants the kind and amount of shares of Capital Stock or other securities or property which such Holder would have been entitled to receive upon completion of or as a result of such Fundamental Transaction had such Warrant been exercised immediately prior to such event or to the relevant record date for any such entitlement (regardless of whether the Warrants are then exercisable and without giving effect to the Cashless Exercise Option), assuming (to the extent applicable) that such Holder (i) was not a constituent Person or an affiliate to a constituent Person to such Fundamental Transaction, (ii) made no election with respect thereto, and (iii) was treated alike with the plurality of non-electing Holders. Unless paragraph (b) is applicable to a Fundamental Transaction, the Company shall provide that the surviving or acquiring Person (the "Successor Company") in such Fundamental Transaction will enter into an agreement (a "Supplemental Warrant Agreement") with the Warrant Agent confirming the Holders' rights pursuant to this Section 4.04(a) and providing for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article IV. Any such Supplemental Warrant Agreement shall further provide that such Successor Company will succeed to and be substituted for every right and obligation of the Company in respect of this Agreement and the Warrants. The provisions of this Section 4.04(a) shall similarly apply to successive Fundamental Transactions involving any Successor Company. (b) In the event of (i) a Fundamental Transaction with another Person (other than a subsidiary of the Company) where consideration to the holders of Common Stock in exchange for their shares is payable solely in cash or (ii) the dissolution, liquidation or winding-up of the Company, the Holders of the Warrants shall be entitled to 20 receive, upon surrender of their Warrant Certificates, such cash distributions on an equal basis with the holders of Common Stock or other securities issuable upon exercise of the Warrants, as if the Warrants had been exercised immediately prior to such event, less the Exercise Price. In the event of any Fundamental Transaction described in this Section 4.04(b), the Successor Company and, in the event of any dissolution, liquidation or winding-up of the Company, the Company, shall deposit promptly with the Warrant Agent the funds, if any, necessary to pay the Holders of the Warrants the amounts to which they are entitled as described above. After such funds and the surrendered Warrant Certificates are received, the Warrant Agent shall make payment to the Holders by delivering a check in such amount as is appropriate (or, in the case of consideration other than cash, such other consideration as is appropriate) to such Person or Persons as it may be directed in writing by the Holders surrendering such Warrant Certificates. SECTION 4.05. Other Events. If any event occurs as to which the foregoing provisions of this Article IV are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors, fairly and adequately protect the purchase rights of the Warrants in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the Board of Directors, to protect such purchase rights as aforesaid, but in no event shall any such adjustment have the effect of increasing the Exercise Price or decreasing the number of shares of Common Stock issuable upon exercise of the Warrants. SECTION 4.06. Superseding Adjustment. Upon the expiration of any rights, options, warrants or conversion or exchange privileges which resulted in adjustments pursuant to this Article IV, if any thereof shall not have been exercised, the number of Warrant Shares issuable upon the exercise of each Warrant shall be readjusted pursuant to the applicable section of Article IV as if (i) the only shares of Common Stock issuable upon exercise of such rights, options, warrants, conversion or exchange privileges were the shares of Common Stock, if any, actually issued upon the exercise of such rights, options, warrants or conversion or exchange privileges and (ii) shares of Common Stock actually issued, if any, were issuable for the consideration actually received by the Company upon such exercise plus the 21 aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges whether or not exercised and the Exercise Price shall be readjusted inversely; provided, however, that no such readjustment (except by reason of an intervening adjustment under Section 4.01) shall have the effect of decreasing the number of Warrant Shares issuable upon the exercise of each Warrant, or increasing the Exercise Price, by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion or exchange privileges. SECTION 4.07. Minimum Adjustment. The adjust ments required by the preceding sections of this Article IV shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that no adjust ment of the Exercise Price or the number of shares of Common Stock issuable upon exercise of the Warrants that would otherwise be required shall be made unless and until such adjustment either by itself or with other adjustments not previously made increases or decreases by at least 1% of the Exercise Price or the number of shares of Common Stock issuable upon exercise of the Warrants immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Article IV and not previously made, would result in a minimum adjustment. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. In computing adjustments under this Article IV, fractional interests in Common Stock shall be taken into account to the nearest one-hundredth of a share. SECTION 4.08. Notice of Adjustment. Whenever the Exercise Price or the number of shares of Common Stock and other property, if any, issuable upon exercise of the Warrants is adjusted, as herein provided, the Company shall deliver to the Warrant Agent a certificate of a firm of independent accountants selected by the Board of Directors (who may be the regular accountants employed by the Company) setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which (i) the Board determined the then fair value of any evidences of indebtedness, other securities or property or warrants, options or other subscription or purchase rights and (ii) the Current Market Value of the Common Stock was determined, if either of such determinations were required), and specifying the Exercise Price and the number of shares 22 of Common Stock issuable upon exercise of the Warrants after giving effect to such adjustment. The Company shall promptly cause the Warrant Agent, at the Company's expense, to mail a copy of such certificate to each Holder in accordance with Section 9.03. The Warrant Agent shall be entitled to rely on such certificate and shall be under no duty or responsibility with respect to any such certificate, except to exhibit the same from time to time, to any Holder desiring an inspection thereof during reasonable business hours. The Warrant Agent shall not at any time be under any duty or responsibility to any Holder to determine whether any facts exist which may require any adjustment of the Exercise Price or the number of shares of Common Stock or other stock or property issuable on exercise of the War rants, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making such adjustment or the validity or value of any shares of Common Stock, evidences of indebtedness, warrants, options, or other securities or property. SECTION 4.09. Notice of Certain Transactions. In the event that the Company shall propose to (a) pay any dividend payable in securities of any class to the holders of its Common Stock or to make any other non-cash dividend or distribution to the holders of its Common Stock, (b) offer the holders of its Common Stock rights to subscribe for or to purchase any securities convertible into shares of Common Stock or shares of stock of any class or any other securities, rights or options, (c) issue any (i) shares of Common Stock, (ii) rights, options or warrants entitling the holders thereof to subscribe for shares of Common Stock or (iii) securities convertible into or exchangeable or exercisable for Common Stock (in the case of (i), (ii) and (iii), if such issuance or adjustment would result in an adjustment hereunder), (d) effect any capital reorganization, reclassification, consolidation or merger, (e) effect the voluntary or involuntary dissolution, liquidation or winding-up of the Company or (f) make a tender offer or exchange offer with respect to the Common Stock, the Company shall within five days after deciding to take any such action or make any such offer send to the Warrant Agent a notice and the Warrant Agent shall within five days after receipt thereof, at the expense of the Company, send the Holders a notice (in such form as shall be furnished to the Warrant Agent by the Company) of such proposed action or offer. Such notice shall be mailed by the Warrant Agent to the Holders at their addresses as they appear in the Certificate Register, which shall specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take place and the date of participation therein by the holders 23 of Common Stock, if any such date is to be fixed, and shall briefly indicate the effect, if any, of such action on the Common Stock and on the number and kind of any other shares of stock and on other property, if any, and the number of shares of Common Stock and other property, if any, issuable upon exercise of each Warrant and the Exercise Price after giving effect to any adjustment pursuant to Article IV which will be required as a result of such action. Such notice shall be given as promptly as possible and (x) in the case of any action covered by clause (a) or (b) above, at least 10 days prior to the record date for determining holders of the Common Stock for purposes of such action or (y) in the case of any other such action, at least 20 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. SECTION 4.10. Adjustment to Warrant Certificate. The form of Warrant Certificate need not be changed because of any adjustment made pursuant to this Article IV, and Warrant Certificates issued after such adjustment may state the same Exercise Price and the same number of shares of Common Stock issuable upon exercise of the Warrants as are stated in the Warrant Certificates initially issued pursuant to this Agreement. The Company, however, may at any time in its sole discretion make any change in the form of Warrant Certificate that it may deem appropriate to give effect to such adjustments and that does not affect the substance of the Warrant Certificate, and any Warrant Certificate thereafter issued or countersigned, whether in exchange or substitution for an outstanding Warrant Certificate or otherwise, may be in the form as so changed. ARTICLE V Warrant Transfer Books; Restrictions On Transfer SECTION 5.01. Transfer and Exchange. The Warrant Certificates shall be issued in registered form only. The Company shall cause to be kept at the office of the Warrant Agent a register (the "Warrant Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Warrant Certificates and transfers or exchanges of Warrant Certificates as herein provided. All Warrant Certificates issued upon any registration of transfer or exchange of Warrant Certificates shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefit under this Agreement, as the Warrant 24 Certificates surrendered for such registration of transfer or exchange. A Holder may transfer its Warrants only by complying with the terms of this Agreement. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Warrant Agent in the Warrant Register. Prior to the registration of any transfer of Warrants by a Holder as provided herein, the Company, the Warrant Agent, any agent of the Company or the Warrant Agent may treat the Person in whose name the Warrants are registered as the owner thereof for all purposes and as the Person entitled to exercise the rights represented thereby, any notice to the contrary notwithstanding. Furthermore, any Holder of a Global Warrant, shall, by acceptance of such Global Warrant, agree that transfers of beneficial interests in such Global Warrant may be effected only through a book-entry system maintained by the Holder of such Global Warrant (or its agent), and that ownership of a beneficial interest in the Warrants represented thereby shall be required to be reflected in a book entry. When Warrants are presented to the Warrant Agent with a request to register the transfer or to exchange them for an equal amount of Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange in accordance with the provisions hereof. SECTION 5.02. Registration; Registration of Transfer and Exchange. Each Warrant shall initially be issued as part of a Unit consisting of $1,000 principal amount of Notes and one Warrant. Prior to the Separability Date, the Warrants may not be transferred or exchanged separately from, but may be transferred or exchanged only together with, the Notes attached to such Warrants. Prior to the Separability Date, the Trustee under the Indenture shall act as transfer agent ("Transfer Agent") for both the Warrants and the Notes. Any request for transfer of a Warrant prior to the Separability Date to the Transfer Agent shall be accompanied by the Note attached thereto and the Transfer Agent will not execute any such transfer without such Note attached thereto. Such Note will be duly endorsed and accompanied by a written instrument of transfer in form satisfactory to the Company, duly executed by the holder thereof or the holder's attorneys duly authorized in writing. The Company shall provide notice to the Transfer Agent and the Warrant Agent of the Separability Date five Business Days prior to such date and the Transfer Agent will notify DTC of such date. In the event of a determination by Merrill Lynch to separate the Warrants and the Notes, the 25 Company shall promptly, but in no event later than the next following Business Day after receiving notice of such determination, provide notice to the Transfer Agent and the Warrant Agent and the Transfer Agent will notify DTC of such date. When Certificated Warrants are presented to the Warrant Agent with a request from the Holder of such Warrants to register the transfer or to exchange them for an equal number of Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange as requested; provided, however, that (i) every Warrant Certificate presented and surrendered for registration of transfer or exchange shall be duly endorsed and be accompanied by a written instrument of transfer in form satisfactory to the Company, duly executed by the Holder thereof or the Holder's attorneys duly authorized in writing and (ii) if being transferred or exchanged pursuant to an effective registration statement under the Securities Act, pursuant to Section 2.04(b) or pursuant to clause (A), (B) or (C) below, shall be accompanied by the following additional information and documents, as applicable: (A) if such Certificated Warrants are being delivered to the Warrant Agent by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in the form set forth on the reverse of the Warrant); or (B) if such Certificated Warrants are being transferred to the Company, a certification to that effect (in the form set forth on the reverse of the Warrant); or (C) if such Certificated Warrants are being transferred (w) pursuant to an exemption from registration in accordance with Rule 144A, or Rule 144 under the Securities Act; or (x) in reliance on another exemption from the registration requirements of the Securities Act: (1) a certification to that effect (in the form set forth on the reverse of the Warrant) and (2) if the Company or Warrant Agent so requests, an opinion of counsel or other evidence reasonably satisfactory to them as to the compliance with the restrictions set forth in the legend set forth in Exhibit D. To permit registrations of transfers and exchanges, the Company shall make available to the Warrant 26 Agent a sufficient number of executed Warrant Certificates to effect such registrations of transfers and exchanges. No service charge shall be made to the Holder for any registration of transfer or exchange of Warrants, but the Company may require from the transferring or exchanging Holder payment of a sum sufficient to cover any transfer tax or similar governmental charge payable upon exchanges pursuant to Section 2.04 and exchanges in respect of portions of Warrants not exercised and the Company may deduct such taxes from any payment of money to be made and such transfer or exchange shall not be consummated (if such taxes are not deducted in full) unless or until the Holder shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company and the Warrant Agent that such tax has been paid. SECTION 5.03. Book-Entry Provisions for the Global Warrants. (a) The Global Warrant initially shall (i) be registered in the name of DTC or the nominee of DTC, (ii) be delivered to the Warrant Agent or, prior to the Separability Date, the Transfer Agent, as custodian for DTC and (iii) bear legends as set forth in Section 2.02 hereof. Members of, or participants in, DTC ("Agent Members") shall have no rights under this Agreement with respect to the Global Warrant held on their behalf by DTC or the Warrant Agent as its custodian, and DTC may be treated by the Company, the Warrant Agent and any agent of the Company or the Warrant Agent as the absolute owner of such Global Warrant for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Warrant Agent or any agent of the Company or the Warrant Agent from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices governing the exercise of the rights of a beneficial owner of any Warrants. (b) Transfers of the Global Warrant shall be limited to transfers of such Global Warrant in whole, but not in part, to DTC, its successors or their respective nominees. Interests of beneficial owners in the Global Warrant may be transferred in accordance with the rules and procedures of DTC. Certificated Warrants shall be transferred to all beneficial owners in exchange for their beneficial interests in the Global Warrant if (i) DTC notifies the Company that it is unwilling or unable to continue as depositary for the Global Warrant or (ii) DTC ceases to be a "Clearing Agency" registered under the Exchange Act and a successor depositary is not appointed by the Company within 90 days. 27 (c) In connection with the transfer of the entire Global Warrant to beneficial owners pursuant to paragraph (b) of this Section 5.03, the Global Warrant shall be deemed to be surrendered to the Warrant Agent for cancelation, and the Company shall execute, and the Warrant Agent shall countersign and deliver, to each beneficial owner identified by DTC in exchange for its beneficial interest in the Global Warrant, Certificated Warrants of authorized denominations representing, in the aggregate, the number of Warrants theretofore represented by the Global Warrant. (d) Any Certificated Warrant delivered in exchange for an interest in a Global Warrant pursuant to paragraph (b) or (c) of this Section 5.03 shall bear applicable legends as set forth in Section 2.02 hereof. (e) The registered holder of the Global Warrant may grant proxies and otherwise authorize any Person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Agreement or the Warrants. (f) Beneficial owners of interests in the Global Warrant may receive Certificated Warrants (which shall bear the legend set forth in Exhibit C or Exhibit D if required by Section 2.02) in accordance with the procedures of DTC. In connection with the execution, countersigning and delivery of such Certificated Warrants, the Warrant Agent shall reflect on its books and records a decrease in the number of Warrants represented by the Global Warrant equal to the number of Warrants represented by such Certificated Warrants and the Company shall execute and the Warrant Agent shall countersign and deliver one or more Certificated Warrants representing, in the aggregate, the number of Warrants theretofore represented by the Global Warrant. SECTION 5.04. Surrender of Warrant Certificates. Any Warrant Certificate surrendered for registration of transfer, exchange or exercise of the Warrants represented thereby shall, if surrendered to the Company, be delivered to the Warrant Agent, and all Warrant Certificates surrendered or so delivered to the Warrant Agent shall be promptly canceled by the Warrant Agent and shall not be reissued by the Company and, except as provided in this Article V in case of an exchange or in Article III hereof in case of the exercise of less than all the Warrants represented thereby or in case of a mutilated Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu thereof. The Warrant Agent shall deliver to the Company from time to time or otherwise dispose of 28 such canceled Warrant Certificates as the Company may direct in writing. ARTICLE VI Registration Rights; Indemnification SECTION 6.01. Effectiveness of Registration Statements. Subject to Section 6.02, the Company shall cause to be filed pursuant to Rule 415 (or any successor provision) of the Securities Act (a) a shelf registration statement relating to the offer and sale of the Warrants by the Holders from time to time in accordance with the methods of distribution elected by such holders and set forth in such registration statement (the "Warrant Shelf Registration Statement"), and shall use its reasonable best efforts to cause the Warrant Shelf Registration Statement to be declared effective under the Securities Act on or before 150 days after the Issue Date and (b) a shelf registration statement covering the issuance of Warrant Shares to the Holders upon exercise of the Warrants by the Holders thereof (the "Warrant Share Shelf Registration Statement") and shall use its reasonable best efforts to cause the Warrant Share Shelf Registration Statement to be declared effective on or before the Exercisability Date. The Company shall use its reasonable best efforts to cause (x) the Warrant Shelf Registration Statement to remain effective until the earliest of (i) such time as all Warrants have been sold thereunder, (ii) two years after its effective date and (iii) until all Warrants can be sold without restriction under the Securities Act and (y) the Warrant Share Shelf Registration Statement to remain effective until the earlier of (i) such time as all Warrants have been exercised and (ii) the Expiration Date. In connection with either the Warrant Shelf Registration Statement or the Warrant Share Shelf Registration Statement, (i) the Company shall furnish to the Warrant Agent, prior to the filing with the Commission, a copy of any registration statement, and each amendment thereof and each amendment or supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when filed with the Commission, such comments as the Warrant Agent may reasonably propose, (ii) the Company shall furnish to each Holder, without charge, at least one copy of any registration statement and any post-effective amendment thereto, including financial statements and schedules, and, if 29 the Holder so requests in writing, all exhibits thereto (including those incorporated by reference), (iii) the Company shall, for so long as any such registration statement is effective, deliver to each Holder, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such registration statement and any amendment or supplement thereto as such Holder may reasonably request, and the Company consents to the proper use of the prospectus therein and any amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Warrants or the Warrant Shares, as the case may be, covered by such prospectus and any amendment or supplement thereto, (iv) the Company may require each Holder of Warrants to be sold pursuant to the Warrant Shelf Registration Statement or to be exercised in connection with the Warrant Share Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of such Warrants or Warrant Shares as the Company may from time to time reasonably request for inclusion in such registration statement, (v) the Company shall, if requested, promptly incorporate in a prospectus supplement or post-effective amendment to such registration statement such information as a majority in interest of the Holders reasonably agree should be included therein and shall make all required filings of such prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post-effective amendment, (vi) the Company shall enter into such agreements (including underwriting agreements) as are appropriate, customary and reasonably necessary in connection with any such registration statement and (vii) the Company shall (A) make available to the underwriters, if any, all material customary for reasonable due diligence examinations in connection with such registration statements, (B) make such representations and warranties to the Holders of Warrants and the underwriters, if any, as are customary and reasonable in connection with such registration statements, (C) obtain such opinions of counsel to the Company addressed to and reasonably satisfactory to the Holders as are customary and reasonable in connection 30 with such registration statements and (D) obtain such "comfort" letters and updates thereof from the independent certified public accountants of the Company addressed to the Holders as are customary and reasonable in connection with such registration statements. The Company will furnish the Warrant Agent with current prospectuses meeting the requirements of the Securities Act in sufficient quantity to permit the Warrant Agent to deliver, at the Company's expense, a prospectus to each holder of a Warrant upon the exercise thereof. The Company shall promptly inform the Warrant Agent of any change in the status of the effectiveness or availability of any registration statement. SECTION 6.02. Suspension. During any consecutive 365-day period, the Company shall be entitled to suspend the availability of each of the Warrant Shelf Registration Statement and the Warrant Share Shelf Registration Statement for up to three 30 consecutive-day periods (except for the 45 consecutive-day period immediately prior to the Expiration Date) but for no more than an aggregate of 60 days during any 365-day period if the Company's Board of Directors determines in the exercise of its good faith judgment that it is necessary to amend such registration statement or amend or supplement any prospectus or prospectus Supplement thereunder in order that each such document not include any untrue statement of fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made. SECTION 6.03. Liquidated Damages. If either the Warrant Shelf Registration Statement has not been declared effective within 150 days after the Issue Date or the Warrant Share Shelf Registration Statement has not been declared effective on or prior to the Exercisability Date (each a "Registration Default"), then the Company will pay liquidated damages in cash to each Holder of Warrants in an amount equal to $0.03 per week per Warrant while such Registration Default continues for the first 90-day period immediately following such Registration Default. The amount of liquidated damages payable in cash by the Company to each Holder of Warrants will increase by an amount equal to $0.02 per week per Warrant with respect to each subsequent 90-day period during which such Registration Default continues and until such Registration Default is cured, up to a maximum of $0.07 per week per Warrant. All liquidated damages accrued, but not paid, on or prior to any interest payment date for the Notes, will be paid to Holders of Warrants on such interest payment date at their registered addresses. 31 SECTION 6.04. Piggy-Back Registration Rights. (a) If the Company proposes to sell Common Stock pursuant to an effective registration statement under the Securities Act (other than a registration statement on Form S-4 or S-8 or a registration statement filed in connection with an offer of securities solely to existing security holders), or the Company files a registration statement to cover the sale of Common Stock for the account of any of its security holders, then the Company shall in each case give written notice, not later than the date of the initial filing of such registration statement related to such offering, of such proposed offering to the Holders of Warrants and Warrant Shares and such notice shall offer to such Holders the opportunity to include in such offering such number of Warrants as such Holders may request. From and after the Exercisability Date, Holders of Warrants may also request to include Warrant Shares in such offering. Within 20 days after receipt of such notice, the Holders of Warrants and Warrant Shares (the "Requesting Holders") shall, subject to the following sentence, have the right by notifying the Company in writing to require the Company to include in the registration statement relating to such offering such number of Warrants or Warrant Shares as such Holder may request. Notwithstanding the foregoing, if at any time the managing underwriter or underwriters of such offering (the "Managing Underwriter") shall advise the Company in writing (and shall deliver a copy thereof to the Warrant Agent) that, in its opinion, the total number or type of Warrants, Warrant Shares or other securities, as the case may be, proposed to be sold exceeds the maximum number or type of Warrants, Warrant Shares or other securities, as the case may be, which the Managing Underwriter believes may be sold without materially adversely affecting the price, timing or distribution of the offering, then the Company will be required to include, for each Requesting Holder, only that pro rata number (based on the number of Warrants or Warrant Shares requested to be included therein by all Requesting Holders) of Warrants or Warrant Shares which the Managing Underwriter believes may be sold without causing such adverse effect. The Company will have the right to postpone or withdraw any registration statement relating to any Offering described under this Section 6.04 prior to the effective date without obligation to any Requesting Holder. (b) If the Company has complied with all the obligations under Section 6.04(a), to the extent applicable, all Holders of Warrants and Warrant Shares upon request of the Managing Underwriter will be required to not sell or otherwise dispose of any Warrants or Warrant Shares owned by them for a period not to exceed 30 days prior to, or 90 days after, the consummation of any underwritten public offering. 32 (c) The provisions of Section 6.02 and the third, fourth and fifth sentences of Section 6.01 shall apply to any registration statement governed by Section 6.04(a). SECTION 6.05. Blue Sky. The Company shall use its best efforts to register or qualify the Warrants and the Warrant Shares under all applicable securities laws, blue sky laws or similar laws of all jurisdictions in the United States in which any holder of Warrants may or may be deemed to purchase Warrants or Warrant Shares upon the exercise of Warrants and shall use its best efforts to maintain such registration or qualification for so long as it is required to cause the Warrant Shelf Registration Statement (in the case of the Warrants), the Warrant Share Shelf Registration Statement (in the case of the Warrant Shares) and any registration statement governed by Section 6.04 to remain effective under the Securities Act pursuant to Section 6.01 or until the offering pursuant to Section 6.04 is complete; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 6.05 or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. SECTION 6.06. Accuracy of Disclosure. The Company represents and warrants to each Holder and agrees for the benefit of each Holder that (i) each of the Warrant Shelf Registration Statement, the Warrant Share Shelf Registration Statement and any registration statement governed by Section 6.04 and any amendment thereto will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading and (ii) each of the prospectus furnished to such Holder for delivery in connection with the sale of Warrants and the prospectus delivered to such Holder upon the exercise of Warrants and the documents incorporated by reference therein will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company shall have no liability under clauses (i) or (ii) of this Section 6.06 with respect to any such untrue statement or omission made in any registration statement or prospectus in reliance upon and in conformity with information furnished to the Company by or on behalf of the Holders specifically for inclusion therein. 33 SECTION 6.07. Indemnification. (a) In connection with any registration statement governed by this Article VI, the Company agrees to indemnify and hold harmless each Holder of the Securities, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (each Holder and such controlling persons being referred to collectively as the "Indemnified Parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement governed by this Article VI or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a registration statement governed by this Article VI, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a registration statement governed by this Article VI or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a registration statement governed by this Article VI in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder results from the fact 34 that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus (as amended or supplemented if the Company shall have furnished any such amendments or supplements to such Holder) if the Company had previously furnished copies thereof to such Holder; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, selling brokers, dealer-managers and similar securities industry professionals participating in the distribution (in each case as described in the registration statement governed by this Article VI), their officers and directors and each person who controls such persons within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) In connection with any registration statement governed by this Article VI, each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (and the directors, officers, agents and employees of the Company and any such controlling person) from and against any losses, claims, damages or liabilities or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which the Company or any such controlling person (or the directors, officers, agents and employees of the Company and any such controlling person) may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement governed by this Article VI or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a registration statement governed by this Article VI, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set 35 forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person (or the directors, officers, agents and employees of the Company and any such controlling person) in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 6.07 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 6.07, notify the indemnifying party of the commencement thereof; but the failure to so notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party (except to the extent that it is prejudiced or harmed in any material respect by failure to give such prompt notice). In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, act as both counsel to the indemnified and indemnifying parties in such action if, in the reasonable opinion of both counsel to the indemnified party and the indemnifying party, a conflict exists which makes such joint representation not advisable), and after notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 6.07 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, not to be unreasonably withheld, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. No indemnifying party shall be liable for any amounts paid in settlement of any 36 action or claim without its written consent, which consent shall not be unreasonably withheld. (d) If the indemnification provided for in this Section 6.07 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the registration statement governed by this Article VI, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified person, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwith standing any other provision of this Section 6.07(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Warrants pursuant to the Warrant Shelf Registration Statement or the Warrant Shares pursuant to the Warrant Share Shelf Registration Statement or the Warrants or Warrant Shares pursuant to any registration statement governed by Section 6.04 exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of 37 the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 6.07 shall survive the sale of the Securities pursuant to the registration statements governed by this Article VI and shall remain in full force and effect, regardless of any termination or cancelation of this Agreement or any investigation made by or on behalf of any indemnified party. SECTION 6.08. Additional Acts. If the sale of Warrants or the issuance or sale of any Common Stock or other securities issuable upon the exercise of the Warrants requires registration or approval of any governmental authority (other than the registration requirements under the Securities Act), or the taking of any other action under the laws of the United States or any political subdivision thereof before such securities may be validly offered or sold in compliance with such laws, then the Company covenants that it will, in good faith and as expeditiously as reasonably possible, use its reasonable best efforts to secure and maintain such registration or approval or to take such other action, as the case may be. The Company shall promptly notify the Warrant Agent in writing when (i) the Company has obtained all such governmental approvals and authorizations and (ii) such approvals and authorizations thereafter cease to be in effect. SECTION 6.09. Expenses. All expenses incident to the Company's performance of or compliance with its obliga tions under this Article VI will be borne by the Company, including: (i) all Commission, stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all reasonable fees and expenses incurred in connection with the compliance with state securities or blue sky laws, (iii) all expenses of any Persons incurred by or on behalf of the Company in preparing or assisting in preparing, printing and distributing the Warrant Shelf Registration Statement, the Warrant Share Shelf Registration Statement or any registration statement governed by Section 6.04, prospectus, any amendments or supplements thereto and other documents relating to the performance of and compliance with this Article VI, (iv) the fees and disbursements of the Warrant Agent as agreed, (v) the fees 38 and disbursements of counsel for the Company and the Warrant Agent as agreed and (vi) the fees and disbursements of the independent public accountants of the Company, including the expenses of any special audits or comfort letters required by or incident to such performance and compliance. ARTICLE VII The Warrant Agent SECTION 7.01. Duties and Liabilities. The Company hereby appoints the Warrant Agent to act as agent of the Company as set forth in this Agreement. The Warrant Agent hereby accepts the agency established by this Agreement and agrees to perform the same upon the terms and conditions herein set forth, by all of which the Company and the Holders of Warrants, by their acceptance thereof, shall be bound. The Warrant Agent shall not have any obligation towards or relationship of agency or trust for the Holders. The Warrant Agent shall not, by countersigning Warrant Certificates or by any other act hereunder, be deemed to make any representations as to the validity or authorization of the Warrants or the Warrant Certificates (except as to its countersignature thereon) or of any securities or other property delivered upon exercise of any Warrant, or as to the accuracy of the calculation of the Exercise Price, or the number or kind or amount of Common Stock or other securities or other property deliverable upon exercise of any Warrant, or as to the correctness of the representations of the Company made in the certificates that the Warrant Agent receives or the validity, sufficiency or adequacy of any offering materials. The Warrant Agent shall not have any obligation to calculate or determine any adjustments with respect to either (i) the Exercise Price, or (ii) the type or quantity of securities receivable by a Holder upon exercise or repurchase of such Holder's Warrants, nor shall the Warrant Agent have a duty to independently verify any such adjustments that may be supplied to it by the Company. The Warrant Agent shall not (a) be liable for any recital or statement of fact contained herein or in the Warrant Certificates or for any action taken, suffered or omitted by it in good faith in the belief that any Warrant Certificate or any other documents or any signatures are genuine or properly authorized, (b) be responsible for any failure on the part of the Company to comply with any of its covenants and obligations contained in this Agreement or in the Warrant Certificates or (c) be liable for any act or omission in connection with this Agreement except for its own gross negligence or wilful misconduct. The Warrant Agent is hereby authorized to accept instructions with 39 respect to the performance of its duties hereunder from the Chief Executive Officer, President, any Vice President or the Secretary or Treasurer of the Company and to apply to any such officer for instructions (which instructions will be promptly given in writing when requested) and the Warrant Agent shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with the instructions of any such officer; however, in its discretion, the Warrant Agent may in lieu thereof accept other evidence of such or may require such further or additional evidence as it may deem reasonable. The Warrant Agent shall not be liable for any action taken, or for any failure to take any action, with respect to any matter in the event it requests instructions from the Company as to that matter and does not receive such instructions within a reasonable period of time after the request therefor. The Warrant Agent may execute and exercise any of the rights and powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys, agents or employees, and the Warrant Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys, agents or employees; provided, however, reasonable care has been exercised in the selection and in the continued employment of any such attorney, agent or employee. The Warrant Agent shall not be under any obligation or duty to institute, appear in or defend any action, suit or legal proceeding in respect hereof, unless first indemnified to its satisfaction, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without such indemnity. The Warrant Agent shall promptly notify the Company in writing of any claim made or action, suit or proceeding instituted against it arising out of or in connection with this Agreement. The Warrant Agent may rely and shall be fully protected in acting or refraining from acting upon any certificate, notice, instruction, Warrant, document or other writing believed by it to be genuine and to have been signed or presented by the proper Person. The Warrant Agent need not investigate any fact or matter stated in any such certificate, notice, instruction, Warrant, document or other writing. The Warrant Agent shall not be liable for any action that it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. The Company will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further acts, instruments and assurances as are consistent with this Agreement and as may reasonably 40 be required by the Warrant Agent in order to enable it to carry out or perform its duties under this Agreement. The Warrant Agent shall act solely as agent of the Company hereunder. The Warrant Agent shall not be liable except for the failure to perform such duties as are specifically set forth herein, and no implied covenants or obligations shall be read into this Agreement against the Warrant Agent, whose duties and obligations shall be determined solely by the express provisions hereof. With respect to the identity of beneficial owners of interests in the Global Warrant and the number of Warrants beneficially owned by any beneficial owner, the Warrant Agent shall be entitled to conclusively rely on the records of DTC and shall be fully protected in so relying. SECTION 7.02. Right To Consult Counsel. The Warrant Agent may at any time consult with legal counsel acceptable to it (who may be legal counsel for the Company), and the opinion or advice of such counsel shall be full and complete authorization and protection to the Warrant Agent and the Warrant Agent shall incur no liability or responsibility to the Company or to any Holder for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel. SECTION 7.03. Compensation; Indemnification. The Company agrees to pay to the Warrant Agent from time to time compensation for all services rendered by it hereunder as the Company and the Warrant Agent may agree in writing from time to time, and to reimburse the Warrant Agent for reasonable expenses and disbursements incurred in connection with the execution and administration of this Agreement (including the reasonable fees and the expenses of its counsel), and further agrees to indemnify the Warrant Agent for, and to hold it harmless against, any claim, loss, liability or expense arising out of or in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending itself against any such claim or liability, except that the Company shall have no liability hereunder to the extent that any such loss, liability or expense results from the Warrant Agent's own gross negligence or wilful misconduct. The obligations of the Company under this Section 7.03 shall survive the exercise and the expiration of the Warrants and the resignation or removal of the Warrant Agent. No provision of this Agreement shall require the Warrant Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it 41 shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 7.04. No Restrictions on Actions. The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in transactions in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not the Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. SECTION 7.05. Discharge or Removal; Replacement Warrant Agent. Except as otherwise provided in this Section 7.05, and except after the exercise of all of the outstanding Warrants and the delivery of Warrant Shares with respect thereto, no resignation or removal of the Warrant Agent and no appointment of a successor warrant agent shall become effective until the acceptance of appointment by the successor warrant agent provided herein. The Warrant Agent may resign from its position as such and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's own gross negligence or wilful misconduct), after giving one month's prior written notice to the Company. The Company may remove the Warrant Agent upon one month's prior written notice specifying the date when such discharge shall take effect, and the Warrant Agent shall thereupon in like manner be discharged from all further duties and liabilities hereunder, except as aforesaid. The Warrant Agent or the Company shall cause to be mailed (by first-class mail, postage prepaid) to each Holder of a Warrant a copy of said notice of resignation or notice of removal, as the case may be. Upon such resignation or removal the Company shall appoint in writing a new warrant agent. If the Company shall fail to make such appointment within a period of 30 calendar days after it has been notified in writing of such resignation by the resigning Warrant Agent or after such removal, then the resigning Warrant Agent or the Holder of any Warrant may apply to any court of competent jurisdiction for the appointment of a new warrant agent. Any new warrant agent, whether appointed by the Company or by such a court, shall be a bank or trust company doing business under the laws of the United States or any state thereof, in good standing and having a combined capital and surplus of not less than $50,000,000. The combined capital and surplus of any such new warrant agent shall be deemed to 42 be the combined capital and surplus as set forth in the most recent annual report of its condition published by such warrant agent prior to its appointment; provided, however, that such reports are published at least annually pursuant to law or to the requirements of a federal or state supervising or examining authority. After acceptance in writing of such appointment by the new warrant agent, it shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed; however, the original Warrant Agent, upon payment of its fees and expenses, shall in all events deliver and transfer to the successor Warrant Agent all property, if any, at the time held hereunder by the original Warrant Agent and if for any reason it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed and delivered by the resigning or removed Warrant Agent. Not later than the effective date of any such appointment, the Company shall file a notice thereof with the resigning or removed Warrant Agent and shall forthwith cause a copy of such notice to be mailed to each Holder of a Warrant. Failure to give any notice provided for in this Section 7.05, however, or any defect therein, shall not affect the legality or validity of the resignation of the Warrant Agent or the appointment of a new warrant agent, as the case may be. SECTION 7.06. Successor Warrant Agent. Any corporation into which the Warrant Agent or any successor warrant agent may be merged or converted, or any corporation resulting from any consolidation to which the Warrant Agent or any successor warrant agent shall be a party, and any corporation that acquires substantially all of the corporate trust business of the Warrant Agent, shall be a successor Warrant Agent under this Agreement without any further act; provided, however, that such corporation would be eligible for appointment as successor to the Warrant Agent under the provisions of Section 7.05 hereof. Any such successor Warrant Agent shall promptly cause notice of its succession as Warrant Agent to be mailed (by first-class mail, postage prepaid) to each Holder of a Warrant. ARTICLE VIII Warrant Holders SECTION 8.01. Warrant Holder Not Deemed a Holder of Common Stock. Prior to the exercise of the Warrants, no 43 Holder of a Warrant Certificate, as such, shall be entitled to any rights of a holder of Common Stock. SECTION 8.02. Right of Action. All rights of action with respect to this Agreement are vested in the Holders of the Warrants, and any Holder of any Warrant, without the consent of the Warrant Agent or the Holder of any other Warrant, may, on such Holder's own behalf and for such Holder's own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company suitable to enforce, or otherwise in respect of, such Holder's right to exercise, exchange or tender for purchase such Holder's Warrants in the manner provided in the Warrant Certificate representing his Warrants and in this Agreement. ARTICLE IX Miscellaneous SECTION 9.01. Payment of Taxes. The Company shall pay any stamp, registration, and other similar taxes and other governmental charges that may be imposed under the laws of the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery thereof or of other securities deliverable upon exercise of Warrants (other than income taxes imposed on the Holders). The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any Warrant Shares to any Person other than the Holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and in case of such transfer or payment, the Warrant Agent and the Company shall not be required to issue any Warrant Shares or pay any cash until such tax or charge has been paid or it has been established to the Warrant Agent's and the Company's satisfaction that no such tax or other charge is due. SECTION 9.02. Reports to Holders. The Company shall: (a) file the reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) required to be filed by it under the Securities Act and the Exchange Act, and the rules, regulations and policies adopted by the Commission thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, 44 then the Company shall, upon the request of any Holder or beneficial owner of Warrants, make available such information as necessary to permit sales pursuant to Rule 144A under the Securities Act; and (b) file with the Warrant Agent and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Agreement as may be required from time to time by such rules and regulations. SECTION 9.03. Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or any air courier (a) if to a Holder of the Warrants, at the address of such Holder maintained by the Warrant Agent, (b) if to the Company, to CD Radio Inc., 1221 Avenue of the Americas, New York, New York 10020, Attention: Patrick L. Donnelly and (c) if to the Warrant Agent, to United States Trust Company of New York, 114 West 47th Street, New York, NY 10036, Attention: Corporate Trust Administration. All such notices and communications shall be deemed to have been duly given; at the time delivered by hand, if personally delivered; at the time received, if mailed or sent by air courier; when answered back, if telexed; and when receipt is acknowledged, by recipient's telecopy operator, if telecopied. SECTION 9.04. Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. SECTION 9.05. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Warrant Agent and their respective successors and assigns, and the Holders from time to time of the Warrants. Nothing in this Agreement is intended or shall be construed to confer upon any Person, other than the Company, the Warrant Agent and the Holders of the Warrants, any right, remedy or claim under or by reason of this Agreement or any part hereof. 45 SECTION 9.06. Third-Party Beneficiaries. The Holders and holders of Warrant Shares shall be third-party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Warrant Agent, on the other hand, and each Holder and holder of Warrant Shares shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders or holders of Warrant Shares hereunder. SECTION 9.07. Amendments. The Company may, without the consent of the Holders of the Warrants, by supplemental agreement or otherwise, make any changes or corrections in this Agreement that it shall have been advised by counsel (a) are required to cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein or (b) add to the covenants and agreements of the Company for the benefit of the Holders, or surrender any rights or power reserved to or conferred upon the Company in this Agreement; provided, however, that, in each case, such changes or corrections shall not adversely affect the interests of the Holders or holders of Warrant Shares in any material respect. Amendments or supplements which do not meet the requirements of the preceding sentence shall require the written consent of the Holders of a majority of the then outstanding Warrants and, to the extent such amendment or supplement affects the rights of holders of Warrant Shares under Article VI hereof, the written consent of the holders of a majority of the then outstanding Warrant Shares; provided, however, that the consent of each Holder is required for any amendment or supplement pursuant to which the Exercise Price would be increased or the Exercise Rate would be decreased (other than pursuant to adjustments as provided in Article IV of this Agreement). The Warrant Agent shall join with the Company in the execution and delivery of any such supplemental agreements unless it affects the Warrant Agent's own rights, duties of immunities hereunder, in which case the Warrant Agent may, but shall not be required to, join in such execution and delivery. SECTION 9.08. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. SECTION 9.09. GOVERNING LAW. THIS AGREEMENT AND THE WARRANTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 46 SECTION 9.10. Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, and their respective corporate seals to be hereto affixed and attested, all as of the day and year first above written. CD RADIO INC. by /s/Patrick L. Donnelly ---------------------------------------- Name: Patrick L. Donnelly Title: Executive Vice President and General Counsel UNITED STATES TRUST COMPANY OF NEW YORK, Warrant Agent by /s/Patricia Gallagher ---------------------------------------- Name: Patricia Gallagher Title: Assistant Vice President EXHIBIT A TO WARRANT AGREEMENT CUSIP No. No. [ ] Certificate for [ ] Warrants WARRANTS TO PURCHASE COMMON STOCK OF CD RADIO INC. THIS CERTIFIES THAT [ ], or its registered assigns, is the registered holder of the number of Warrants set forth above (the "Warrants"). Each Warrant entitles the holder thereof (the "Holder"), at its option and subject to the provisions contained herein and in the Warrant Agreement referred to below, to purchase from CD RADIO INC., a Delaware corporation ("the Company"), 3.65 shares of Common Stock, par value of $0.001 per share, of the Company (the "Common Stock") at the per share exercise price of $28.60 (the "Exercise Price"), or by Cashless Exercise referred to below. Each Warrant shall terminate and become void as 5:00, New York City time, on May 15, 2009 (the "Expiration Date") if not previously exercised. The number of shares issuable upon exercise of the Warrants and the Exercise Price per share shall be subject to adjustment from time to time as set forth in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of May 15, 1999 (the "Warrant Agreement"), between the Company and United States Trust Company of New York (the "Warrant Agent", which term includes any successor Warrant Agent under the Warrant Agreement), and is subject to the terms and provisions contained in the Warrant Agreement, to all of which terms and provisions the Holder of the Warrants evidenced by this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Company, the Warrant Agent and the Holders of the Warrants. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Warrant Agreement. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Warrant Agent at 114 West 47th Street, New York, New York, 10036, Attention: Corporate Trust Department. Subject to the terms of the Warrant Agreement, the Warrants may be exercised in whole (i) by presentation of this Warrant Certificate with the Election to Purchase attached hereto duly executed and with the simultaneous payment of the Exercise Price in cash (subject to adjustment) to the Warrant Agent for the account of the Company at the office of the Warrant Agent or (ii) by Cashless Exercise. Payment of the Exercise Price in cash shall be made by certified or official bank check payable to the order of the Company or by wire transfer of funds to an account designated by the Company for such purpose. Payment by Cashless Exercise shall be made without the payment of cash by reducing the amount of Common Stock that would be obtainable upon the exercise of a Warrant and payment of the Exercise Price in cash so as to yield a number of shares of Common Stock upon the exercise of such Warrant equal to the product of (1) the number of shares of Common Stock for which such Warrant is exercisable as of the Exercise Date (if the Exercise Price were being paid in cash) and (2) a fraction, the numerator of which is the excess of the Current Market Value per share of Common Stock on the Exercise Date over the Exercise Price per share as of the Exercise Date and the denominator of which is the Current Market Value per share of the Common Stock on the Exercise Date. As provided in the Warrant Agreement and subject to the terms and conditions therein set forth, the Warrants shall be exercisable at any 2 time and from time to time on any Business Day on or after the Exercisability Date; provided, however, that Holders of Warrants will be able to exercise their Warrants only if the Warrant Share Shelf Registration Statement relating to the Common Stock underlying the Warrants is effective or the exercise of such Warrants is exempt from the registration requirements of the Securities Act of 1933 and such securities are qualified for sale or exempt from qualification under the applicable securities laws of the states or other jurisdictions in which such Holders reside; provided further, however, that no Warrant shall be exercisable after May 15, 2009. In the event of a Fundamental Transaction, the Holder hereof will be entitled to receive upon exercise of the Warrants the kind and amount of shares of capital stock or other securities or other property as the Holder would have received had the Holder exercised its Warrants immediately prior to such Fundamental Transaction; provided, however, that in the event that, in connection with such Fundamental Transaction (other than with a subsidiary of the Company), consideration to holders of Common Stock in exchange for their shares is payable solely in cash or in the event of the dissolution, liquidation or winding-up of the Company, the Holder hereof will be entitled to receive such cash distributions on an equal basis with the holders of Common Stock or other securities issuable upon exercise of the Warrants, as if the Warrants had been exercised immediately prior to such Fundamental Transaction, less the Exercise Price. As provided in the Warrant Agreement, the number of shares of Common Stock issuable upon the exercise of the Warrants and the Exercise Price are subject to adjustment upon the happening of certain events. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with the transfer or exchange of the Warrant Certificates pursuant to Section 5.02 of the Warrant Agreement, but not for any exchange or original issuance (not involving a transfer) with respect to temporary Warrant Certificates, the exercise of the Warrants or the Warrant Shares. Upon any exercise of the Warrants for less than all of the Warrants represented by this Warrant Certificate, there shall be countersigned and issued to the Holder hereof a new Warrant Certificate representing those Warrants which were not exercised. This Warrant Certificate may be exchanged at the office of the Warrant Agent by presenting this Warrant Certificate properly endorsed with a request to exchange this Warrant Certificate for other Warrant Certificates evidencing an equal number of Warrants. No fractional Warrant Shares will be issued upon the exercise of the Warrants, but the Company shall pay an amount in cash equal to the Current Market Value per Warrant Share on the day immediately preceding the date the Warrant is exercised, multiplied by the fraction of a Warrant Share that would be issuable on the exercise of any Warrant. All shares of Common Stock issuable by the Company upon the exercise of the Warrants shall, upon such issue, be duly and validly issued and fully paid and non-assessable. The holder in whose name this Warrant Certificate is registered may be deemed and treated by the Company and the Warrant Agent as the absolute owner of the Warrants evidenced by this Warrant Certificate for all purposes whatsoever and neither the Company nor the Warrant Agent shall be affected by notice to the contrary. 3 The Warrants do not entitle any Holder hereof to any of the rights of a stockholder of the Company. This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Warrant Agent. CD RADIO INC. by _______________________________________ Name: Title: Countersigned: UNITED STATES TRUST COMPANY OF NEW YORK, as Warrant Agent, by ___________________________________ Authorized Signatory FORM OF ELECTION TO PURCHASE WARRANT SHARES (to be executed only upon exercise of Warrants) CD RADIO INC. The undersigned hereby irrevocably elects to exercise __________________ Warrants to acquire shares of Common Stock, par value $.001 per share, of CD Radio Inc., at an exercise price per share of Common Stock of $28.60, and otherwise on the terms and conditions specified in the within Warrant Certificate and the Warrant Agreement therein referred to, surrenders this Warrant Certificate and all right, title and interest therein to CD Radio Inc. and directs that the shares of Common Stock deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Date: (1) ____________________________________ (Signature of Owner) ____________________________________ (Street Address) ___________________________________ (City) (State) (Zip Code) Signature Guaranteed by: ____________________________________ - ---------- (1) The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatever, and must be guaranteed by a national bank or trust company or by a member firm of any national securities exchange. 2 Securities and/or check to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: A new Warrant Certificate evidencing any unexercised Warrants evidenced by the within Warrant Certificate is to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: 3 In connection with any transfer of any of the Warrants evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act after the later of the date of original issuance of such Warrants and the last date, if any, on which such Warrants were owned by the Company or any Affiliate of the Company, the undersigned certifies that such Warrants are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) [ ] to the Company; or (2) [ ] pursuant to an effective registration statement under the Securities Act of 1933; or (3) [ ] pursuant to Rule 144A under the Securities Act of 1933; or (4) [ ] pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. Unless one of the boxes is checked, the Warrant Agent will refuse to register any of the Warrants evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (4) is checked, the Warrant Agent may require, prior to registering any such transfer of the Warrants, such legal opinions, additional certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. ---------------------------- Signature Signature Guarantee: - ---------------------------- ---------------------------- Signature must be guaranteed Signature - -------------------------------------------------------------------------------- SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS(2) The following exchanges of a part of this Global Warrant Certificate for definitive Warrants have been made:
Number of Amount of change Warrants in in Number of this Global Warrants in Warrant Signature of this Global Certificate authorized Date of Warrant following officer of Exchange Certificate such change Warrant Agent
- ---------- (2) To be included only if the Warrant is in global form. 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 $1,000 PRINCIPAL AMOUNT OF 14-1/2% SENIOR SECURED NOTES DUE 2009 OF CD RADIO INC. (THE "NOTES") AND THREE WARRANTS. PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (I) AUGUST 16, 1999, (II) THE COMMENCEMENT OF A REGISTERED EXCHANGE OFFER FOR THE NOTES OR THE EFFECTIVE DATE OF A SHELF REGISTRATION STATEMENT WITH RESPECT TO THE NOTES, (III) THE OCCURRENCE OF AN EXERCISE EVENT, (IV) THE OCCURRENCE OF AN EVENT OF DEFAULT, (V) THE REDEMPTION OF ALL OR PART OF THE NOTES IN ACCORDANCE WITH THE INDENTURE OR (VI) SUCH EARLIER DATE AS DETERMINED BY MERRILL LYNCH IN ITS SOLE DISCRETION (AS SUCH TERMS ARE DEFINED IN THE WARRANT AGREEMENT REFERRED TO HEREIN), THE WARRANT EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE NOTES. EXHIBIT D TO THE WARRANT AGREEMENT FORM OF TRANSFER RESTRICTION LEGEND THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH BELOW. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER ("RULE 144A"). BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) OR AN INSTITUTIONAL "ACCREDITED INVESTOR" AND (2) AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE THE UNITED STATES, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. EX-4 6 EXHIBIT 4.4.5 EXHIBIT 4.4.5 EXECUTION COPY ================================================================================ AMENDED AND RESTATED PLEDGE AGREEMENT Among CD RADIO INC. as Pledgor IBJ WHITEHALL BANK AND TRUST COMPANY as Trustee UNITED STATES TRUST COMPANY OF NEW YORK as Trustee and IBJ WHITEHALL BANK AND TRUST COMPANY as Collateral Agent Dated as of May 15, 1999 ================================================================================
TABLE OF CONTENTS Page 1. Grant of Security Interest..............................................2 2. Security for Obligations................................................3 3. Delivery of Pledged Collateral..........................................4 4. Representations and Warranties..........................................5 5. As to the Pledged Collateral............................................7 6. Additional Shares.......................................................9 7. Payment of Taxes and Claims............................................10 8. Covenants and Agreements...............................................11 9. The Collateral Agent Appointed Attorney-in-Fact........................13 10. The Collateral Agent May Perform.......................................14 11. The Collateral Agent's Duties..........................................14 12. Events of Default......................................................14 13. Notice of Event of Default.............................................15 14. Remedies...............................................................15 15. Expenses...............................................................17 16. Repayment in Bankruptcy, etc...........................................17 17. No Segregation of Moneys; No Interest..................................18 18. Continuing Security Interest; Termination..............................18 19. Notices................................................................19 20. Margin Regulations.....................................................19 21. Other Provisions.......................................................19
AMENDED AND RESTATED PLEDGE AGREEMENT AMENDED AND RESTATED PLEDGE AGREEMENT (this "Agreement"), dated as of May 15, 1999, made by CD RADIO INC., a Delaware corporation (the "Pledgor"), to IBJ WHITEHALL BANK AND TRUST COMPANY (formerly known as IBJ Schroder Bank and Trust Company), as collateral agent (the "Collateral Agent") for the holders (the "Holders") from time to time of the Notes (as defined herein), IBJ WHITEHALL BANK AND TRUST COMPANY, as trustee for the Old Notes (as defined herein), and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee for the New Notes (as defined herein). The Pledgor and the Collateral Agent are parties to the Pledge Agreement dated as of November 26, 1997 pursuant to which the Pledgor granted a first priority security interest in the issued and outstanding capital stock described in Schedule I hereto (the "Pledged Shares") representing 100% of the issued and outstanding capital stock of Satellite CD Radio, Inc., a Delaware corporation (the "Subsidiary"), to the Collateral Agent to secure the obligations of the Pledgor pursuant to the Indenture dated as of November 26, 1997 (as amended, restated, supplemented or modified from time to time, the "Old Note Indenture") between the Pledgor and IBJ Whitehall Bank and Trust Company (formerly known as IBJ Schroder Bank and Trust Company), as trustee (in such capacity, the "Old Note Trustee") pursuant to which the Pledgor issued $296,930,000 aggregate principal amount at maturity of its 15% Senior Secured Discount Notes due 2007 (the "Old Notes"). The Pledgor and United States Trust Company of New York, as trustee (in such capacity, the "New Note Trustee"), have entered into that certain indenture dated the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "New Note Indenture"), pursuant to which the Pledgor is issuing $200,000,000 aggregate principal amount of its 14-1/2% Senior Secured Notes due 2009 (the "New Notes", and together with the Old Notes, the "Notes"). The Pledgor and the Collateral Agent desire to amend and restate the Pledge Agreement to grant a first priority security interest in the Pledged Shares to the Collateral Agent for the benefit of the Old Note Trustee, the New Note Trustee and the ratable benefit of the Holders (the amount of such ratable benefit to be determined in the case of the Old Notes, with respect to the Accreted Value (as defined in the Old Note Indenture) of the Old Notes 2 outstanding at such time, and in the case of the New Notes, with respect to the principal amount of the New Notes outstanding at such time). Capitalized terms used herein without definition are used herein as defined in the New Note Indenture. In consideration of the premises, the agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce the prospective holders of the New Notes to purchase the New Notes, the Pledgor and the Collateral Agent hereby agree to amend and restate the Pledge Agreement pursuant hereto and the Pledgor hereby covenants and agrees with the Collateral Agent, the Old Note Trustee and the New Note Trustee for their benefit and for the ratable benefit of the Holders. 1. Grant of Security Interest. (a) The Pledgor hereby unconditionally assigns, pledges and grants to the Collateral Agent for its benefit, the benefit of the Old Note Trustee, the benefit of the New Note Trustee and the ratable benefit of the Holders, a first priority security interest in and to all of the Pledgor's right, title and interest in and to the following, whether now owned or existing or hereafter arising or acquired and wheresoever located (collectively, the "Pledged Collateral"): (i) the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (ii) all additional shares of issued and outstanding shares, interests, participations, warrants or other equivalents (however designated) of corporate stock ("Stock") of the Subsidiary from time to time acquired by the Pledgor in any manner, and the certificates representing such additional shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (iii) all Proceeds (as defined herein) of any and all of the foregoing Pledged Collateral (including, without limitation, proceeds that constitute property of the types described in clauses (i) and (ii) above). 3 (b) As used herein, the term "Proceeds" shall have the meaning assigned to such term under Article 9 of the Uniform Commercial Code from time to time in effect in the State of New York (the "UCC"; provided that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of the Collateral Agent's security interest in any Pledged Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions) and, to the extent not otherwise included, shall include, but not be limited to: (i) any stock dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spin-off or split-off; (ii) any option or other right, whether as an addition to, in substitution of or in exchange for any Pledged Shares or otherwise; (iii) distributions payable in property (whether real, personal, tangible, intangible, or mixed property; collectively "Property"); (iv) dividends or distributions on dissolution, or in partial or total liquidation, or from capital, capital surplus or paid-in surplus; (v) any and all payments (in any form whatsoever) made or due and payable to the Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Pledged Collateral by any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator (a "Governmental Body"); and (vi) any and all other amounts from time to time paid or payable under or in connection with the Pledged Collateral. 2. Security for Obligations. This Agreement, together with the Pledged Collateral, secures the payment of all of the obligations and liabilities of any kind of the Pledgor under this Agreement, the Old Note Indenture, the New Note Indenture or the Notes, whether liquidated, unliquidated, direct, indirect, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, and whether for principal, interest, fees, costs, expenses or otherwise (whether arising or accruing before or after the occurrence of any Event of Default (as defined herein) and whether discharged, stayed or otherwise affected or allowed as a claim in any bankruptcy proceeding of the Subsidiary), and all costs, fees and expenses of the Collateral Agent, the Old Note Trustee, the New Note Trustee 4 or the Holders (including reasonable attorneys' fees and expenses and with respect to the Collateral Agent, reasonable allocated costs and expenses of in-house counsel and legal staff) in enforcing, preserving and protecting its rights against the Pledgor, whether or not suit is instituted (as the foregoing obligations and liabilities may be amended, increased, modified, renewed, refinanced, refunded or extended from time to time) (collectively, the "Secured Obligations"), now or hereafter existing. Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Secured Obligations and would be owed by the Pledgor to the Collateral Agent, the Old Note Trustee, the New Note Trustee or the Holders under this Agreement, the Old Note Indenture, the New Note Indenture and the Notes but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Pledgor. Notwithstanding anything herein to the contrary, the Old Note Obligations (as defined in the Intercreditor Agreement) and the New Note Obligations (as defined in the Intercreditor Agreement) are the only such obligations that may be secured by the Pledged Collateral unless otherwise permitted by both the Old Note Indenture and the New Note Indenture. 3. Delivery of Pledged Collateral. (a) All certificates and other instruments at any time owned or acquired by the Pledgor representing or evidencing the Pledged Shares shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. Upon the occurrence and during the continuance of an Event of Default (as defined herein), the Collateral Agent shall have the right, upon written instructions from the Old Note Trustee or the New Note Trustee and without notice to the Pledgor, to transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Pledged Collateral. In addition, upon the occurrence and during the continuance of an Event of Default, the Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. (b) If there shall occur a change in applicable law or regulations regarding (i) the steps necessary to obtain and maintain a perfected security interest in any Pledged Collateral or (ii) the ability to obtain a security 5 interest directly in any license granted by the Federal Communications Commission or Governmental Body succeeding to the functions thereof (the "FCC"), or if there is Pledged Collateral for which the foregoing procedures are not effective to perfect a security interest, the Pledgor will immediately upon its becoming aware thereof so notify the Collateral Agent and will deliver to the Collateral Agent an Opinion of Counsel setting forth the steps necessary for the Collateral Agent to obtain and maintain such a perfected security interest in the Pledged Collateral affected by such change or for which the foregoing procedures are not effective to perfect a security interest, and the Pledgor and the Collateral Agent, instead of (or in addition to) the actions specified in this Section 3, shall take such other action, as specified in such Opinion of Counsel, as will create and maintain such perfected security interest. (c) Upon the execution and delivery of this Agreement, the Pledgor will file proper financing statements or amendments thereto with the appropriate office or offices under the Uniform Commercial Code in the State of New York, covering the Pledged Collateral described in this Agreement and, thereafter, such renewals, amendments or continuations thereof or such additional financing statements in such additional offices in such jurisdictions or in the appropriate filing offices in such additional jurisdictions as shall be required from time to time under the UCC in order to perfect and to continue the perfection of the security interest in the Pledged Collateral. 4. Representations and Warranties. The Pledgor hereby represents and warrants to the Collateral Agent as follows: (a) Organization; Good Standing. The Pledgor is duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified and in good standing in every other jurisdiction where it is doing business, except where the failure to be so qualified or maintain good standing would not have a Material Adverse Effect (as defined herein). The chief place of business and chief executive office of the Pledgor are located at 1221 Avenue of the Americas, New York, New York 10020. (b) Corporate Power; Authorization. The execution, delivery and performance by the Pledgor of this Agreement, and the consummation of the transactions contemplated hereby, (i) are within the Pledgor's corporate authority; (ii) have been duly authorized by all necessary or proper corporate action; 6 (iii) are not in contravention of any provision of the Pledgor's by-laws or certificate of incorporation; (iv) will not violate any law or regulation, or any order or decree of any court or governmental instrumentality to which the Pledgor or its property is subject; and (v) will not conflict with or result in the breach or termination of, constitute a default under, or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Pledgor is a party or by which the Pledgor or any of its property is bound (except for such conflict, breach, termination, default or acceleration as could not reasonably be expected to have a Material Adverse Effect (as defined herein)). Subject to Section 21(f) hereof, no authorization, approval or action by, or notice to, or filing with, any governmental authority or regulatory body is required under existing laws and regulations on the date hereof (A) for the grant or perfection of the security interests contemplated hereby or for the execution, delivery or performance of this Agreement by the Company, except as may be set forth in Section 3 with respect to actions to be taken by the Collateral Agent, the Old Note Trustee or the New Note Trustee or a financial intermediary holding Pledged Collateral and except for the filings referred to in Section 3(b) that may be required in the future, or (B) for the exercise by the Collateral Agent of the voting or other rights provided for in this Agreement or its rights and remedies in respect of the Pledged Collateral pursuant to this Agreement, except (1) as may be required in connection with the disposition of Pledged Collateral by laws affecting the offering and sale of securities, generally, and (2) with respect to Pledged Shares, for authorizations, approvals, notices and filings that may be required pursuant to regulations of the FCC (as defined herein), or any successor laws or regulations. (c) Enforceability. This Agreement is the legal, valid and binding obligation of the Pledgor enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights or insolvent corporations generally, and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. (d) Absence of Liens. It is the legal and beneficial owner of the Pledged Collateral free and 7 clear of all Liens other than the security interest created by this Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Collateral Agent under this Agreement. (e) Pledged Collateral. The Pledged Shares have been duly authorized and validly issued and are fully paid and nonassessable. The Pledged Shares represent 100% of the total number of shares of the Subsidiary which are issued and outstanding or for which the Subsidiary is obligated to issue after giving effect to the issuance of all such shares. (f) Security Interest. This Agreement and the pledge of the Pledged Collateral pursuant hereto create a valid and perfected first priority security interest in the Pledged Collateral in favor of the Collateral Agent, securing the payment of all of the Secured Obligations, and all filings and other actions necessary or desirable as may be required by the Old Note Trustee or New Note Trustee or the Holders to perfect and protect such security interest have been duly taken. 5. As to the Pledged Collateral. (a) So long as no event or circumstance which constitutes a Default shall have occurred and be continuing: (i) The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement, the Old Note Indenture or the New Note Indenture; provided, however, that the Pledgor shall not exercise or refrain from exercising any such right without the consent of the Collateral Agent if, in the Collateral Agent's judgment, such action or inaction would have a Material Adverse Effect (as defined herein) on the fair market value of any of the Pledged Collateral including, without limitation, the validity, priority or perfection of the security interests granted hereby or the remedies of the Collateral Agent hereunder. (ii) Any and all dividends and other distributions (whether or not in cash) paid or payable, and certificates, instruments and other Property received, receivable or otherwise distributed in respect of, or 8 in exchange for, Pledged Collateral, shall be, and shall be forthwith delivered to the Collateral Agent to be held as Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Old Note Trustee, the New Note Trustee and the Holders, be segregated from the other Property of the Pledgor, and be forthwith delivered to the Collateral Agent, as Pledged Collateral in the same form as so received (with any necessary endorsement). Any cash dividends or distributions delivered to or otherwise held by the Collateral Agent pursuant to this Section 5, and any other cash constituting Pledged Collateral delivered to the Collateral Agent, shall be invested, at the written direction of the Pledgor, by the Collateral Agent in Cash Equivalents. (iii) The Collateral Agent shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to subsection (i) or (ii) above. (b) Upon the occurrence and during the continuance of a Default (except as provided below), at the Collateral Agent's option and following written notice by the Collateral Agent to the Pledgor: (i) All rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 5(a)(i) shall cease; provided, however, that the Pledgor shall be entitled to exercise such rights without the prior consent of the Collateral Agent if such rights are to be exercised to vote in favor of a transaction which is reasonably expected to cure the Default, not result in another Default and not result in a Material Adverse Effect (as defined herein). Except as provided in the prior sentence, after the occurrence and during the continuance of an Event of Default, all such voting and other consensual rights shall thereupon become vested in the Collateral Agent, who shall thereupon have the sole right to exercise such voting and other consensual rights, subject to the satisfaction of any regulatory requirements. Effective upon the occurrence and during the continuance of an Event of Default, the Pledgor hereby appoints the Collateral Agent the Pledgor's true and lawful attorney-in-fact and grants to the Collateral Agent an IRREVOCABLE PROXY to vote the Pledged Collateral in any 9 manner the Collateral Agent deems advisable for or against all matters submitted or which may be submitted to a vote of shareholders. The power-of-attorney granted hereby is coupled with an interest and shall be irrevocable. (ii) The provisions of Section 5(a)(ii) shall continue in full force and effect, except that no dividends or distributions may be paid to the Pledgor. As used in this Agreement, the term "Material Adverse Effect" shall mean an effect resulting from any circumstance or event of whatever nature (including any adverse determination in any litigation) which does, or could reasonably be expected to, materially and adversely (A) impair the validity or enforceability of any of the Old Note Indenture, the New Note Indenture, the Notes, the Collateral Agent's, the Old Note Trustee's, the New Note Trustee's or any Holder's rights or remedies with respect thereto; (B) cause a Default; (C) affect the business, property, business prospects, operations, or financial or other condition of the Subsidiary or Pledgor; or (D) impair or affect the Pledged Collateral or the Collateral Agent's Liens on the Pledged Collateral or the priority of such Liens. (c) In the event that all or any part of the securities or instruments constituting the Pledged Collateral are lost, mutilated, destroyed or wrongfully taken while such securities or instruments are in the possession of the Collateral Agent, the Pledgor agrees that it will cause the delivery of new securities or instruments in place of the lost, mutilated, destroyed or wrongfully taken securities or instruments upon request therefor by the Collateral Agent without the necessity of any indemnity bond or other security other than the Collateral Agent's agreement or indemnity therefor customary for security agreements similar to this Agreement. 6. Additional Shares. (a) The Pledgor agrees that it will cause the Subsidiary not to issue any Stock of any kind. (b) Without derogating from paragraph (a) of this Section 6, in the event that, during the term of this Agreement: (i) any stock dividend, stock split, reclassification, readjustment, or other change is declared or made in the capital structure of the Subsidiary, all new, substituted, and additional 10 shares, or other securities, issued by reason of any such change and received by the Pledgor (directly or indirectly) or to which the Pledgor shall be entitled shall be promptly delivered or otherwise transferred to the Collateral Agent, together with undated stock powers endorsed in blank by the Pledgor, and shall thereupon constitute additional Pledged Collateral to be held by the Collateral Agent under the terms of this Agreement; and (ii) any subscriptions, warrants or any other rights or options shall be issued in connection with the Pledged Shares, all new stock or other securities acquired through such subscriptions, warrants, rights or options, and all additional shares of capital stock of the Subsidiary or any successor in interest thereto from time to time acquired by the Pledgor (directly or indirectly) in any manner whatsoever (including, without limitation, any shares of preferred stock issued by the Subsidiary) together with appropriate undated stock or similar powers endorsed in blank by the Pledgor, shall be promptly delivered or otherwise transferred to the Collateral Agent and shall thereupon constitute Pledged Collateral to be held by the Collateral Agent under the terms of this Agreement. 7. Payment of Taxes and Claims. The Pledgor shall make payment of (a) all taxes, assessments, license fees, levies and other charges of Governmental Bodies imposed upon it which if unpaid, could reasonably be expected to have a Material Adverse Effect or become a Lien on the Property of the Pledgor, unless and to the extent only that such taxes, assessments, charges, license fees, levies and other charges shall be contested in good faith and by appropriate proceedings diligently conducted by the Pledgor and the Collateral Agent has received prompt notice of such contest, (b) all taxes, assessments, license fees, levies and other charges of Governmental Bodies on any of the Pledged Collateral before any penalty or interest accrues thereon, unless and to the extent only that such taxes, assessments, charges, license fees, levies and other charges shall be contested in good faith and by appropriate proceedings diligently conducted by the Pledgor and the Collateral Agent has received prompt notice of such contest, before any penalty or interest accrues thereon, and (c) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums materially adversely affecting the Pledged Collateral, which have become due and payable and which by law have or may become a Lien upon any of the Pledged Collateral prior to the time when any penalty or fine shall be incurred with respect 11 thereto, unless and to the extent such claim is being contested in good faith and by appropriate proceedings diligently conducted by the Pledgor, the Collateral Agent has received prompt notice of such contest, any proceeding to place a lien on the Pledged Collateral or to enforce a lien on the Pledged Collateral has been stayed and such contest is not reasonably expected to have a Material Adverse Effect. 8. Covenants and Agreements. The Pledgor covenants and agrees that on and after the date hereof until the payment in full of the Secured Obligations and the termination and discharge of both the Old Note Indenture and the New Note Indenture, unless the Collateral Agent shall otherwise consent in writing: (a) At any time and from time to time, upon the reasonable request of the Collateral Agent, and at the sole expense of the Pledgor, the Pledgor shall promptly do, file, record, execute and deliver any and all such further notices, instruments and documents and will take such further action as may be reasonably deemed necessary or desirable in the judgment of the Collateral Agent and its counsel to obtain, protect and perfect the security interests granted hereby and enforce and give effect to the rights, remedies and powers hereunder, including, without limitation, the recording or filing of all instruments and documents reasonably necessary to perfect and protect the perfection of the security interests granted hereby under Article 8 or 9 of the Uniform Commercial Code in effect in any applicable jurisdiction. In connection therewith, the Collateral Agent is hereby irrevocably authorized and empowered as the Pledgor's attorney-in-fact, solely to make, at the Collateral Agent's option, all filings and to give all other notices as it shall reasonably deem necessary with respect to any of the Pledged Collateral, all of which may be done with or without the signature of the Pledgor. The Pledgor agrees that the foregoing power constitutes a power coupled with an interest which shall survive until the payment in full of all of the Secured Obligations. The Pledgor agrees to reimburse the Collateral Agent on demand for any actual and reasonable expenses (including reasonable attorneys' fees and expenses with respect to the Collateral Agent, including reasonable allocated costs and expenses of in-house counsel and legal staff) incurred by the Collateral Agent in connection with such matters and, until such reimbursement, such expenses shall be a part of the Secured Obligations. 12 (b) The Pledgor shall defend its ownership interest in and to the Collateral and the Collateral Agent's security interest in and to the Pledged Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the interests of the Collateral Agent. (c) The Pledgor shall, at all times, maintain or cause to be maintained accurate books and records with respect to the Pledged Collateral, and shall furnish to the Collateral Agent such information concerning such Pledged Collateral as the Collateral Agent may from time to time reasonably request. The Collateral Agent and its designees are hereby given the right, at the Pledgor's expense, to inspect and copy, following prior notice to the Pledgor and during regular business hours, or the Pledgor shall furnish the Collateral Agent with copies of, all records and documents reasonably required by the Collateral Agent relating to the Pledged Collateral. (d) The Pledgor shall not further hypothecate, assign, pledge, encumber, transfer, sell or otherwise dispose of, or grant any option with respect to, or create or suffer to exist a security interest in, or a Lien on, the Pledged Collateral or any portion thereof, except for the pledge, assignment and security interest created by this Agreement in favor of the Collateral Agent and except as contemplated by Article 12 of the Old Note Indenture and Article 12 of the New Note Indenture. The inclusion of "Proceeds" of the Pledged Collateral under the security interest granted herein shall not be deemed a consent by the Collateral Agent to any sale or other disposition of any Pledged Collateral except as expressly permitted herein. (e) The Pledgor shall promptly notify the Collateral Agent of any change occurring in or to the Pledged Collateral, of a change in the Pledgor's mailing address, of any material change in any fact or circumstance warranted or represented by the Pledgor in this Agreement or furnished to the Collateral Agent, or if any Default or Event of Default hereunder shall occur. (f) The Pledgor shall not, without the prior written consent of the Collateral Agent, sign or file or authorize the signing or filing of any document, financing statement or instrument creating or perfecting, or purporting to create or perfect, any 13 Lien or other encumbrance on all or any part of its Pledged Collateral except in favor of the Collateral Agent as required hereby and except as contemplated in Article 12 of the Old Note Indenture and Article 12 of the New Note Indenture. (g) The security interest granted hereby constitutes and shall at all times constitute a perfected continuing first priority security interest in the Pledged Collateral. 9. The Collateral Agent Appointed Attorney-in-Fact. Effective upon the occurrence and during the continuance of an Event of Default, the Pledgor hereby irrevocably appoints the Collateral Agent its attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Collateral Agent's discretion, to take any action and to execute any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral and/or extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, or release, any Pledged Collateral or obligations, without otherwise discharging or affecting the Secured Obligations, the Pledged Collateral or the security interests granted by this Agreement, (b) to file any claims or take any action or institute any proceedings which the Collateral Agent may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of the Pledged Collateral; and (c) to receive, indorse and collect any drafts or other instruments and documents made payable to the Pledgor in connection with clause (a) above or representing any dividend or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. The power-of-attorney granted hereby is coupled with an interest and shall be irrevocable. 14 10. The Collateral Agent May Perform. If the Pledgor fails to perform any agreement contained herein or make payment of any amount required hereunder, the Collateral Agent may itself perform, or cause performance of, or provide payment for the performance thereof, and the reasonable expenses of the Collateral Agent incurred in connection therewith shall be payable by the Pledgor under Section 15 of this Agreement and any such payment made shall be deemed an advance by the Collateral Agent to the Pledgor, payable on demand together with interest at the highest rate then payable under the Old Note Indenture or the New Note Indenture, as applicable, or if both the Old Note Indenture and the New Note Indenture are applicable, then at the rate which is the greater thereof. 11. The Collateral Agent's Duties. The powers conferred on the Collateral Agent hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Pledged Collateral, including the filing of any financing or continuation statements relating to the Pledged Collateral. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Collateral Agent accords its own Property, it being understood that the Collateral Agent shall not be under any obligation to (a) ascertain or take action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Collateral Agent has or is deemed to have knowledge of such matters, or (b) take any necessary steps to preserve rights against prior parties or any other rights pertaining to any Pledged Collateral, but may do so at its option, and all reasonable expenses incurred in connection therewith shall be for the sole account of the Pledgor, and shall be added to the Secured Obligations. 12. Events of Default. If any of the following events shall occur, then an "Event of Default" has occurred hereunder: (a) if the Pledgor fails to fully and punctually pay, perform or observe any debt, obligation or liability of the Pledgor under this Agreement, the Old Note Indenture or the New Note Indenture; or 15 (b) if any representation or warranty made herein, in the Old Note Indenture, in the New Note Indenture or in any certificate, report or other document furnished by the Pledgor in connection with this Agreement, the Old Note Indenture or the New Note Indenture shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; or (c) if the Pledgor shall fail to observe or perform any term, covenant or agreement contained in Sections 8(a), 8(d) or 8(f) of this Agreement; or (d) if the Pledgor shall fail to perform or observe any other term, covenant or agreement on its part to be performed or observed pursuant to this Agreement and such failure shall have continued unremedied for a period of 30 days after the Pledgor shall become aware of such failure; or (e) the occurrence and continuance of an Event of Default under and as defined in the Old Note Indenture or the New Note Indenture. 13. Notice of Event of Default. The Pledgor agrees to notify the Collateral Agent of the occurrence of an Event of Default promptly upon its obtaining knowledge thereof. 14. Remedies. Upon the occurrence and during the continuation of an Event of Default, the Collateral Agent may upon written instructions from the Old Note Trustee or the New Note Trustee, as applicable, subject to regulatory requirements and the terms and conditions of the Intercreditor Agreement, exercise any and all remedies and other rights provided under this Agreement and by applicable law, including, without limitation, the following: (a) The Collateral Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the UCC (whether or not the UCC applies to the affected Pledged Collateral) and also may without notice, except as specified below, sell, lease, assign, grant an option or options to purchase or otherwise dispose of the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such 16 other terms as the Collateral Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Any cash held by the Collateral Agent as Pledged Collateral and all cash proceeds received by the Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Collateral Agent, be held by the Collateral Agent as Pledged Collateral for, and then or at any time thereafter applied (after the payment of any amounts payable to the Collateral Agent pursuant to Section 15 hereof) in whole or in part by the Collateral Agent for the ratable benefit of the holders of the Old Notes or the New Notes, as applicable, against all or any part of the Secured Obligations. Any surplus of such cash or cash proceeds held by the Collateral Agent and remaining after payment of all of the Secured Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. (c) The Pledgor acknowledges and agrees that the Collateral Agent may elect, with respect to the offer or sale of any or all of the Pledged Collateral, to conduct such offer and sale in such a manner as to avoid the need for registration or qualification of the Pledged Collateral or the offer and sale thereof under any Federal or state securities laws and that the Collateral Agent is authorized to comply with any limitation or restriction in connection with such sale as counsel may advise the Collateral Agent is necessary in order to avoid any violation of applicable law, including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to Persons who will represent and agree that they are 17 purchasing for their own account for investment and not with a view to the distribution or resale of such Pledged Collateral, or in order to obtain any required approval of the sale or of the purchaser by any Governmental Body. The Pledgor further acknowledges and agrees that any such transaction may be at prices and on terms less favorable than those which may be obtained through a public sale and not subject to such restrictions and agrees that, notwithstanding the foregoing, the Collateral Agent is under no obligation to conduct any such public sale and may elect to impose any or all of the foregoing restrictions, or any other restrictions which may be necessary or desirable in order to avoid any such registration or qualification, at its sole discretion or with the consent or direction of the parties entitled to give direction pursuant to the Intercreditor Agreement, and that any such offer and sale shall, taking into account the possible restrictions on such offer and sale described in this subsection (c), be conducted in a commercially reasonable manner. (d) The Pledgor hereby expressly waives and covenants not to assert any appraisement, valuation, extension, redemption or similar laws, now or at any time hereafter in force, which might delay, prevent or otherwise impede the performance or enforcement of this Agreement. 15. Expenses. The Pledgor will upon demand make payment to the Collateral Agent of any and all reasonable out-of-pocket sums, costs and expenses, which the Collateral Agent may pay or incur pursuant to the provisions of this Agreement or in perfecting, defending, protecting or enforcing this Agreement or the security interests granted herein or in enforcing payment of all of the Secured Obligations or otherwise in connection with the provisions hereof, including, but not limited to court costs, reasonable collection charges, reasonable travel expenses, and reasonable attorneys' fees (including with respect to the Collateral Agent, the reasonable allocated costs and expenses of in-house counsel and legal staff) all of which together with interest at the highest rate then payable under the Old Note Indenture or the New Note Indenture, as applicable, or if both the Old Note Indenture and the New Note Indenture are applicable, then the greater thereof, shall be part of the Secured Obligations. 16. Repayment in Bankruptcy, etc. Notwithstanding anything to the contrary contained in this Agreement, if, at any time or times subsequent to the 18 payment of all or any part of the Secured Obligations, the Collateral Agent shall be required to repay any amounts previously paid by or on behalf of the Subsidiary or the Pledgor in reduction thereof by virtue of an order of any court having jurisdiction thereof, including, without limitation, as a result of an adjudication that such amounts constituted preferential payments or fraudulent conveyances, the Pledgor unconditionally agrees to make payment to the Collateral Agent within 10 days after demand of the amount of such repayment, together with interest on such amount from the date of such repayment by the Collateral Agent to the date of payment to the Collateral Agent at the default interest rate set forth in the Old Note Indenture or the New Note Indenture, as applicable, or if both the Old Note Indenture and the New Note Indenture are applicable, then at the rate which is the greater thereof. 17. No Segregation of Moneys; No Interest. No moneys or any other property received by the Collateral Agent hereunder need be segregated in any manner except to the extent required by law, and any such moneys or other property may be deposited under such general conditions as may be prescribed by law applicable to the Collateral Agent, and the Collateral Agent shall not be liable for any interest thereon. 18. Continuing Security Interest; Termination. (a) This Agreement shall create a continuing perfected first security interest in the Pledged Collateral and shall (i) remain in full force and effect until the payment in full of all of the Secured Obligations, (ii) be binding upon the Pledgor, its successors and assigns and (iii) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent, the Old Note Trustee and the New Note Trustee and the Holders and their respective successors, transferees and assigns. (b) Notwithstanding anything to the contrary in this Section 18, upon (i) satisfaction by the Old Note Trustee and the New Note Trustee of the conditions set forth in Article Four of the Old Note Indenture and Article Four of the New Note Indenture, upon the satisfaction and discharge of the Old Note Indenture and the New Note Indenture, respectively, (ii) the payment in full of all Secured Obligations or (iii) the defeasance of the Old Notes and the Old Note Indenture as provided in Section 1302 of the Old Note Indenture, and the defeasance of the New Notes and the New Note Indenture as provided in Section 13.02 of the New Note Indenture, the security interests created under this Agreement shall terminate and the Collateral Agent shall, at the request and expense of the Pledgor, cause to 19 be assigned, transferred and delivered, against receipt but without recourse, warranty or representation whatsoever, any remaining Pledged Collateral, to or on the order of the Pledgor, and shall execute and deliver to the Pledgor an instrument or instruments acknowledging the release of such Pledged Collateral from the Lien of this Agreement. 19. Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopy, telex or cable communication) and mailed, telegraphed, telecopied, telexed, cabled or delivered to it, if to the Pledgor, addressed to it at CD Radio Inc., 1221 Avenue of the Americas, New York, New York 10020, Attention of Patrick L. Donnelly, if to the Collateral Agent or the Old Note Trustee, at the address of the Old Note Trustee specified in the Old Note Indenture, if to the New Note Trustee, at the address of the New Note Trustee as specified in the New Note Indenture or as to any party at such other address as shall be designated by such party in a written notice to each other party. All such notices and other communications shall, when mailed, telegraphed, telecopied, telexed or cabled, be effective when deposited in the mails, delivered to the telegraph company, transmitted by telecopier, confirmed by telex answerback or delivered to the cable company, respectively. 20. Margin Regulations. The Pledgor shall take such steps as may be necessary so that it shall comply with Regulations G, U and X (in so far as Regulation X applies to Regulations G and U) promulgated by the Board of Governors of the Federal Reserve System, in each case as in effect from time to time and to the extent such Regulations are at the time applicable to the Notes issued by the Pledgor. 21. Other Provisions. (a) Except as expressly provided in this Agreement, the Pledgor hereby waives presentment, demand for payment, notice of default, nonperformance and dishonor, protest and notice of protest of or in respect of this Agreement, the Old Note Indenture, the New Note Indenture, the Notes or the Secured Obligations, notice of acceptance of this Agreement and reliance hereupon by the Collateral Agent and notice of any sale of collateral security or any default of any sort. (b) The Pledgor waives all errors or omissions of the Collateral Agent in connection with the administration of Security Interest created hereby and the Pledged Collateral, except errors or omissions which constitute gross negligence or wilful misconduct. 20 (c) The Pledgor agrees that the Collateral Agent, the Old Note Trustee, the New Note Trustee or the Holders may at any time, without notice to or consent of the Pledgor, and without in any manner affecting the liability of the Pledgor hereunder, amend, modify or waive any term or condition of the Old Note Indenture and the New Note Indenture, as applicable, and the Old Notes and the New Notes, as applicable, the Intercreditor Agreement and any of the other respective Secured Obligations and any collateral security therefor and otherwise deal with the Pledgor as if this Agreement did not exist. (d) The Pledgor is not relying upon the Collateral Agent to provide to the Pledgor any information concerning the Subsidiary, including, without limitation, information which might have a Material Adverse Effect, and the Pledgor has made arrangements satisfactory to the Pledgor to obtain from the Subsidiary on a continuing basis such information concerning the Subsidiary as the Pledgor may desire. (e) In addition to all other rights it may have at law or otherwise, upon the occurrence and during the continuance of an Event of Default, the Collateral Agent is hereby authorized at any time and from time to time, without notice, to set off against any and all obligations which the Collateral Agent may owe to the Subsidiary or the Pledgor, of any kind or nature, and the Pledgor shall continue to be liable to the Collateral Agent for any deficiency with interest at the applicable interest rate set forth in the Old Note Indenture or the Old Notes, or the New Note Indenture or the New Notes, as applicable. (f) Notwithstanding anything to the contrary contained in the Old Note Indenture, the New Note Indenture or in any other agreement, instrument or document executed by the Pledgor and delivered to the Collateral Agent, the Collateral Agent will not take any action pursuant to any document referred to above which would constitute or result in any assignment of any FCC license or any change of control (whether de jure or de facto) of the Pledgor or the Subsidiary if such assignment of any FCC license or change of control would require, under then existing law or regulation of the FCC, the prior approval of the FCC without first obtaining such prior approval of the FCC. Upon the occurrence of an Event of Default or at any time thereafter during the continuance thereof, subject to terms and conditions of this Agreement, the Pledgor agrees to take any action which the Collateral Agent may reasonably request in order to obtain from the FCC such approval as may be necessary to enable the Collateral Agent to exercise and 21 enjoy, the full rights and benefits granted to the Collateral Agent by this Agreement and the other documents referred to above, including specifically, at the cost and expense of the Pledgor, the use of its best efforts to assist in obtaining approval of the FCC for any action or transaction contemplated by this Agreement for which such approval is or shall be required by law, and specifically, without limitation, upon request, to prepare, sign and file with the FCC the assignor's or transferor's portion of any application or applications for consent to the assignment of license or transfer of control necessary or appropriate under the FCC's rules and regulations for approval of (i) any sale or other disposition of the Pledged Collateral by or on behalf of the Collateral Agent, or (ii) any assumption by the Collateral Agent of voting rights in the Pledged Collateral effected in accordance with the terms of this Agreement. It is understood and agreed that all foreclosure and related actions will be made in accordance with the Communications Act of 1934, as amended, and the rules and regulations promulgated thereunder, as from time to time in effect (the "Communications Act") and other applicable FCC regulations and published policies and decisions. (g) The Pledgor agrees to indemnify and hold harmless the Collateral Agent, the Old Note Trustee, the New Note Trustee, and the Holders, the respective affiliates of the Collateral Agent, the Old Note Trustee, the New Note Trustee, and the Holders, and the respective officers, directors, employees, agents (including, without limitation each of their counsel), and controlling persons of the Collateral Agent, the Old Note Trustee, the New Note Trustee, and the Holders and each such affiliate (each, an "Indemnified Party") from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and costs and expenses (including, without limitation, the reasonable fees and disbursements of counsel and with respect to the Collateral Agent, reasonably allocated costs and expenses of in-house counsel and legal staff) of every nature and character arising out of or in connection with any actual or threatened claim, litigation, investigation or proceeding relating to the Old Note Indenture, the New Note Indenture, the Notes or this Agreement or the transactions contemplated hereby (other than any such actions or expenses resulting from the gross negligence or wilful misconduct of the Collateral Agent, the Old Note Trustee, the New Note Trustee or the Holders), in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of in-house counsel and legal staff incurred in connection with any such investigation, 22 litigation or other proceeding whether or not such Indemnified Party is a party thereto, and the Pledgor agrees to reimburse each Indemnified Party, upon demand, for all out-of-pocket costs and expenses (including, without limitation, the reasonable fees and disbursements of counsel and with respect to the Collateral Agent, reasonably allocated costs and expenses of in-house counsel and legal staff) incurred in connection with any of the foregoing. In litigation, or the preparation therefor, the Collateral Agent, the Old Note Trustee and the New Note Trustee shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Pledgor agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Pledgor under this Section 21(g) are unenforceable for any reason, the Pledgor hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. The Pledgor shall not make any claim against any Indemnified Party for any special, indirect or consequential damages in respect of any breach or wrongful conduct (whether the claim therefor is based in contract, tort or duty imposed by law) in connection with, arising out of or in any way related to the transactions contemplated by, and the relationship established by this Agreement, the Old Note Indenture, the New Note Indenture, the Notes, or any act, omission or event occurring in connection therewith, and the Pledgor hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in the Pledgor's favor. The covenants contained in this Section 21(g) shall survive payment or satisfaction in full of all other of the Secured Obligations. (h) The Pledgor hereby appoints Patrick L. Donnelly, 1221 Avenue of the Americas, New York, New York 10020, as its legally authorized process agent to accept service on behalf of the Pledgor. (i) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. The Pledgor agrees that any suit for the enforcement of this Agreement may be brought in the courts of the State of New York or any Federal court sitting therein and consents to the nonexclusive jurisdiction of such court and service of process in any such suit being made upon the Pledgor by mail to Patrick L. Donnelly at the address specified in Section 21(h). The Pledgor hereby waives any 23 objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit is brought in an inconvenient court. (j) This Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. (k) This Agreement and any other documents executed in connection herewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in Section 21(m). (l) Each Holder, by its acceptance of the benefits of this Agreement and the security interest created hereby, is deemed to agree to be subject to the provisions of the Intercreditor Agreement. (m) The Pledgor hereby waives its right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Agreement, or any of the other loan documents, any rights or obligations hereunder or thereunder or the performance of such rights and obligations. Except as prohibited by law, the Pledgor hereby waives any right it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Pledgor (i) certifies that no agent or representative of the Collateral Agent, the Old Note Trustee, the New Note Trustee or any Holder has represented, expressly or otherwise, that the Collateral Agent, the Old Note Trustee, the New Note Trustee or such Holder, as the case may be, would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that the Old Note Trustee, the New Note Trustee and the Collateral Agent have been induced to enter into this Agreement, the Old Note Indenture and the New Note Indenture by, among other things, the waivers and certifications contained herein. (n) Any consent or approval required or permitted by this Agreement to be given by the Collateral Agent may be given with, but only with, the written consent of the Collateral Agent (subject to the terms of the Intercreditor 24 Agreement). Any term of this Agreement may be amended, and the performance or observance by the Pledgor of any terms of this Agreement, or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Pledgor, the written consent of the Collateral Agent, the written consent of the Old Note Trustee and the written consent of the New Note Trustee. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of the Collateral Agent, the Old Note Trustee, the New Note Trustee or any Holder in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Pledgor shall entitle the Pledgor to other or further notice or demand in similar or other circumstances. (o) Notwithstanding the foregoing, this Agreement may be amended, revised and supplemented, as contemplated by Section 1203 of the Old Note Indenture and Section 12.03 of the New Note Indenture, to assign and pledge to the Collateral Agent for the benefit of the Holders and the equal and ratable benefit of the Secured Parties (as defined in the Old Note Indenture and in the New Note Indenture) a security interest in the Pledged Collateral. Any such amendment, revision or supplement shall comply with the provisions of Section 1203 of the Old Note Indenture and Section 12.03 of the New Note Indenture. (p) The Pledgor hereby waives any and all rights against immunity from jurisdiction, attachment (both before and after judgment) and execution to which it might be entitled. (q) The provisions of this Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction. 25 (r) The Collateral Agent shall not be required to exercise any of the rights or powers vested in it by this Agreement, unless it shall have received reasonable indemnity against costs, expenses and liabilities which may be incurred in connection therewith. Any permissive right of the Collateral Agent to act hereunder shall not be construed as a duty. IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered as of the date hereof. CD RADIO INC., by: /s/Patrick L. Donnelly -------------------------- Name: Patrick L. Donnelly Title: Executive Vice President & General Counsel Accepted and agreed to: IBJ WHITEHALL BANK AND TRUST COMPANY, as Collateral Agent, by: /s/Luis Perez -------------------------- Name: Luis Perez Title: Assistant Vice President IBJ WHITEHALL BANK AND TRUST COMPANY, as Old Note Trustee, by: /s/Luis Perez -------------------------- Name: Luis Perez Title: Assistant Vice President UNITED STATES TRUST COMPANY OF NEW YORK, as New Note Trustee, by: /s/Patricia Gallagher -------------------------- Name: Patricia Gallagher Title: Assistant Vice President 26 Schedule I Pledged Shares All issued and outstanding shares of capital stock of Satellite CD Radio, Inc., a Delaware corporation. EX-4 7 EXHIBIT 4.4.6 EXHIBIT 4.4.6 EXECUTION COPY ================================================================================ COLLATERAL PLEDGE AND SECURITY AGREEMENT Between CD RADIO INC. as Pledgor and UNITED STATES TRUST COMPANY OF NEW YORK as Trustee Dated as of May 15, 1999 ================================================================================ COLLATERAL PLEDGE AND SECURITY AGREEMENT, dated as of May 15, 1999, between CD RADIO INC., a Delaware corporation ("CD Radio" and the "Pledgor"), and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee (the "Trustee"), for the holders of the Notes (as defined herein). Capitalized terms used but not otherwise defined herein shall have the meanings given to such terms in the Indenture (as defined herein). The Pledgor and the Trustee have entered into that certain Indenture, dated as of May 15, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Pledgor is issuing $200,000,000 aggregate principal amount of its 14-1/2% Senior Secured Notes due 2009 (the "Notes"). The Pledgor has agreed, pursuant to the Indenture, to (i) purchase a portfolio of U.S. Government Obligations (the "Pledged Securities") with scheduled principal and interest payments that will result in the receipt of United States dollars in an amount and at a time sufficient, based on the schedule of interest and principal payments in respect of such Pledged Securities (with reinvestment) (as calculated and set forth in a written certificate furnished to the Trustee of an internationally recognized firm of independent certified public accountants selected by the Pledgor), to provide for payment in full of the six regularly scheduled interest payments due on the Notes from November 15, 1999 through May 15, 2002 (the "Secured Payments") and (ii) place the Pledged Securities in the Pledge Account (as defined herein) held by the Trustee for the benefit of the holders of the Notes. The Pledgor is to be the sole legal and beneficial owner of the Pledged Securities; and To secure the payment and performance by the Pledgor of its obligations under the Indenture and the Notes (collectively, the "Obligations"), the Pledgor has agreed to pledge to the Trustee for the ratable benefit of the holders of the Notes a security interest in the Pledged Securities and the Pledge Account and execute and deliver this Agreement. 2 The parties hereto hereby agree as follows: 1. Pledge and Grant of Security Interest. The Pledgor hereby pledges to the Trustee for the ratable benefit of the holders of the Notes, and grants to the Trustee for the ratable benefit of the holders of the Notes, a continuing first priority security interest in and to (i) all of the Pledgor's right, title and interest in the Pledged Securities and the Pledge Account, (ii) all certificates or other evidence of ownership representing the Pledged Securities and the Pledge Account and (iii) all products and proceeds of any of the Pledged Securities, including all dividends, interest payments, principal payments, cash, options, warrants, rights, instruments, subscriptions and other property or proceeds from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of the Pledged Securities (collectively, the "Collateral"). 2. Security for Obligations. This Agreement and the Collateral secure the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all of the Obligations. 3. Delivery of Collateral; Pledge Account; Interest. (a) All certificates or instruments representing or evidencing the Pledged Securities shall be delivered to and held by or on behalf of the Trustee pursuant hereto and shall be in suitable form for transfer and delivery, or shall be accompanied by instruments of transfer or assignment duly executed in blank all in form satisfactory to the Trustee, or shall be delivered to the Trustee through the book-entry facilities of the applicable depositary. (b) Concurrently with the execution and delivery of this Agreement, the Trustee shall establish an account entitled the "CD RADIO PLEDGE ACCOUNT" for the deposit of the Pledged Securities (the "Pledge Account"). Subject to the other terms and conditions of this Agreement, all funds or other property accepted by the Trustee pursuant to this Agreement shall be held in the Pledge Account for the ratable benefit of the holders of the Notes. The Pledged Securities shall be registered in the name of the Trustee or its nominee, as Trustee for the benefit of the holders of the Notes, and the proceeds of any such Pledged Securities shall remain on deposit in the Pledge Account until withdrawn in accordance with this Agreement. If and to the extent the Pledged Securities comprise certificated securities (as defined in Section 8-102 of the Uniform Commercial Code in the State of New York), such Pledged Securities shall be registered in the name of the Trustee or 3 its nominee, as Trustee for the benefit of the holders of the Notes, and possession thereof shall be maintained by the Trustee within the State of New York. (c) All interest earned on or other distributions or amounts paid with respect to any Collateral shall be retained in the Pledge Account and may be reinvested by and at the direction of the Pledgor in other U.S. Government Obligations and treated as Pledged Securities; provided, however, that the Pledgor may only so reinvest such interest, distributions or amounts if, based on a written report of an internationally recognized firm of independent public accountants selected by the Pledgor and addressed to the Trustee, scheduled principal and interest payments on the Pledged Securities retained in the Pledge Account (after giving effect to such reinvestment) will result in receipt of United States dollars in an amount and at a time sufficient, without further reinvestment, to provide for payment in full when due of each of the Secured Payments (or, in the event any such Secured Payments have been made, the remaining unpaid Secured Payments). 4. Disbursements. (a) Not less than one Business Day prior to the date of each of the Secured Payments, the Pledgor is entitled to direct the Trustee in writing to transfer from the Pledge Account to the Trustee in its capacity as Paying Agent (or, if applicable, any successor Paying Agent), United States dollars in immediately available funds necessary to provide for payment in full of or any portion of the next regularly scheduled interest payment on the Notes. Upon receipt of such written request, the Trustee shall take such action as is necessary to provide for the timely payment of such amount of United States dollars in immediately available funds directly to the Trustee as Paying Agent (or, if applicable, any successor Paying Agent) from proceeds of the Pledged Securities held in the Pledge Account. (b) If the Pledgor elects to pay any Secured Payment (or any portion thereof) from a source of funds other than the Pledge Account (the "Pledgor's Funds"), then the Pledgor may on at least two Business Days' prior written notice, after payment in full in cash of such Secured Payment (evidenced by an Officers' Certificate delivered to the Trustee stating that such regularly scheduled interest payment has been made in accordance with the terms of the Indenture), direct the Trustee in writing to release to the Pledgor (or as it may direct) an amount of funds or Pledged Securities, at the Pledgor's sole option, from the Pledge Account not to exceed the amount of Pledgor's Funds so expended, without accounting for any Pledgor's Funds so 4 expended in payment of Defaulted Interest. Upon receipt of such written direction from the Pledgor, together with (i) the certificate described in the preceding sentence and (ii) the written report of an internationally recognized firm of independent certified public accountants selected by the Pledgor and addressed to the Trustee certifying that the scheduled payments of principal of and interest on the Pledged Securities exceeds 100% of the amount in cash sufficient to provide for timely payment in full of the Secured Payments (or, in the event any Secured Payments have been made, an amount in cash sufficient to provide for timely payment in full of the remaining unpaid Secured Payments), the Trustee shall take such action as is necessary to provide for the prompt payment to the Pledgor of the amount of funds or Pledged Securities requested from the Pledge Account. (c) If at any time the scheduled payments of principal of and interest on the Pledged Securities exceeds 100% of the amount in cash sufficient, based on a written report of an internationally recognized firm of independent certified public accountants selected by the Pledgor and addressed to the Trustee, to provide for timely payment in full of the Secured Payments (or, in the event any Secured Payments have been made, an amount in cash sufficient to provide for timely payment in full of the remaining unpaid Secured Payments), the Pledgor may direct the Trustee in writing to release to the Pledgor (or as it may direct) an amount of funds or Pledged Securities, at the Pledgor's sole option, not to exceed such excess. Upon receipt of such written direction from the Pledgor, together with such report of such internationally recognized firm of independent certified public accountants, the Trustee shall take such action as is necessary to provide for the prompt payment to the Pledgor of the amount of funds or Pledged Securities equal to such excess, as identified in such report. (d) Upon payment in full of the Secured Payments, evidenced by an Officers' Certificate delivered to the Trustee stating that such regularly scheduled interest payments have been made in full in accordance with the Indenture, then so long as no Default or Event of Default shall have occurred and be continuing, (i) the security interest in the Collateral evidenced by this Agreement shall terminate and be of no further force and effect and (ii) any funds remaining in the Pledge Account will be promptly returned to the Pledgor. Furthermore, upon release of any Collateral from the Pledge Account in accordance with the terms of this Agreement, the security interest evidenced by 5 this Agreement in the Collateral so released shall terminate and be of no further force and effect. 5. Representations and Warranties. The Pledgor hereby represents and warrants that: (a) the execution, delivery and performance by the Pledgor of this Agreement has been duly authorized by the Pledgor and does not contravene or constitute a default under any provision of applicable law or regulation to which the Pledgor is subject, the certificate of incorporation or the by-laws, as the case may be, of the Pledgor, or of any judgment, injunction, order, decree or any material agreement or instrument binding upon the Pledgor, and does not result in the creation or imposition of any Lien on any asset of the Pledgor, except for the security interests granted under this Agreement; (b) no financing statement covering the Pledged Securities is on file in any public office, other than financing statements filed pursuant to this Agreement; (c) upon the delivery to the Trustee of the certificates, if any, representing the Pledged Securities, any filing of financing statements required by the Uniform Commercial Code (the "UCC") and notation on the records of the Trustee that it holds the Pledged Securities as pledgee, the pledge of the Collateral pursuant to this Agreement will constitute a valid and perfected first priority security interest in and to the Collateral, securing the payment and performance of the Obligations for the ratable benefit of the holders of the Notes, enforceable as such against all creditors of the Pledgor and any persons purporting to purchase any of the Collateral from the Pledgor; (d) no consent of any other person and no consent, authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body in the United States or otherwise, including any taxing authority, is required to be obtained or made by the Pledgor as of the date hereof either (i) for the pledge by the Pledgor of the Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgor (except for any filings and notations necessary to perfect the security interest created hereby in the Collateral) or (ii) for the exercise by the Trustee of the rights provided for in this Agreement or the remedies in respect of the Collateral 6 pursuant to this Agreement (except as may be required by laws affecting the offering and sale of securities generally); and (e) the pledge of the Collateral pursuant to this Agreement is not prohibited by any applicable law or government regulation, release, interpretation or opinion of the Board of Governors of the Federal Reserve System or other regulatory agency in the United States or otherwise (including any taxing authority or Regulations T, U and X of the Board of Governors of the Federal Reserve System). 6. Further Assurances. The Pledgor agrees to promptly take such actions and to execute and deliver or cause to be executed and delivered, or use its best efforts to procure, such stock or bond powers, proxies, assignments, instruments and such other or different writings as the Trustee may reasonably request, all in form and substance satisfactory to the Trustee, deliver any instruments to the Trustee and take any other actions that are necessary or, in the opinion of the Trustee, desirable, to perfect, continue the perfection of, confirm and assure the first priority of the Trustee's security interest in the Collateral, to protect the Collateral against the rights, claims or interests of third persons, or to otherwise effect the purposes of this Agreement. Notwithstanding the foregoing, the Trustee shall have no duty or obligation to ensure the maintenance or perfection of any security interest hereunder. 7. Covenants. The Pledgor covenants and agrees with the Trustee and the holders of the Notes from and after the date of this Agreement until the earlier of payment in full of cash in United States dollars of (A) each of the Secured Payments under the terms of the Indenture and (B) all Obligations due and owing under the Indenture and the Notes in the event such Obligations become due and payable prior to the payment in full of any of the Secured Payments, as follows: (a) The Pledgor agrees that it (i) will not sell or otherwise dispose of, or grant any option or other interest with respect to, any of the Collateral, (ii) will not create or permit to exist any Lien upon or with respect to any of the Collateral, except for the Liens created pursuant to this Agreement and (iii) will at all times be the sole beneficial owner of the Collateral. (b) The Pledgor agrees that it will not (i) enter into any agreement or understanding that purports to or may 7 restrict or inhibit the Trustee's rights or remedies hereunder, including the Trustee's right to sell or otherwise dispose of the Collateral, or (ii) with regard to the Collateral, fail to pay or discharge any tax, assessment or levy of any nature due with respect thereto later than five days prior to the date of any proposed sale under any judgment, writ or warrant of attachment. 8. Power of Attorney. (a) The Pledgor hereby appoints and constitutes the Trustee as the Pledgor's attorney-in-fact to exercise to the fullest extent permitted by law all of the following powers upon and at any time after the occurrence and during the continuance of an Event of Default: (i) collection of proceeds of any Collateral; (ii) conveyance of any item of Collateral to any purchaser thereof as specified herein; (iii) giving of any notices or recording of any Liens pursuant to Section 6 hereof; (iv) making any payments or taking any acts pursuant to Section 9 hereof; and (v) paying or discharging taxes or Liens levied or placed upon the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by the Trustee in its sole and reasonable discretion, and any such payments made by the Trustee shall become Obligations of the Pledgor to the Trustee, due and payable immediately upon demand. (b) The Trustee's authority under this Section 8 shall include the authority to endorse and negotiate any checks or instruments representing proceeds of Collateral in the name of the Pledgor, execute and give receipt for any certificate of ownership or any document constituting Collateral, transfer title to any item of Collateral, to the extent permitted by applicable law, sign the Pledgor's name on all financing statements or any other documents deemed necessary or appropriate by the Trustee to preserve, process or perfect the security interest in the Collateral, and to file the same, and to prepare, sign the Pledgor's name and file any notice of Lien, and to take any other actions arising from or incident to the powers granted to the Trustee in this Agreement. This power of attorney is coupled with an interest and shall be irrevocable by the Pledgor. 8 9. Trustee May Perform. If the Pledgor fails to perform any agreement contained herein, the Trustee may, but shall not be obligated to, itself perform or cause performance of such agreement, and the reasonable expenses incurred by or on behalf of the Trustee in connection therewith shall be payable by the Pledgor under Section 13 hereof. 10. No Assumption of Duties; Reasonable Cure. The rights and powers granted to the Trustee hereunder are being granted in order to preserve and protect the security interest of the holders of Notes in and to the Collateral granted hereby and shall not be interpreted to, and shall not, impose any duties on the Trustee in connection therewith other than those imposed under applicable law. 11. Indemnity. The Pledgor shall indemnify, defend and hold harmless the Trustee and its directors, officers, agents and employees from and against all claims, actions, obligations, losses, liabilities and expenses, including costs, fees and disbursements of counsel, the costs of investigations, and claims for damages, arising from the Trustee's performance under this Agreement, except insofar as the same may have been caused by such indemnified person's own negligent action, its own negligent failure to act or its own willful misconduct. The obligations of the Pledgor under this Section 11 shall survive the resignation or removal of the Trustee and the termination of this Agreement. 12. Remedies upon Event of Default. If an Event of Default shall have occurred: (a) The Trustee shall have and may exercise with reference to the Collateral any or all of the rights and remedies of a secured party under the UCC in effect in the State of New York, and as otherwise granted herein or under any other applicable law or under any other agreement now or hereafter in effect executed by the Pledgor, including the right and power to sell, at public or private sale or sales, or otherwise dispose of, or otherwise utilize the Collateral and any part or parts thereof, in any manner authorized or permitted under said UCC after default by a debtor, and to apply the proceeds thereof toward payment of any costs and expenses and attorneys' fees and expenses thereby incurred by the Trustee and toward payment of the Obligations in accordance with Section 12(c). Specifically, and without limiting the foregoing, the Trustee shall have the right to take possession of all or any part of the Collateral or any security therefor and of all books, records, papers and documents of the Pledgor or in the Pledgor's possession or 9 control relating to the Collateral that are not already in the Trustee's possession. To the extent permitted by law, the Pledgor expressly waives any notice of sale or other disposition of the Collateral and all other rights or remedies of the Pledgor or formalities prescribed by law relative to sale or disposition of the Collateral or exercise of any other right or remedy of the Trustee existing after Default or Event of Default hereunder. To the extent any such notice is required and cannot be waived, the Pledgor agrees that if such notice is given in the manner provided in Section 17 hereof at least three days before the time of the sale or disposition, such notice shall be deemed reasonable and shall fully satisfy any requirement for giving of said notice. The Trustee shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Trustee may adjourn any public or private sale. The Pledgor further agrees to use its best efforts to do or cause to be done all such other acts as may be necessary to effect the intention of this Section 12. (b) All rights to marshalling of assets of the Pledgor, including any such right with respect to the Collateral, are hereby waived by the Pledgor. The Pledgor shall not contest or support any other person in contesting the validity or priority of the security interests created under this Agreement. (c) Any money collected by the Trustee pursuant to this Section 12 shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any), upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: (i) FIRST: to the payment of all amounts due the Trustee under Sections 11 and 13 hereof; and (ii) SECOND: to the payment of the amounts then due and unpaid for interest on the Notes, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for interest; and (iii) THIRD: to the payment of the amounts then due and unpaid for principal of (and premium, if any) on the Notes, ratably without preference or priority of any kind, according to the amounts due and payable on such Notes for principal (and premium, if any); and 10 (iv) FOURTH: to the Pledgor. The Trustee may fix a record date and payment date for any payment to holders of the Notes pursuant to this Section 12. At least 15 calendar days before such record date, the Trustee at the expense of the Pledgor shall send to each holder of a Note by first class mail, postage prepaid, a notice prepared by the Pledgor that states such record date, the payment date and amount to be paid. 13. Fees and Expenses. The Pledgor shall, upon demand, pay to the Trustee the amount of its fees (which shall be in an amount previously agreed to by the Pledgor and the Trustee) and any and all reasonable expenses (including the reasonable fees, expenses and disbursements of counsel, experts and agents retained by the Trustee) that the Trustee may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Trustee and the holders of the Notes hereunder or (iv) the failure by the Pledgor to perform or observe any of the provisions hereof. The obligations of the Pledgor under this Section 13 shall survive the resignation or removal of the Trustee and the termination of this Agreement. 14. Security Interest Absolute. All rights of the Trustee and the holders of the Notes, and the security interests created hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional (except to the extent prohibited by law) irrespective of: (a) any lack of validity or enforceability of the Indenture or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Indenture; (c) any exchange, surrender, release or nonperfection of any Liens on any other collateral for all or any of the Obligations; or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of the Obligations or of this Agreement. 11 15. Continuing Security Interest; Termination. (a) This Agreement shall create a continuing security interest in and to the Collateral and shall be binding upon the Pledgor, its successors and assigns, and shall inure, together with the rights and remedies of the Trustee hereunder, to the benefit of the Trustee and the holders of the Notes and their respective successors, transferees and assigns. (b) This Agreement shall terminate upon the earliest of (i) payment in full in cash in United States dollars of each of the Secured Payments to the holders thereof under the terms of the Indenture, (ii) the date on which all Obligations due and owing under the Indenture and the Notes have been paid in full in the event such Obligations become due and payable prior to the payment of any of the Secured Payments or (iii) the exercise by the Pledgor of its, and the effectiveness in accordance with the terms of the, legal defeasance option pursuant to Article Thirteen of the Indenture. At such time, the Trustee shall, at the written request of the Pledgor, reassign and promptly redeliver to the Pledgor all of the Collateral hereunder that has not been sold, disposed of, retained or applied by the Trustee in accordance with the terms of this Agreement and the Indenture; provided, however, that no Default or Event of Default shall have occurred and be continuing. Such reassignment and redelivery shall be without warranty (either express or implied) by or recourse to the Trustee, except as to the absence of any prior assignments by the Trustee of its interest in the Collateral, and shall be at the expense of the Pledgor. 16. Authority of the Trustee. (a) The Trustee shall have and be entitled to exercise all powers hereunder that are specifically granted to the Trustee by the terms hereof, together with such powers as are reasonably incident thereto. The Trustee may perform any of its duties hereunder or in connection with the Collateral by or through agents or employees and shall be entitled to retain counsel and to act in reliance upon the advice of counsel concerning all such matters. None of the Trustee or any director, officer, employee, attorney or agent of the Trustee shall be liable to the Pledgor for any action taken or omitted to be taken by it or them hereunder, except for its or their own negligent action, negligent failure to act or willful misconduct; provided, however, that (i) each such person shall not be liable for any error of judgment made in good faith by it unless it is proved that such person was negligent in ascertaining the pertinent facts and (ii) the Trustee shall not be liable with respect to any action it 12 takes or omits to take in good faith in accordance with a direction or request received by it pursuant to Section 5.12 of the Indenture or Section 16(d) hereof. The Trustee shall not be responsible for the validity, effectiveness or sufficiency hereof or of any document or security furnished pursuant hereto. The Trustee and its directors, officers, employees, attorneys and agents shall be entitled to rely on any communication, instrument or document believed by it or them to be genuine and correct and to have been signed or sent by the proper Person or Persons. (b) The Pledgor acknowledges that the rights and responsibilities of the Trustee under this Agreement with respect to any action taken by the Trustee or the exercise or nonexercise by the Trustee of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Trustee and the holders of the Notes, be governed by the Indenture and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Trustee and the Pledgor, the Trustee shall be conclusively presumed to be acting as agent for the holders of the Notes with full and valid authority so to act or refrain from acting, and the Pledgor shall not be obligated or entitled to make any inquiry respecting such authority. (c) The Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Agreement and no implied covenants or obligations shall be read in this Agreement against the Trustee. The Trustee shall not be deemed to have knowledge of a Default or an Event of Default under the Indenture unless informed in writing by the Pledgor or the holder of any Note or unless a officer of the Trustee shall have actual knowledge thereof. (d) The Trustee shall not be required to exercise any remedies hereunder unless requested in writing to do so by the holders of not less than a majority in principal amount of the outstanding Notes and only if furnished with indemnity satisfactory to the Trustee. The Trustee may consult with counsel and shall not be liable for any action taken in good faith in reliance upon advice of counsel except for its bad faith, its own negligent action, its own negligent failure to act or its own wilful misconduct. The Trustee makes no representation or warranty and shall have no responsibility concerning the value or validity of the Collateral or the validity or perfection of the pledge thereof. (e) Any resignation or removal of the Trustee under the Indenture shall, upon the effective date thereof, 13 result in the simultaneous resignation or removal, as the case may be, of the Trustee hereunder and any appointment of a successor Trustee under the Indenture shall, upon the effectiveness thereof, result in the simultaneous appointment of the same successor Trustee hereunder. (f) The Trustee shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which a reasonable person accords its own property, it being understood that neither the Trustee nor the holders of the Notes shall have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not any such Person has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Collateral. (g) Notwithstanding anything herein to the contrary, the exculpations, immunities and protections available to the Trustee under the Indenture shall be available to the Trustee hereunder. 17. Notices. Any communication, notice or demand to be given hereunder shall be in writing and delivered in person or mailed by first class mail, postage prepaid, addressed as follows: If to the Trustee: United States Trust Company of New York, 114 West 47th St., New York, NY 10036, Attention: Patricia Gallagher; if to the Company: CD Radio Inc., 1221 Avenue of the Americas, 36th Floor, New York, New York 10020, Attention: Patrick L. Donnelly. Notice may also be given in such other form and manner or to such other address as shall be designated by any party hereto to each other party hereto in a written notice delivered in accordance with the terms of the Indenture. 18. No Waiver; Cumulative Rights. No failure on the part of the Trustee to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Trustee of any right, remedy or power hereunder preclude any other or future exercise of any other right, remedy or power. Each and every right, remedy and power hereby granted to the Trustee or allowed it by law or other agreement shall be cumulative and not exclusive the one of any other, and may be exercised by the Trustee from time to time. 19. Benefits of Agreement. Nothing in this Agreement, whether express or implied, shall give to any 14 Person other than the parties hereto and their successors hereunder, and the holders of the Notes, any benefit or any legal or equitable right, remedy or claim under this Agreement. 20. Applicable Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 21. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same instrument. 22. Trust Indenture Act. The Pledgor shall provide the annual opinion required by Section 314(b) of the Trust Indenture Act and shall comply with Section 314(d) thereof, to the extent applicable, in connection with any release or substitution of Collateral hereunder. 15 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed all as of the day and year first above written. CD RADIO INC. by /s/Patrick L. Donnelly ------------------------------ Patrick L. Donnelly Executive Vice President, General Counsel and Secretary UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, by /s/Patricia Gallagher ------------------------------ Name: Patricia Gallagher Title: Assistant Vice President EX-4 8 EXHIBIT 4.4.7 EXHIBIT 4.4.7 INTERCREDITOR AGREEMENT THIS INTERCREDITOR AGREEMENT, dated May 15, 1999 (this "Agreement"), is by and between IBJ Whitehall Bank & Trust Company (formerly IBJ Schroder Bank & Trust Company), a bank duly organized and existing under the laws of the State of New York ( "IBJ") in its capacity as trustee for the holders from time to time of certain indebtedness issued pursuant to the IBJ Indenture referred to below, and United States Trust Company of New York, a bank duly organized and existing under the laws of the State of New York ("US Trust") in its capacity as trustee for the holders from time to time of certain indebtedness issued pursuant to the US Trust Indenture referred to below. R E C I T A L: IBJ has entered into an Indenture, dated as of November 26, 1997 (as amended, supplemented, restated or otherwise modified from time to time, the "IBJ Indenture"), with CD Radio Inc. (the "Company") as trustee for the holders (the "IBJ Noteholders") of the Company's 15% Senior Secured Notes due 2007 (the "Old Notes"), and in connection therewith the Company has executed and delivered or will hereafter execute and deliver certain other agreements, guaranties, pledges, documents and other instruments (as amended, supplemented, restated or otherwise modified from time to time, collectively, together with the IBJ Indenture, the "IBJ Documents"); The obligations of the Company under the IBJ Indenture and the Old Notes issued thereunder are secured by the Pledged Collateral as more specifically set forth in the IBJ Documents; US Trust has entered into an Indenture, dated as of May 15, 1999 (as amended, supplemented, restated or otherwise modified from time to time, the "US Trust Indenture"), with the Company as trustee for the holders (the "US Trust Noteholders") of the Company's 14-1/2% Senior Secured Notes due 2009 (the "New Notes", and together with the Old Notes, the "Notes") and in connection therewith the Company has executed and delivered or will hereafter execute and deliver certain other agreements, guaranties, pledges, documents and other instruments (as amended, supplemented, restated or otherwise modified from time to time, collectively, together with the US Trust Indenture, the "US Trust Documents"); The obligations of the Company under the US Trust Indenture and the New Notes issued thereunder are secured by the Pledged Collateral as more specifically set forth in the US Trust Documents; Pursuant to the Amended and Restated Pledge Agreement dated as of May 15, 1999 (the "Pledge Agreement") among the Company, IBJ and US Trust, the Pledged Collateral shall be held by IBJ, as collateral agent (the "Collateral Agent") for IBJ, as trustee for the IBJ Noteholders and for US Trust, as trustee for the US Trust Noteholders; and The parties hereto desire to agree among themselves on certain rights, priorities and interests in the Pledged Collateral now or hereafter granted by the Company. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Accreted Value" shall have the meaning provided therefor in the IBJ Indenture. "Lien" shall mean any mortgage, pledge, lien, security interest, setoff right or other encumbrance, whether now existing or hereafter created, acquired or arising. "New Note Obligations" shall mean, collectively, all debts, liabilities and obligations of the Company, whether now or hereafter existing, arising pursuant to the terms of the New Notes, the US Trust Indenture and the other US Trust Documents. "Obligations" shall mean, collectively, the Old Note Obligations and the New Note Obligations. "Old Note Obligations" shall mean, collectively, all debts, liabilities and obligations of the Company, whether now or hereafter existing, arising pursuant to the terms of the Old Notes, the IBJ Indenture and the IBJ Documents. "Paid in full" shall mean indefeasible payment in full in lawful cash currency of the United States of America. "Pledged Collateral" shall have the meaning provided therefor in the Pledge Agreement. "Remedial Action" shall mean any claim, proceeding or action to foreclose upon, take possession or control of, sell, lease or otherwise dispose of, or in any other manner realize, take steps to realize or seek to realize upon, the whole or any part of any Pledged Collateral, whether pursuant to the UCC, by foreclosure, by setoff, by self-help repossession, by notification to account debtors, by deed in lieu of foreclosure, by exercise of power of sale, by judicial action or otherwise, or the exercise of any other remedies with respect to any Pledged Collateral, or under applicable law. "Required Parties" shall mean, at any time, IBJ Noteholders and US Trust Noteholders holding Notes having an aggregate Accreted Value or principal amount, as applicable, greater than fifty percent (50%) of the sum of the following amounts at such time: (i) the Accreted Value or principal amount, as applicable, of Old Notes outstanding at such time and (ii) the principal amount of New Notes outstanding at such time. "UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York, or, if another jurisdiction is specified in this Agreement, the Uniform Commercial Code as in effect from time to time in such jurisdiction. 2 2. Rights and Remedies. The Old Note Obligations and New Note Obligations are each secured by the Pledged Collateral. IBJ and US Trust, as trustees under the respective Indentures and on behalf of the respective Noteholders thereunder, agree that the priorities of the security interests which secure the Obligations under the respective Indentures and their rights in and to the Pledged Collateral shall at all times be equal and that each shall share and be equal in priority and rights with the other. IBJ agrees that it will not contest the validity, perfection, priority (as provided in this Agreement) or enforceability of US Trust's security interest in the Pledged Collateral for the benefit of the US Trust Noteholders. US Trust agrees that it will not contest the validity, perfection, priority (as provided in this Agreement) or enforceability of IBJ's security interest in the Pledged Collateral for the benefit of the IBJ Noteholders. 3. Pledge Agreement. Each of the parties hereto acknowledges that the Pledged Collateral shall be held by the Collateral Agent in accordance with the terms of the Pledge Agreement. 4. Foreclosure on Pledged Collateral. The Collateral Agent shall have the sole and exclusive right to take or exercise Remedial Actions with respect to the Pledged Collateral in accordance with the terms of the Pledge Agreement. The Required Parties shall have the sole and exclusive right to direct the Collateral Agent to take or fail to take any Remedial Action with respect to the Pledged Collateral as provided herein, in the Pledge Agreement or under applicable laws in any manner deemed appropriate by the Required Parties in their sole discretion and neither IBJ, US Trust, any IBJ Noteholder nor any US Trust Noteholder shall have the right itself (other than IBJ as Collateral Agent) to take any Remedial Action with respect to the Pledged Collateral. Notwithstanding the foregoing, nothing contained in this Section shall prohibit IBJ, US Trust, the IBJ Noteholders, the US Trust Noteholders or the Collateral Agent from filing a proof of claim in any case involving the Company, as debtor, under Title 11 of the United States Code, as amended, nor from intervening or participating in any other judicial proceeding to the extent necessary to establish or preserve its interests, subject in each case to the provisions of this Agreement. 5. Notice of Acceleration. IBJ agrees to provide US Trust with prompt written notice of the acceleration of the Old Note Obligations pursuant to the IBJ Indenture. US Trust agrees to provide IBJ with prompt written notice of the acceleration of the New Note Obligations pursuant to the US Trust Indenture. Although the parties have agreed to provide notices of acceleration, the failure of a party to provide such notice shall not negate or in any way adversely affect or impair the validity of the declaration of such acceleration by the party making such declaration. 6. Further Assurances. At any time and from time to time, IBJ, on the one hand, and US Trust, on the other hand, shall take any further action and execute and deliver to the other such additional documents and instruments as the other may reasonably request to effectuate the terms of and priorities contemplated by this Agreement. 7. Termination, Rescission or Modification. The agreements and priorities set forth in this Agreement shall remain in full force and effect regardless of whether either party hereto in 3 the future seeks to rescind, amend, terminate or reform, by liquidation or otherwise, its respective agreements with the Company. 8. Notices. All notices and other written communications provided for in this Agreement shall be given in writing and sent by overnight delivery service (with charges prepaid) or by facsimile transmission with the original being sent by overnight delivery service (with charges prepaid) by the next succeeding business day, in each case addressed to the party to be notified as follows, or to such other address as a party may designate as to itself by like notice: If to IBJ at: IBJ Whitehall Bank & Trust Company One State Street, 10th Floor New York, New York 10004 Attention: Corporate Trust Administration Fax No.: (212) 858-2952 with copies to: Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, New York 10022 Attention: Mitchel H. Perkiel, Esq. Fax No.: (212) 836-8689 If to US Trust at: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Patricia Gallagher Fax No.: (212) 852-1626 with copies to: Dow, Lohnes & Albertson 1305 Franklin Avenue Suite 180 Garden City, New York 11530 Attention: Larry I. Glick, Esq. Fax No.: (516) 739-0896 9. Rights are Independent of Time of Attachment or Perfection. The parties agree that their respective rights and priorities set forth herein shall exist and be enforceable independent of (i) the initiation of any bankruptcy, moratorium, reorganization or other insolvency proceeding with respect to the Company; (ii) the priorities which would otherwise result from the order of creation, attachment or perfection of any such security interests; (iii) the taking of possession of any of the Pledged Collateral by IBJ, US Trust, any IBJ Noteholder or any US Trust Noteholder; (iv) the time or order of attachment or perfection of the respective security interests or creation of the New Note Obligations or Old Note Obligations; (v) the time or order of filing of financing statements or (vi) any other matter whatsoever; and shall continue in full force and effect unless and until this Agreement shall have terminated in accordance with Section 18 hereof. 4 10. No Additional Rights for the Company Hereunder. Nothing in this Agreement shall be construed to modify or relieve, in any way, the Company's obligation to perform its agreements under the IBJ Documents or under the US Trust Documents. 11. No Third Party Rights. This Agreement shall not affect the rights of IBJ, on the one hand, and US Trust, on the other hand, relative to the rights of any person not specifically a party to this Agreement, including, but not limited to, the Company or any guarantors or other creditors thereof. Nothing in this Agreement is intended to affect, limit, or in any way diminish the security interests which IBJ or US Trust claim in the assets of the Company insofar as the rights of the Company and third parties are concerned. The parties hereto specifically reserve any and all of their respective rights, security interests and mortgage liens and right to assert security interests and mortgage liens against the Company and any third parties, including guarantors. 12. Waiver of Marshaling. Each party to this Agreement hereby waives any right to require the other party to marshal any security or Pledged Collateral or otherwise to compel the other party to seek recourse against or satisfaction of the indebtedness owed under its respective Indenture from one source before seeking recourse or satisfactions from another source. 13. Relation of Parties. This Agreement is entered into solely for the purposes set forth in the Recitals above, and, except as is expressly provided otherwise herein, neither party to this Agreement assumes any responsibility to the other party to advise such other party of information known to such party regarding the financial condition of the Company or regarding the Pledged Collateral or of any other circumstances bearing upon the risk of nonpayment of the obligations of the Company to the parties hereto. Each party shall be responsible for managing its relation with the Company and neither party shall be deemed the agent of the other party for any purpose, except to the extent that IBJ is acting as Collateral Agent with respect to the Pledged Collateral. IBJ may alter, amend, supplement, release, discharge or otherwise modify any terms of the IBJ Documents and US Trust may alter, amend, supplement, release, discharge or otherwise modify any terms of the US Trust Documents, without notice to or consent of the other. 14. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of each of the parties hereto, provided that such successor or assign shall have agreed in writing to be bound by the terms of this Agreement and the Pledge Agreement. 15. Copies of Documents; Consents. (a) IBJ hereby acknowledges and confirms that it has read and is familiar with the terms and provisions of the US Trust Indenture (as in effect on the date hereof) and the other US Trust Documents contemplated therein. US Trust hereby acknowledges and confirms that it has read and is familiar with the terms and provisions of the IBJ Indenture (as in effect on the date hereof) and the other IBJ Documents contemplated therein. The provisions of this Agreement are intended by the parties hereto to control any conflicting provisions which are contained in any IBJ Documents or US Trust Documents. 5 (b) IBJ, for itself and on behalf of the IBJ Noteholders, consents to (i) the execution and delivery of the US Trust Indenture, any New Notes and any other US Trust Documents; (ii) the incurrence of any New Note Obligations and (iii) the granting of any Lien on the Pledged Collateral permitted by the US Trust Indenture to secure the New Note Obligations. US Trust, for itself and on behalf of the US Trust Noteholders, consents to (i) the execution and delivery of the IBJ Indenture, any Old Notes and any other IBJ Documents; (ii) the incurrence of any Old Note Obligations and (iii) the granting of any Lien on the Pledged Collateral permitted by the IBJ Indenture to secure the Old Note Obligations. 16. Effective Date. This Agreement shall be effective as of the date on which it is designated as being executed, independent of the actual date each party hereto executes this Agreement. 17. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. 18. Term of Agreement. This Agreement shall continue in full force and effect and shall be irrevocable by either party hereto until the earlier to occur of the following: (a) the parties mutually agree in writing to terminate this Agreement; or (b) all of the New Note Obligations or all of the Old Note Obligations owed by the Company are Paid in full. 19. Section Titles. The section titles contained in this Agreement are for convenience only and are without substantive meaning or content of any kind and shall not be considered part of this Agreement. 20. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 21. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. (a) EACH OF THE PARTIES HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT. (b) EACH OF THE PARTIES HERETO SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT HEREOF TO 6 THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH LEGAL ACTION, PROCEEDING OR JUDGMENT OR ANY SUCH COURT OR THAT SUCH LEGAL ACTION, PROCEEDING OR JUDGMENT IS BROUGHT OR OBTAINED IN AN INCONVENIENT COURT. 22. Governing Law. This Agreement shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written. IBJ WHITEHALL BANK & TRUST COMPANY, as Old Note Trustee By: /s/ Luis Perez ------------------------ Title: Assistant Vice President ------------------------ UNITED STATES TRUST COMPANY OF NEW YORK, as New Note Trustee By: /s/ Patricia Gallagher ------------------------ Title: Assistant Vice President ------------------------ 7 EX-4 9 EXHIBIT 4.5.1 EXHIBIT 4.5.1 THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS WARRANT NOR SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS. ------------------------------------------- CD RADIO INC. COMMON STOCK PURCHASE WARRANT ------------------------------------------- This certifies that, for good and valuable consideration, CD Radio Inc., a Delaware corporation (the "Company"), grants to Ford Motor Company, a Delaware corporation ("Ford"), or registered assigns (including Ford, the "Warrantholder"), the right to subscribe for and purchase from the Company 4,000,000 validly issued, fully paid and nonassessable shares (the "Warrant Shares") of the Company's common stock, par value $0.001 per share (the "Common Stock"), at the purchase price per share equal to the greater of (i) $30 or (ii) 115% of the closing offer price for the Common Stock on the Nasdaq National Market on June 11, 1999 (the "Exercise Price"), at any time and from time to time, during the period from and including 9:00 AM, New York City time, on the date the Company commences its commercial broadcasts from orbiting satellites until 5:00 PM, New York City time, on the earlier of (a) June 11, 2009 and (b) the date of the termination or expiration of the Agreement, dated as of June 11, 1999, between the Company and Ford (the "Expiration Date"), all subject to the terms, conditions and adjustments herein set forth. Certain capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in Section 10. Certificate No. 1 Number of Shares: 4,000,000 Name of Warrantholder: Ford Motor Company, a Delaware corporation 1. Duration and Exercise of Warrant; Limitations on Exercise; Payment of Taxes. 1.1 Exercisability of Warrant. Subject to the terms and conditions set forth herein, the right to exercise this Warrant shall vest, and this Warrant shall become exercisable, as follows: (a) with respect to 1,000,000 shares of Common Stock, on the date that Ford has manufactured 500,000 Ford Enabled Vehicles; (b) with respect to an additional 500,000 shares of Common Stock, on the date that Ford has manufactured an aggregate of 1,000,000 Ford Enabled Vehicles; (c) with respect to an additional 500,000 shares of Common Stock, on the date that Ford has manufactured an aggregate of 2,000,000 Ford Enabled Vehicles; (d) with respect to an additional 1,000,000 shares of Common Stock, on the date that Ford has manufactured an aggregate of 3,000,000 Ford Enabled Vehicles; and (e) with respect to an additional 1,000,000 shares of Common Stock, on the date that Ford has manufactured an aggregate of 4,000,000 Ford Enabled Vehicles. The Warrantholder shall have no right to exercise this Warrant with respect to shares of Common Stock which are not vested and exercisable as described in this Section 1.1. 1.2 Duration and Exercise of Warrant. Subject to the terms and conditions set forth herein, including Section 1.1, the Warrant may be exercised, in whole or in part, by the Warrantholder by: (a) the surrender of this Warrant to the Company, with a duly executed Exercise Form specifying the number of Warrant Shares to be purchased, during normal business hours on any Business Day prior to the Expiration Date; and (b) the delivery of payment to the Company, for the account of the Company, by cash, by certified or bank cashier's check or by wire transfer of immediately available funds in accordance with wire instructions that shall be provided by the Company upon request, of the Exercise Price for the number of Warrant Shares specified in the Exercise Form in lawful money of the United States of America. The Company agrees that such Warrant Shares shall be deemed to be issued to the Warrantholder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid. 1.3 Limitations on Exercise. Notwithstanding anything to the contrary herein, this Warrant may be exercised only upon (i) the delivery to the Company of any certificates, legal opinions, and other documents reasonably requested by the Company to satisfy the Company that the proposed exercise of this Warrant may be effected without registration under the Securities Act, (ii) receipt by the Company of FCC approval of the proposed exercise, if such approval is required (as determined by a written opinion of the Company's special FCC counsel, delivered to the Warrantholder) to maintain any license granted to the Company by the FCC, or to maintain the Company's eligibility for any license for which it has applied to the FCC and (iii) receipt by the Company of approval of any other applicable Governmental Authority of the proposed exercise. The Warrantholder shall not be entitled to exercise this Warrant, or any part thereof, unless and until such approvals, certificates, legal opinions or other documents are reasonably acceptable to the Company. The cost of such approvals, certificates, legal opinions and other documents, if required, shall be borne by the Warrantholder. 1.4 Warrant Shares Certificate. A stock certificate or certificates for the Warrant Shares specified in the Exercise Form shall be delivered to the Warrantholder within five Business Days after receipt of the Exercise Form and receipt of payment of the purchase price. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Warrantholder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. 1.5 Payment of Taxes. The issuance of certificates for Warrant Shares shall be made without charge to the Warrantholder for any documentary, stamp or similar stock transfer or other issuance tax in respect thereto; provided, however, that the Warrantholder shall be required to pay any and all taxes which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Warrantholder as reflected upon the books of the Company. 1.6 Divisibility of Warrant; Transfer of Warrant. (a) This Warrant may only be transferred by the Warrantholder with the prior written consent of the Company. Any transfer of this Warrant without the prior written consent of the Company shall be void and of no force and effect. (b) Subject to the provisions of this Section, this Warrant may be divided into warrants of one thousand shares or multiples thereof, upon surrender at the office of the Company located at 1221 Avenue of the Americas, New York, New York 10020, without charge to any Warrantholder. Subject to the provisions of this Section, upon such division, the Warrants may be transferred of record as the then Warrantholder may specify without charge to such Warrantholder (other than any applicable transfer taxes). (c) Subject to the provisions of this Section, upon surrender of this Warrant to the Company with a duly executed Assignment Form and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant or Warrants of like tenor in the name of the assignee named in such Assignment Form, and this Warrant shall promptly be canceled. Prior to any proposed transfer (whether as the result of a division or otherwise) of this Warrant, such Warrantholder shall give written notice to the Company of such Warrantholder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and, if requested by the Company, shall be accompanied by a written opinion of legal counsel, which opinion shall be addressed to the Company and be reasonably satisfactory in form and substance to the Company, to the effect that the proposed transfer of this Warrant may be effected without registration under the Securities Act. In addition to the restrictions contained in this Section, the Warrantholder shall not be entitled to transfer this Warrant, or any part thereof, if such legal opinion is not reasonably acceptable to the Company. The term "Warrant" as used in this Agreement shall be deemed to include any Warrants issued in substitution or exchange for this Warrant. 2. Restrictions on Transfer; Restrictive Legends. Except as otherwise permitted by this Section 2, each Warrant shall (and each Warrant issued upon direct or indirect transfer or in substitution for any Warrant pursuant to Section 1.6 or Section 4 shall) be stamped or otherwise imprinted with a legend in substantially the following form: THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THIS WARRANT NOR SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS. Except as otherwise permitted by this Section 2, each stock certificate for Warrant Shares issued upon the exercise of any Warrant and each stock certificate issued upon the direct or indirect transfer of any such Warrant Shares shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS. Notwithstanding the foregoing, the Warrantholder may require the Company to issue a Warrant or a stock certificate for Warrant Shares, in each case without a legend, if either (i) such Warrant or such Warrant Shares, as the case may be, have been registered for resale under the Securities Act or (ii) the Warrantholder has delivered to the Company an opinion of legal counsel, which opinion shall be addressed to the Company and be reasonably satisfactory in form and substance to the Company, to the effect that such registration is not required with respect to such Warrant or such Warrant Shares, as the case may be. By acceptance of this Warrant, the Warrantholder expressly agrees that it will at all times comply with the restrictions contained in Rule 144(e) under the Securities Act (as in effect on the date hereof) when selling, transferring or otherwise disposing Warrant Shares, even if such restrictions would not then be applicable to the Warrantholder. 3. Reservation and Registration of Shares, Etc. The Company covenants and agrees as follows: (a) all Warrant Shares which are issued upon the exercise of this Warrant will, upon issuance, be validly issued, fully paid, and nonassessable, not subject to any preemptive rights, and free from all taxes, liens, security interests, charges, and other encumbrances with respect to the issue thereof, other than taxes with respect to any transfer occurring contemporaneously with such issue; (b) during the period within which this Warrant may be exercised, the Company will at all times have authorized and reserved, and keep available free from preemptive rights and any liens and encumbrances, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant; and (c) the Company will, from time to time, take all such action as may be required to assure that the par value per share of the Warrant Shares is at all times equal to or less than the then effective Exercise Price. 4. Loss or Destruction of Warrant. Subject to the terms and conditions hereof, upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of such bond or indemnification as the Company may reasonably require, and, in the case of such mutilation, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor. 5. Ownership of Warrant. The Company may deem and treat the Person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer. 6. Certain Adjustments. 6.1 The number of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment as follows: (a) Stock Dividends. If at any time after the date of the issuance of this Warrant (i) the Company shall fix a record date for the issuance of any stock dividend payable in shares of Common Stock; or (ii) the number of shares of Common Stock shall have been increased by a subdivision or split-up of shares of Common Stock, then, on the record date fixed for the determination of holders of Common Stock entitled to receive such dividend or immediately after the effective date of such subdivision or split-up, as the case may be, the number of shares to be delivered upon exercise of this Warrant will be increased so that the Warrantholder will be entitled to receive the number of shares of Common Stock that such Warrantholder would have owned immediately following such action had this Warrant been exercised immediately prior thereto, and the Exercise Price will be adjusted as provided below in paragraph (g). (b) Combination of Stock. If the number of shares of Common Stock outstanding at any time after the date of the issuance of this Warrant shall have been decreased by a combination of the outstanding shares of Common Stock, then, immediately after the effective date of such combination, the number of shares of Common Stock to be delivered upon exercise of this Warrant will be decreased so that the Warrantholder thereafter will be entitled to receive the number of shares of Common Stock that such Warrantholder would have owned immediately following such action had this Warrant been exercised immediately prior thereto, and the Exercise Price will be adjusted as provided below in paragraph (g). (c) Reorganization, etc. If any capital reorganization of the Company, any reclassification of the Common Stock, any consolidation of the Company with or merger of the Company with or into any other Person, or any sale or lease or other transfer of all or substantially all of the assets of the Company to any other Person, shall be effected in such a way that the holders of Common Stock shall be entitled to receive stock, other securities or assets (whether such stock, other securities or assets are issued or distributed by the Company or another Person) with respect to or in exchange for Common Stock, then, upon exercise of this Warrant, the Warrantholder shall have the right to receive the kind and amount of stock, other securities or assets receivable upon such reorganization, reclassification, consolidation, merger or sale, lease or other transfer by a holder of the number of shares of Common Stock that such Warrantholder would have been entitled to receive upon exercise of this Warrant had this Warrant been exercised immediately before such reorganization, reclassification, consolidation, merger or sale, lease or other transfer, subject to adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The Company shall not effect any such consolidation, merger or sale, lease or other transfer, unless prior to, or simultaneously with, the consummation thereof, the successor Person (if other than the Company) resulting from such consolidation or merger, or such Person purchasing, leasing or otherwise acquiring such assets, shall assume, by written instrument, the obligation to deliver to the Warrantholder the shares of stock, securities or assets to which, in accordance with the foregoing provisions, the Warrantholder may be entitled and all other obligations of the Company under this Warrant. The provisions of this paragraph (c) shall apply to successive reorganizations, reclassifications, consolidations, mergers, sales, leasing transactions and other transfers. (d) Distributions to all Holders of Common Stock. If the Company shall, at any time after the date of issuance of this Warrant, fix a record date to distribute to all holders of its Common Stock any shares of capital stock of the Company (other than Common Stock) or evidences of its indebtedness or assets (not including regular quarterly cash dividends and distributions paid from retained earnings of the Company) or rights or warrants to subscribe for or purchase any of its securities, then the Warrantholder shall be entitled to receive, upon exercise of this Warrant, that portion of such distribution to which it would have been entitled had the Warrantholder exercised its Warrant immediately prior to the date of such distribution. At the time it fixes the record date for such distribution, the Company shall allocate sufficient reserves to ensure the timely and full performance of the provisions of this Subsection. The Company shall promptly (but in any case no later than five Business Days prior to the record date of such distribution) give notice to the Warrantholder that such distribution will take place. (e) Fractional Shares. No fractional shares of Common Stock or scrip shall be issued to any Warrantholder in connection with the exercise of this Warrant. Instead of any fractional shares of Common Stock that would otherwise be issuable to such Warrantholder, the Company will pay to such Warrantholder a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest of the then current Fair Market Value per share of Common Stock. (f) Carryover. Notwithstanding any other provision of this Section 6, no adjustment shall be made to the number of shares of Common Stock to be delivered to the Warrantholder (or to the Exercise Price) if such adjustment represents less than 0.10% of the number of shares to be so delivered, but any lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to 0.10% or more of the number of shares to be so delivered. (g) Exercise Price Adjustment. Whenever the number of Warrant Shares purchasable upon the exercise of this Warrant is adjusted, as herein provided, the Exercise Price payable upon the exercise of this Warrant shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Warrant Shares purchasable immediately thereafter. 6.2 Rights Offering. In the event the Company shall effect an offering of Common Stock pro rata among its stockholders, the Warrantholder shall be entitled to elect to participate in each and every such offering as if this Warrant had been exercised immediately prior to each such offering. The Company shall promptly (but in any case no later than five Business Days prior to such rights offering) give notice to the Warrantholder that such rights offering will take place. The Company shall not be required to make any adjustment with respect to the issuance of shares of Common Stock pursuant to a rights offering in which the holder hereof elects to participate under the provisions of this Section 6.2. 6.3 Notice of Adjustments. Whenever the number of Warrant Shares or the Exercise Price of such Warrant Shares is adjusted, as herein provided, the Company shall promptly give to the Warrantholder notice of such adjustment or adjustments and a certificate of a firm of independent public accountants of recognized national standing selected by the Board of Directors of the Company (which shall be appointed at the Company's expense and may be the independent public accountants regularly employed by the Company) setting forth the number of Warrant Shares and the Exercise Price of such Warrant Shares after such adjustment, a brief statement of the facts requiring such adjustment, and the computation by which such adjustment was made. 6.4 Notice of Extraordinary Corporate Events. In case the Company after the date hereof shall propose to (i) distribute any dividend (whether stock or cash or otherwise) to the holders of shares of Common Stock or to make any other distribution to the holders of shares of Common Stock, (ii) offer to the holders of shares of Common Stock rights to subscribe for or purchase any additional shares of any class of stock or any other rights or options, or (iii) effect any reclassification of the Common Stock (other than a reclassification involving merely the subdivision or combination of outstanding shares of Common Stock), any capital reorganization, any consolidation or merger (other than a merger in which no distribution of securities or other property is to be made to holders of shares of Common Stock), any sale or lease or transfer or other disposition of all or substantially all of its property, assets and business, or the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to the Warrantholder notice of such proposed action, which notice shall specify the date on which (a) the books of the Company shall close, or (b) a record shall be taken for determining the holders of Common Stock entitled to receive such stock dividends or other distribution or such rights or options, or (c) such reclassification, reorganization, consolidation, merger, sale, transfer, other disposition, liquidation, dissolution or winding up shall take place or commence, as the case may be, and the date, if any, as of which it is expected that holders of record of Common Stock shall be entitled to receive securities or other property deliverable upon such action. Such notice shall be given in the case of any action covered by clause (i) or (ii) above at least ten days prior to the record date for determining holders of Common Stock for purposes of receiving such payment or offer, or in the case of any action covered by clause (iii) above at least 30 days prior to the date upon which such action takes place and 20 days prior to any record date to determine holders of Common Stock entitled to receive such securities or other property. 6.5 Effect of Failure to Notify. Failure to file any certificate or notice or to give any notice, or any defect in any certificate or notice, pursuant to Sections 6.3 and 6.4 shall not affect the legality or validity of the adjustment to the Exercise Price, the number of shares purchasable upon exercise of this Warrant, or any transaction giving rise thereto. 7. Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Holders to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) furnish to each Holder so long as such Holder owns Warrants, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Holders to sell such securities without registration. 8. Amendments. Any provision of this Warrant may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent or approval of the Company and the Holders who hold a majority in interest of the Warrants; provided that it is not necessary that the exact form of the amendment be approved by the holders of a majority in interest of the Warrants if such holders have approved the substance of such amendment. Any amendment or waiver effected in accordance with this Section 8 shall be binding upon each Holder and the Company. 9. Expiration of the Warrant. The obligations of the Company pursuant to this Warrant shall terminate on the Expiration Date. 10. Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: Assignment Form: an instrument of transfer of a warrant in the form annexed hereto as Exhibit B. Board: the Board of Directors of the Company or any duly authorized Committee thereof. Business Day: any day other than a Saturday, Sunday or a day on which banks are required or authorized by law to close in The City of New York, State of New York. Bylaws: the bylaws of the Company, as the same may be amended and in effect from time to time. CD Radio Receiver: a Head Unit which is capable of providing the user interface for CD Radio broadcasts, including displaying the artist and title information transmitted as part of the CD Radio broadcast, and receiving the CD Radio signal, either as a result of circuitry included in the unit itself or as a result of another device, and an antenna suitable for receiving the CD Radio signal. Certificate of Incorporation: the Certificate of Incorporation of the Company, as the same may be amended and in effect from time to time. Common Stock: the meaning specified on the cover of this Warrant. Company: the meaning specified on the cover of this Warrant. Contractual Obligation: as to any Person, any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument to which such Person is a party or by which it or any of its property is bound. Ford: the meaning specified on the cover of this Warrant. Exchange Act: the Securities Exchange Act of 1934 or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Exchange Act shall include a reference to a comparable section, if any, of any such similar Federal statute. Exercise Form: a request to exercise a warrant in the form annexed hereto as Exhibit A. Exercise Price: the meaning specified on the cover of this Warrant. Expiration Date: the meaning specified on the cover of this Warrant. Fair Market Value: With respect to a share of Common Stock as of a particular date (the "Determination Date"): (i) if the Common Stock is registered under the Exchange Act, (a) the average of the daily closing sales prices of the Common Stock for the 20 consecutive trading days immediately preceding such date, or (b) if the securities have been registered under the Exchange Act for less than 20 consecutive trading days before such date, then the average of the daily closing sales prices for all of trading days before such date for which closing sales prices are available, in the case of each of (a) and (b), as certified by any Vice President or the Chief Financial Officer of the Company; or (ii) If the Common Stock is not registered under the Exchange Act, then the Fair Market Value shall be as reasonably determined in good faith by the Board or a duly appointed committee of the Board (which determination shall be reasonably described in the written notice given to the Warrantholder). For the purposes of clause (i) of this definition, the closing sales price for each such trading day shall be: (1) in the case of a security listed or admitted to trading on any United States national securities exchange or quotation system, the closing sales price, regular way, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day; (2) in the case of a security not then listed or admitted to trading on any national securities exchange or quotation system, the last reported sale price on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reputable quotation source designated by the Company; (3) in the case of a security not then listed or admitted to trading on any national securities exchange or quotation system and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each Business Day, designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 30 days prior to the date in question) for which prices have been so reported; and (4) if there are no bid and asked prices reported during the 30 days prior to the date in question, the Fair Market Value shall be determined as if the securities were not registered under the Exchange Act. FCC: the Federal Communications Commission. Ford Enabled Vehicle: any new vehicle which contains a CD Radio Receiver that was installed in a factory owned or operated by Ford, a mass customization center which is owned or operated by Ford or another service facility designated in writing by Ford which may include dealerships as long as such installation principally results from a program authorized by Ford. Governmental Authority: the government of any nation, state, city, locality or other political subdivision of any thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government or any International regulatory body having or asserting jurisdiction over a Person, its business or its properties. Head Unit: a device, which is integrated in the dashboard of a vehicle, which provides the user interface for the reception of radio signals and, in some cases, the playback of recorded media, such as cassette tapes, compact discs, minidiscs and DVDs. Holder(s): holder(s) of Warrants. Lien: any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other), restriction or other security interest of any kind or nature whatsoever. Nasdaq: the National Association of Securities Dealers Automated Quotations System. Person: any individual, firm, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, Governmental Authority or other entity of any kind. Requirement of Law: as to any Person, the Certificate of Incorporation and Bylaws, or other organizational or governing documents, of such Person, and any law, treaty, rule, regulation, qualification, license or franchise or determination of an arbitrator or a court or other Governmental Authority, in each case applicable or binding upon such Person or any of its property or to which such Person or any of its property is subject or pertaining to any or all of the transactions contemplated hereby. Rule 144: the meaning specified in Section 7. SEC: the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act or the Exchange Act, whichever is the relevant statute for the particular purpose. Securities Act: the meaning specified on the cover of this Warrant, or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Act, shall include a reference to the comparable section, if any, of any such similar Federal statute. Series A Junior Preferred Stock: the meaning specified in Section 13.10(c). Series C Preferred Stock: the meaning specified in Section 13.10(c). Subsidiary: in respect of any Person, any other Person of which, at the time as of which any determination is made, such Person or one or more of its subsidiaries has, directly or indirectly, voting control. Warrantholder: the meaning specified on the cover of this Warrant. Warrant Shares: the meaning specified on the cover of this Warrant. 11. Preemptive Right. (a) If at any time after the date hereof and prior to the Expiration Date, the Company proposes to issue shares of Common Stock (excluding any warrants, options or securities or units comprising securities convertible into or exchangeable for Common Stock or rights to acquire the same issued as part of or simultaneously with any preferred stock or debt securities of the Company) in an underwritten public offering, then the Company shall (i) prior to the completion of such underwritten public offering, notify the Warrantholder of such underwritten public offering and (ii) offer to issue to the Warrantholder as part of such underwritten public offering, for cash, a number of shares of Common Stock such that, after giving effect to the shares of Common Stock issued in such underwritten public offering, the number of shares of Common Stock owned by Warrantholder plus the shares of Common Stock receivable by the Warrantholder upon exercise of any Warrants equals the same percentage of the total number of shares of Common Stock issued and outstanding immediately prior to the consummation of such offering as after giving effect to such offering. The purchase price for such shares of Common Stock shall be equal to the price of the shares of Common Stock sold in such underwritten public offering (prior to deducting any underwriting discounts and commissions). The Warrantholder must exercise its purchase rights hereunder in whole within five Business Days after receipt of such notice from the Company and close such purchase, by payment of immediately available funds, simultaneously with the closing of such underwritten public offering. If after the date that the Company notifies the Warrantholder of the proposed underwritten public offering of Common Stock the actual number of shares of Common Stock offered is increased or decreased as a result of demand for such Common Stock offering, then the Company shall not be required to make an additional offer to the Warrantholder to give effect to the increased or decreased size of such offering. (b) Upon the expiration of any offer to the Warrantholder described above, or if the Warrantholder shall default in paying for or purchasing the Common Stock on the terms offered by the Company, the Company will be under no further obligation to offer any Common Stock to the Warrantholder pursuant to the terms of this Section. 12. No Impairment. The Company shall not by any action, including, without limitation, amending the Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all time in good faith assist in the carrying out of all such terms and in the taking of all such reasonable actions as may be necessary or appropriate to protect the rights of the Warrantholder against impairment. Without limiting the generality of the foregoing, the Company shall (a) take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassesable shares of Common Stock upon the exercise of this Warrant, and (b) provide reasonable assistance to the Warrantholder in obtaining all authorizations, exemptions or consents from any Governmental Authority which may be necessary in connection with the exercise of this Warrant. 13. Miscellaneous. 13.1 Entire Agreement. This Warrant constitutes the entire agreement between the Company and the Warrantholder with respect to the Warrants. 13.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of and shall be binding upon the Company and the Warrantholders and their respective heirs, legal representatives, successors and assigns. Nothing in this Warrant, expressed or implied, is intended to or shall confer on any Person other than the Company and the Warrantholders, or their respective heirs, legal representatives, successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Warrant. 13.3 Section and Other Headings. The section and other headings contained in this Warrant are for reference purposes only and shall not be deemed to be a part of this Warrant or to affect the meaning or interpretation of this Warrant. 13.4 Pronouns. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. 13.5 Further Assurances. Each of the Company and the Warrantholder shall do and perform all such further acts and things and execute and deliver all such other certificates, instruments and documents as the Company or the Warrantholder may, at any time and from time to time, reasonably request in connection with the performance of any of the provisions of this Warrant. 13.6 Notices. All notices and other communications required or permitted to be given under this Warrant shall be in writing and shall be deemed to have been duly given if (i) delivered personally or (ii) sent by facsimile or recognized overnight courier or by United States first class certified mail, postage prepaid, to the parties hereto at the following addresses or to such other address as any party hereto shall hereafter specify by notice to the other party hereto: if to the Company, addressed to: CD Radio Inc. 1221 Avenue of the Americas 36th Floor New York, New York 10020 Attention: Chief Financial Officer if to the Warrantholder, addressed to: Ford Motor Company The American Road Dearborn, Michigan Attention: Chief Financial Officer Except as otherwise provided herein, all such notices and communications shall be deemed to have been received (a) on the date of delivery thereof, if delivered personally or sent by facsimile, (b) on the second Business Day following delivery into the custody of an overnight courier service, if sent by overnight courier, provided that such delivery is made before such courier's deadline for next-day delivery, or (c) on the third Business Day after the mailing thereof. 13.7 Separability. Any term or provision of this Warrant which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the terms and provisions of this Warrant or affecting the validity or enforceability of any of the terms or provisions of this Warrant in any other jurisdiction. 13.8 Governing Law. This Warrant shall be deemed to be a contract made under the laws of New York and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to such agreements made and to be performed entirely within such State. 13.9 No Rights or Liabilities as Stockholder. Nothing contained in this Warrant shall be deemed to confer upon the Warrantholder any rights as a stockholder of the Company or as imposing any liabilities on the Warrantholder to purchase any securities whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise. 13.10 Representations of the Company. The Company hereby represents and warrants, as of the date hereof, to the Warrantholder as follows: (a) Corporate Existence and Power. The Company (i) is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware; (ii) has all requisite corporate power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is engaged; and (iii) has the corporate power and authority to execute, deliver and perform its obligations under this Warrant. The Company is duly qualified to do business as a foreign corporation in, and is in good standing under the laws of, each jurisdiction in which the conduct of its business or the nature of the property owned requires such qualification. (b) Corporate Authorization; No Contravention. The execution, delivery and performance by the Company of this Warrant and the transactions contemplated hereby, including, without limitation, the sale, issuance and delivery of the Warrant Shares, (i) have been duly authorized by all necessary corporate action of the Company; (ii) do not contravene the terms of the Certificate of Incorporation or Bylaws; and (iii) do not violate, conflict with or result in any breach or contravention of, or the creation of any Lien under, any Contractual Obligation of the Company or any Requirement of Law applicable to the Company. No event has occurred and no condition exists which, upon notice or the passage of time (or both), would constitute a default under any indenture, mortgage, deed of trust, credit agreement, note or other evidence of indebtedness or other material agreement of the Company or the Certificate of Incorporation or Bylaws. (c) Capitalization of the Company. The authorized capital stock of the Company consists of (i) 200,000,000 shares of Common Stock, of which, as of May 31, 1999 (a) 23,243,279 shares were issued and outstanding and (b) 34,877,533 shares were reserved for issuance upon the exercise of outstanding stock options, warrants to purchase Common Stock and conversion of outstanding shares of 10-1/2% Series C Convertible Preferred Stock (the "Series C Preferred Stock"), 9.2% Series A Junior Cumulative Convertible Preferred Stock (the "Series A Junior Preferred Stock") and shares of Series C Preferred Stock issuable pursuant to warrants to purchase Series C Preferred Stock, and (ii) 50,000,000 shares of Preferred Stock, of which 1,467,416 shares of Series C Preferred Stock were issued and outstanding as of May 31, 1999 and 1,350,000 shares of Series A Junior Preferred Stock were issued and outstanding as of May 31, 1999. Each share of Series C Preferred Stock may be converted at any time, at the option of the holder, unless previously redeemed, into a number of shares of Common Stock calculated by dividing the $100 liquidation preference of the Series C Preferred Stock (without accrued and unpaid dividends) by $18 (as adjusted from time to time). Each share of Series A Junior Preferred Stock may be converted at any time, at the option of the holder, unless previously redeemed, into a number of shares of Common Stock calculated by dividing the $100 liquidation preference of the Series A Junior Preferred Stock (with accrued and unpaid dividends) by $30 (as adjusted from time to time). (d) Issuance of Warrant Shares. The Warrant Shares have been duly authorized and reserved for issuance. When issued, such shares will be validly issued, fully paid and non-assessable, and free and clear of all Liens and preemptive rights, and the holders thereof shall be entitled to all rights and preferences accorded to a holder of Common Stock. (e) Binding Effect. This Warrant has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance or transfer, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. CD RADIO INC. By: /s/ Andrew J. Greenebaum ------------------------------- Andrew J. Greenebaum Executive Vice President and Chief Financial Officer Dated: June 11, 1999 Attest: By: /s/ Patrick L. Donnelly ------------------------------- Patrick L. Donnelly Executive Vice President, General Counsel and Secretary Exhibit A EXERCISE FORM (To be executed upon exercise of this Warrant) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant, to purchase __________ shares of Common Stock and herewith tenders payment for such Common Stock to the order of CD Radio Inc. in the amount of $__________, which amount includes payment of the par value for _________ of the Common Stock, in accordance with the terms of this Warrant. The undersigned requests that a certificate for such shares of Common Stock be registered in the name of __________________ and that such certificates be delivered to __________________ whose address is ___________________________________. Dated:______________ Signature______________________________ ______________________________ (Print Name) ______________________________ (Street Address) ______________________________ (City) (State) (Zip Code) Signed in the Presence of: __________________________ Exhibit B FORM OF ASSIGNMENT (To be executed only upon transfer of this Warrant) For value received, the undersigned registered holder of the within Warrant hereby sells, assigns and transfers unto ______________________ the right represented by such Warrant to purchase ________________ shares of Common Stock of CD Radio Inc. to which such Warrant relates and all other rights of the Warrantholder under the within Warrant, and appoints ______________________ Attorney to make such transfer on the books of CD Radio Inc. maintained for such purpose, with full power of substitution in the premises. This sale, assignment and transfer has been previously approved in writing by CD Radio Inc. Dated:______________ Signature______________________________ ______________________________ (Print Name) ______________________________ (Street Address) ______________________________ (City) (State) (Zip Code) Signed in the Presence of: __________________________ EX-5 10 EXHIBIT 5.1 EXHIBIT 5.1 PAUL, WEISS, RIFKIND, WHARTON & GARRISON 1285 Avenue of the Americas New York, New York 10019 July 2, 1999 CD Radio Inc. 1221 Avenue of the Americas New York, New York 10020 Registration Statement on Form S-4 of CD Radio Inc. ---------------------------------- Ladies and Gentlemen: In connection with the Registration Statement on Form S-4 (the "Registration Statement") filed by CD Radio Inc., a Delaware corporation (the "Company"), with the Securities and Exchange Commission (the "Commission") on the date of this letter, as provided by the Securities Act of 1933, as amended (the "Act"), and the rules and regulations under the Act, we have been requested to render our opinion as to the legality of the securities being registered under the Registration Statement. The Registration Statement relates to the registration under the Act of the Company's $200,000,000 aggregate principal amount of 14 1/2% Senior Secured Notes CD Radio Inc. 2 due 2009 (the "Exchange Notes"). The Exchange Notes are to be offered in exchange for the outstanding $200,000,000 aggregate principal amount of 14 1/2% Senior Secured Notes due 2009 (the "Initial Notes") issued and sold by the Company on May 18, 1999 as part of an offering exempt from registration under the Act. The Exchange Notes will be issued by the Company under the Indenture (the "Indenture"), dated as of May 15, 1999, between the Company and United States Trust Company of New York, as trustee (the "Trustee"). Capitalized terms used in this letter and not otherwise defined have the respective meanings given those terms in the Registration Statement. In connection with this opinion, we have examined originals, conformed copies or photocopies, certified or otherwise identified to our satisfaction, of the following documents (collectively, the "Documents"): (i) the Registration Statement; (ii) the Indenture included as Exhibit 4.4.2 to the Registration Statement; (iii) the form of the Exchange Notes included as Exhibit 4.4.3 to the Registration Statement; and (iv) The Notes Registration Rights Agreement included as Exhibit 4.4.1 to the Registration Statement. In addition, we have examined: (i) those corporate records of the Company as we have considered appropriate, including copies of its Amended and CD Radio Inc. 3 Restated Certificate of Incorporation and Amended and Restated By-laws, as in effect on the date of this letter (collectively, the "Charter Documents"), and certified copies of resolutions of the executive committee of the board of directors of the Company relating to the Exchange Notes; and (ii) those other certificates, agreements and documents as we deemed relevant and necessary as a basis for the opinions expressed below. In our examination of the documents referred to above, we have assumed, without independent investigation, (i) that the Exchange Notes will be issued substantially as described in the Registration Statement and in the form reviewed by us and that any information omitted from the form will be properly added, (ii) the genuineness of all signatures, (iii) the authenticity of all documents submitted to us as originals, (iv) the conformity to the original documents of all documents submitted to us as certified, photostatic, reproduced or conformed copies of validly existing agreements or other documents, (v) the authenticity of the latter documents; (vi) that the statements regarding matters of fact in the certificates, records, agreements, instruments and documents that we examined are accurate and complete, and (vii) the legal capacity of all individuals who have executed any of the documents which we examined. We have also assumed, without independent investigation, that (i) the Indenture was duly authorized, executed and delivered by the Trustee, (ii) the Indenture is a valid and binding obligation of the Trustee, (iii) the Exchange Notes CD Radio Inc. 4 will be issued in accordance with the Indenture as described in the Registration Statement and (iv) the Exchange Notes will be duly authenticated by the Trustee in accordance with the Indenture. In expressing the opinion set forth below, we have relied upon the factual matters contained in the representations and warranties of the Company made in the documents and upon certificates of public officials and officers of the Company. Based on the foregoing, and subject to the stated assumptions, exceptions and qualifications, we are of the opinion that: 1. The Indenture represents a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be subject to (a) bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, moratorium or other similar laws affecting creditors' rights generally and (b) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 2. When issued, authenticated and delivered in accordance with the terms of the Indenture, the Exchange Notes will be legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as enforceability may be limited by (a) bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, moratorium and other similar laws CD Radio Inc. 5 affecting creditors' rights generally and (b) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). Our opinions expressed above are limited to the laws of the State of New York and the federal laws of the United States of America. Our opinions are rendered only with respect to the laws, and the rules, regulations and orders under those laws, that are currently in effect. Please be advised that no member of this firm is admitted to practice in the State of Delaware. We consent to the use of our name in the Registration Statement and in the prospectus in the Registration Statement as it appears in the caption "Legal Matters" and to the use of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not admit that we come within the category of persons whose consent is required by the Act or by the rules and regulations under the Act. Very truly yours, PAUL, WEISS, RIFKIND, WHARTON & GARRISON EX-8 11 EXHIBIT 8.1 EXHIBIT 8.1 Paul, Weiss, Rifkind, Wharton & Garrison July 2, 1999 CD Radio Inc. 1221 Avenue of the Americas New York, New York 10020 CD Radio Inc. Registration Statement on Form S-4 Ladies and Gentlemen: We have acted as United States federal income tax counsel for CD Radio Inc., a Delaware corporation (the "Company"), in connection with the offer to exchange up to $200,000,000 aggregate principal amount of the Company's 14 1/2% Senior Secured Notes due 2009 (the "New Notes"), which are proposed to be registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of the Company's issued and outstanding 14 1/2% Senior Secured Notes due 2009. We are giving this opinion in connection with the Registration Statement on Form S-4 (the "Registration Statement") filed by the Company with the Securities and Exchange Commission (the "Commission") on the date of this letter, in accordance with the Securities Act and the rules and regulations of the Commission under the Securities Act, relating to the registration by the Company of the New Notes. Capitalized terms used but not defined in this letter have the respective meanings ascribed to them in the Registration Statement. 2 In rendering our opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Registration Statement and those agreements and other documents which we have deemed relevant and necessary and we have made those investigations of law which we have deemed appropriate as a basis for the opinion expressed below. In our examination, we have assumed the authenticity of original documents, the accuracy of copies and the genuineness of signatures. We understand and assume that (i) each of these agreements represents the valid and binding obligation of the respective parties to the agreements, enforceable in accordance with its respective terms and the entire agreement between the parties with respect to the subject matter of the agreement, (ii) the parties to each agreement have complied, and will comply, with all of their respective covenants, agreements and undertakings contained in the agreement and (iii) the transactions provided for by each agreement were and will be carried out in accordance with their terms. The opinion set forth in this letter is limited to the Internal Revenue Code of 1986, as amended (the "Code"), administrative rulings, judicial decisions, Treasury regulations and other applicable authorities, all as in effect on the date of this letter. The statutory provisions, regulations and interpretations upon which our opinion is based are subject to change, and any change could apply retroactively. Any change could affect the continuing validity of the opinion described in this letter. We assume no responsibility to advise you of any subsequent changes in existing law or facts, nor do we assume any responsibility to update this opinion with respect to any matters expressly described in this letter, and no opinions are to be implied or may be inferred beyond the matters expressly so stated. The opinion in this letter has no binding effect on the United States Internal Revenue Service or the courts of the United States. No assurance can be given that, if the matter were contested, a court would agree with the opinion in this letter. Based upon and subject to the above, the discussion in the Registration Statement under the heading "Certain United States Federal Income Tax Considerations" constitutes our opinion with respect to those matters. While this description discusses the material anticipated United States federal income tax consequences applicable to particular holders who are United States Persons, it does not purport to discuss all United States federal income tax consequences and our opinion is limited to those United States federal income tax consequences specifically discussed under that heading. In giving the above opinion, we express no opinion other than as to the federal income tax laws of the United States of America. 3 We are furnishing this letter in our capacity as United States federal income tax counsel to the Company. This letter is not to be used, circulated, quoted or otherwise referred to for any other purpose, except as described below. We consent to the use of our name in the Registration Statement as our name appears under the caption "Legal Matters" and to the use of this letter as an exhibit to the Registration Statement. In giving this consent, we do not admit that we come within the category of persons whose consent is required by the Securities Act or by the rules and regulations under the Securities Act. Very truly yours, PAUL, WEISS, RIFKIND, WHARTON & GARRISON EX-12 12 EXHIBIT 12.1 CD RADIO INC. CALCULATION OF EARNINGS TO FIXED CHARGES
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, -------------------------------------------------- -------------------- 1994 1995 1996 1997 1998 1998 1999 ($ IN THOUSANDS) Earnings: Pretax loss from continuing operations $(4,065) $(2,107) $ (2,831) $(4,737) $(46,101) $(5,838) $(10,444) Add: Interest and other financial charges expensed 40 20 13 1,946 14,272 5,823 1,433 Interest factor attributable to rentals 40 50 66 92 647 54 458 ------- ------- -------- ------- -------------------- -------- Earnings, as adjusted, from continuing operations $(3,985) $(2,038) $ (2,752) $(2,699) $(31,182) $ 39 $(8,553) ------- ------- -------- ------- -------------------- -------- ------- ------- -------- ------- -------------------- -------- Fixed charges: Interest and other financial charges expensed $ 40 $ 20 $ 13 $ 1,946 $ 14,272 $ 5,823 $ 1,433 Interest capitalized - - - 23 16,243 277 10,127 Interest factor attributable to rentals 40 50 66 92 647 54 458 ------- ------- -------- ------- -------------------- -------- Total fixed charges $ 80 $ 70 $ 79 $ 2,061 $ 31,162 $ 6,154 $12,018 ------- ------- -------- ------- -------------------- -------- ------- ------- -------- ------- -------------------- -------- Ratio of earnings to fixed charges (1) - - - - - - - Deficiency of earnings to fixed charges $ 4,065 $ 2,107 $ 2,831 $ 4,760 $ 62,344 $ 6,115 $20,571
(1) The ratio of earnings to fixed charges was less than 1.00 for all periods presented and thus earnings available for fixed charges were inadequate to cover fixed charges for these periods. EX-23 13 EXHIBIT 23.1 EXHIBIT 23.1 CONSENTS OF INDEPENDENT ACCOUNTANTS We hereby consent to the use of this Registration Statement on Form S-4 of CD Radio Inc. of our report dated February 5, 1999 relating to the consolidated financial statements of CD Radio Inc., which appears in such Registration Statement. We also consent to the incorporation by reference of our report dated February 5, 1999 relating to the financial statement schedule appearing in CD Radio Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PRICEWATERHOUSECOOPERS LLP New York, New York June 28, 1999 EX-23 14 EXHIBIT 23.3 July 2, 1999 CD Radio Inc. 1221 Avenue of the Americas New York, NY 10020 Ladies and Gentlemen: In connection with the Registration Statement on Form S-4 (the "Registration Statement") filed by CD Radio Inc., a Delaware corporation (the "Company"), with the Securities and Exchange Commission (the "Commission") on July 2, 1999, as provided by the Securities Act of 1933, as amended (the "Act"), and the rules and regulations under the Act, we consent to the use of our name in the Registration Statement and in the prospectus in the Registration Statement as it appears in the caption "Legal Matters" and to the use of this consent as an exhibit to the Registration Statement. In giving this consent, we do not admit that we are "Experts" or that we come within the category of persons whose consent is required by the Act or by the rules and regulations under the Act. Our consent to having passed upon certain regulatory issues arising under the Communications Act is limited to matters arising under or involving federal communications laws, communications treaties and federal communications regulations relevant to the proposed satellite radio operations of the Company in the United States as described in the prospectus, including the Communications Act of 1934, as amended, and the rules, regulations and written policies promulgated thereunder by the Federal Communications Commission, the International Telecommunication Union Constitution and Convention dated 1992, and the International Radio Regulations promulgated thereunder dated 1992 (collectively, "Communications Laws"). We have not passed upon and do not consent to be listed as having passed upon matters arising under or involving any laws other than the Communications Laws, any jurisdiction other than the United States, or any state of the United States. This consent is being furnished to you subject to the qualifications and limitations expressed herein, and has been prepared solely for the use and benefit of the Company in connection with the Registration Statement. The consent expressed herein is as of the date hereof. Very truly yours, Wiley, Rein & Fielding EX-25 15 EXHIBIT 25.1 EXHIBIT 25.1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------------ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)______ ------------------------ UNITED STATES TRUST COMPANY OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-3818954 (Jurisdiction of incorporation (I. R. S. Employer if not a U. S. national bank) Identification No.) 114 West 47th Street 10036 New York, New York (Zip Code) (Address of principal executive offices) ------------------------ CD RADIO, INC. (Exact name of REGISTRANT as specified in its charter) Delaware 52-1700207 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 1221 Avenue of the Americas, 36th Floor 10020 New York, NY (Zip code) (Address of principal executive offices) ------------------------ 14 1/2% Senior Secured Notes due 2009 (Titles of the indenture securities) ================================================================================ -2- GENERAL 1. General Information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York (2nd District), New York, New York (Board of Governors of the Federal Reserve System). Federal Deposit Insurance Corporation, Washington, D. C. New York State Banking Department, Albany, New York (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. 2. Affiliations with the Obligor If the obligor is an affiliate of the trustee, describe each such affiliation. None. 3,4,5,6,7,8,9,10,11,12,13,14 and 15. The registrant is currently not in default under any of its outstanding securities for which United States Trust Company of New York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1 are not required under General Instruction B. 16. List of Exhibits T-1.1 -- Organization Certificate, as amended, issued by the State of New York Banking Department to transact business as a Trust Company, is incorporated by reference to Exhibit T-1.1 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). -3- 16. List of Exhibits (cont'd) T-1.2 -- Included in Exhibit T-1.1. T-1.3 -- Included in Exhibit T-1.1. T-1.4 -- The By-Laws of United States Trust Company of New York, as amended, is incorporated by reference to Exhibit T-1.4 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990. T-1.7 -- A copy of the latest report of condition of the trustee pursuant to law or the requirements of its supervising or examining authority. NOTE As of June 22, 1999, the trustee had 2,999,020 shares of Common Stock outstanding, all of which are owned by its parent company, U. S. Trust Corporation. The term 'trustee' in Item 2, refers to each of United States Trust Company of New York and its parent company, U. S. Trust Corporation. In answering Item 2 in this statement of eligibility, as to matters peculiarly within the knowledge of the obligor or its directors, the trustee has relied upon information furnished to it by the obligor and will rely on information to be furnished by the obligor and the trustee disclaims responsibility for the accuracy or completeness of such information. ------------------------ -4- Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, United States Trust Company of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 22nd day of June 1999. UNITED STATES TRUST COMPANY OF NEW YORK, Trustee By: /s/ Patricia Gallagher ________________________________ Patricia Gallagher Assistant Vice President PG/kk (rev:pg062199) EXHIBIT T-1.6 The consent of the trustee required by Section 321(b) of the Act. United States Trust Company of New York 114 West 47th Street New York, NY 10036 September 1, 1995 Securities and Exchange Commission 450 5th Street, N.W. Washington, DC 20549 Gentlemen: Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the limitations set forth therein, United States Trust Company of New York ('U.S. Trust') hereby consents that reports of examinations of U.S. Trust by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Very truly yours, UNITED STATES TRUST COMPANY OF NEW YORK /s/ Gerard F. Ganey ----------------------- By: Gerard F. Ganey Senior Vice President EXHIBIT T-1.7 UNITED STATES TRUST COMPANY OF NEW YORK CONSOLIDATED STATEMENT OF CONDITION MARCH 31, 1999 -------------- ($ IN THOUSANDS) ASSETS Cash and Due from Banks $ 139,755 Short-Term Investments 85,326 Securities, Available for Sale 528,160 Loans 2,081,103 Less: Allowance for Credit Losses 17,114 ---------- Net Loans 2,063,989 Premises and Equipment 57,765 Other Assets 125,780 ---------- TOTAL ASSETS $3,000,775 ========== LIABILITIES Deposits: Non-Interest Bearing $ 623,046 Interest Bearing 1,875,364 ---------- TOTAL DEPOSITS 2,498,410 Short-Term Credit Facilities 184,281 Accounts Payable and Accrued Liabilities 126,652 ---------- TOTAL LIABILITIES $2,809,343 ========== STOCKHOLDER'S EQUITY Common Stock 14,995 Capital Surplus 53,041 Retained Earnings 121,759 Unrealized Gains on Securities Available for Sale (Net of Taxes) 1,637 ---------- TOTAL STOCKHOLDER'S EQUITY 191,432 TOTAL LIABILITIES AND ---------- STOCKHOLDER'S EQUITY $3,000,775 ==========
I, Richard E. Brinkmann, Managing Director & Comptroller of the named bank do hereby declare that this Statement of Condition has been prepared in conformance with the instructions issued by the appropriate regulatory authority and is true to the best of my knowledge and belief. Richard E. Brinkmann, Managing Director & Controller May 18, 1999 EX-99 16 EXHIBIT 99.1 EXHIBIT 99.1 LETTER OF TRANSMITTAL CD RADIO INC. OFFER TO EXCHANGE $200,000,000 OF ITS 14 1/2% SENIOR SECURED NOTES DUE 2009 (THE 'EXCHANGE NOTES') WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR $200,000,000 OF ITS OUTSTANDING 14 1/2% SENIOR SECURED NOTES DUE 2009 (THE 'INITIAL NOTES') PURSUANT TO THE PROSPECTUS, DATED , 1999 - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE 'EXPIRATION DATE'). - -------------------------------------------------------------------------------- The Exchange Agent for the Exchange Offer is: UNITED STATES TRUST COMPANY OF NEW YORK By Registered or Certified Mail: United States Trust Company of New York P.O. Box 844 Cooper Station New York, NY 10276-0844 Attention: Corporate Trust Services By Overnight Delivery and By Hand after 4:30 p.m. on the Expiration Date: United States Trust Company of New York 770 Broadway, 13th Floor New York, NY 10003 Attention: Corporate Trust Services By Hand before 4:30 p.m.: United States Trust Company of New York 111 Broadway Lower Level New York, NY 10006 Attention: Corporate Trust Services By Facsimile for Eligible Institutions: (212) 780-0592 Attention: Corporate Trust Services For confirmation and/or information call: (800) 548-6565 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX BELOW ------------------------ List below the Initial Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and principal amount of Initial Notes should be listed on a separate signed schedule affixed hereto.
- ----------------------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF INITIAL NOTES (1) (2) (3) PRINCIPAL AMOUNT OF INITIAL NOTES NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE PRINCIPAL AMOUNT OF TENDERED (PLEASE FILL IN, IF BLANK) NUMBER(S)* INITIAL NOTES (IF LESS THAN ALL)** - ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- * Need not be completed by book-entry holders. ** Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount represented by such Initial Notes. - -----------------------------------------------------------------------------------------------------------------------------------
The undersigned acknowledges that he or she has received and reviewed the Prospectus, dated , 1999 (the 'Prospectus'), of CD Radio Inc., a Delaware corporation (the 'Company'), and this Letter of Transmittal (the 'Letter of Transmittal' or this 'Letter'), which together constitute the Company's offer (the 'Exchange Offer') to exchange up to $200,000,000 aggregate principal amount of its 14 1/2% Senior Secured Notes due 2009 (the 'Exchange Notes') for a like principal amount of the Company's issued and outstanding 14 1/2% Senior Secured Notes due 2009 (collectively, the 'Initial Notes'). The undersigned has completed the appropriate boxes above and below and signed this Letter to indicate the action the undersigned desires to take with respect to the Exchange Offer. This Letter is to be used either if certificates of Initial Notes are to be forwarded herewith or if delivery of Initial Notes is to be made by book-entry transfer to an account maintained by the Exchange Agent at The Depository Trust Company, pursuant to the procedures set forth in 'The Exchange Offer -- Terms of the Exchange Offer -- Procedures for Tendering' in the Prospectus. Delivery of this Letter and any other required documents should be made to the Exchange Agent. Delivery of documents to a book-entry transfer facility does not constitute delivery to the Exchange Agent. Holders whose Initial Notes are not immediately available or who cannot deliver their Initial Notes and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date must tender their Initial Notes according to the guaranteed delivery procedure set forth in the Prospectus under the caption 'The Exchange Offer Terms of the Exchange Offer Procedures for Tendering.' See Instruction 1. [ ] CHECK HERE IF INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution __________________________________________________ [ ] The Depository Trust Company Account Number _________________________________________________________________ Transaction Code Number ________________________________________________________ [ ] CHECK HERE IF INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name of Registered Holder(s) ___________________________________________________ Name of Eligible Institution that Guaranteed Delivery __________________________ If delivered by book-entry transfer: Account Number _________________________________________________________________ Date of execution of Notice of Guaranteed Delivery _____________________________ [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: __________________________________________________________________________ Address: _______________________________________________________________________ 2 If the undersigned is not a broker-dealer, the undersigned represents that it is acquiring the Exchange Notes in the ordinary course of business of the undersigned, that it is not engaged in, and does not intend to engage in, or has no arrangement or understanding with any person to participate in, a distribution of Exchange Notes and that it is not an 'affiliate' of the Company within the meaning of Rule 405 under the Securities Act of 1933, as amended (the 'Securities Act'). If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Initial Notes that were acquired as a result of market-making activities or other trading activities, it may be deemed to be an 'underwriter' within the meaning of the Securities Act and must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an 'underwriter' within the meaning of the Securities Act. 3 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of Initial Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Initial Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Initial Notes as are being tendered hereby. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Initial Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company or the Exchange Agent to be necessary or desirable to complete the sale, assignment and transfer of the Initial Notes tendered hereby. The undersigned also acknowledges that this Exchange Offer is being made in reliance on the Company's belief, based on interpretations by the staff of the Securities and Exchange Commission (the 'SEC') to third parties in unrelated transactions, that the Exchange Notes issued in exchange for the Initial Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than (i) any such holder that is an 'affiliate' of the Company within the meaning of Rule 405 under the Securities Act or (ii) any broker-dealer that purchases Notes from the Company to resell pursuant to Rule 144A under the Securities Act ('Rule 144A') or any other available exemption) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such Exchange Notes and are not participating in, and do not intend to participate in, the distribution of such Exchange Notes. The undersigned acknowledges that any holder of Initial Notes using the Exchange Offer to participate in a distribution of the Exchange Notes (i) cannot rely on the position of the staff of the SEC enunciated in its interpretive letter with respect to Exxon Capital Holdings Corporation (available April 13, 1989) or similar letters and (ii) must comply with the registration and prospectus requirements of the Securities Act in connection with a secondary resale transaction. The undersigned represents that (i) the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, (ii) such holder or such other person has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes within the meaning of the Securities Act and is not participating in, and does not intend to participate in, the distribution of such Exchange Notes within the meaning of the Securities Act, and (iii) such holder or such other person is not an 'affiliate,' as defined in Rule 405 under the Securities Act, of the Company or, if such holder or such other person is an affiliate, such holder or such other person will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Initial Notes, it represents that the Initial Notes to be exchanged for Exchange Notes were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes pursuant to the Exchange Offer; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an 'underwriter' within the meaning of the Securities Act. The undersigned, if a California resident, hereby further represents and warrants that the undersigned (or the beneficial owner of the Initial Notes tendered hereby, if not the undersigned) (i) is a bank, savings and loan association, trust company, insurance company, investment company registered under the Investment Company Act of 1940, pension or profit-sharing trust (other than a pension or profit-sharing trust of the Company, a self-employed individual retirement plan, or individual retirement account), or a corporation which has a net worth on a consolidated basis according to its most recent audited financial statement of not less than $14,000,000, and (ii) is acquiring the Exchange Notes for its own account for investment purposes (or for the account of the beneficial owner of such Exchange Notes for investment purposes). 4 All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in the instructions contained in this Letter. The undersigned understands that tenders of the Initial Notes pursuant to any one of the procedures described under 'The Exchange Offer -- Terms of the Exchange Offer -- Procedures for Tendering Initial Notes' in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus under 'The Exchange Offer -- Terms of the Exchange Offer -- Conditions to the Exchange Offer,' the Company may not be required to accept for exchange any of the Initial Notes tendered. Initial Notes not accepted for exchange or withdrawn will be returned to the undersigned at the address set forth below unless otherwise indicated under 'Special Delivery Instructions' below. Unless otherwise indicated herein in the box entitled 'Special Issuance Instructions' below, please issue the Exchange Notes (and, if applicable, substitute certificates representing Initial Notes for any Initial Notes not exchanged) in the name of the undersigned. Similarly, unless otherwise indicated under the box entitled 'Special Delivery Instructions' below, please deliver the Exchange Notes (and, if applicable, substitute certificates representing Initial Notes for any Initial Notes not exchanged) to the undersigned at the address shown above in the box entitled 'Description of Initial Notes.' THE BOOK-ENTRY TRANSFER FACILITY, AS THE HOLDER OF RECORD OF CERTAIN INITIAL NOTES, HAS GRANTED AUTHORITY TO BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS WHOSE NAMES APPEAR ON A SECURITY POSITION LISTING WITH RESPECT TO SUCH INITIAL NOTES AS OF THE DATE OF TENDER OF SUCH INITIAL NOTES TO EXECUTE AND DELIVER THE LETTER OF TRANSMITTAL AS IF THEY WERE THE HOLDERS OF RECORD. ACCORDINGLY, FOR PURPOSES OF THIS LETTER OF TRANSMITTAL, THE TERM 'HOLDER' SHALL BE DEEMED TO INCLUDE SUCH BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS. THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED 'DESCRIPTION OF INITIAL NOTES' ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH NOTES AND THIS LETTER TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE INITIAL NOTES AS SET FORTH IN SUCH BOX ABOVE. 5 - -------------------------------------------------------------------------------- PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS) (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9) Dated:...................................................................... X................................................. ........................ X................................................. ........................ SIGNATURE(S) OF OWNER(S)/OR AUTHORIZED SIGNATORY DATE Area Code and Telephone Number.............................................. If a holder is tendering any Initial Notes, this Letter must be signed by the registered holder(s) as the name(s) appear(s) on the certificate(s) for the Initial Notes or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. Names ..................................................................... ..................................................................... (PLEASE TYPE OR PRINT) Capacity: .................................................................. .................................................................. Address .................................................................... .................................................................... (INCLUDE ZIP CODE) SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3) Signature(s) Guaranteed by an Eligible Institution:.................................................... (AUTHORIZED SIGNATURE) ........................................................................... (TITLE) ........................................................................... (NAME OF FIRM) Dated:...................................................................... 6 SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if certificates for Exchange Notes are to be issued in the name of and sent to someone other than the person or persons whose signature(s) appear on this Letter above. ISSUE: EXCHANGE NOTES TO: NAME(S):.................................................................. (PLEASE TYPE OR PRINT) ......................................................................... (PLEASE TYPE OR PRINT) ADDRESS:.................................................................. .......................................................................... (ZIP CODE) SOCIAL SECURITY NUMBER:................................................... (COMPLETE SUBSTITUTE FORM W-9) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if certificates for Exchange Notes are to be sent to someone other than the person or persons whose signature(s) appear(s) on this Letter above or to such person or persons at an address other than shown in the box entitled 'Description of Initial Notes' on this Letter above. MAIL: EXCHANGE NOTES TO: NAME(S):.................................................................. (PLEASE TYPE OR PRINT) .......................................................................... (PLEASE TYPE OR PRINT) ADDRESS:.................................................................. .......................................................................... (ZIP CODE) IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE (IN EACH CASE, TOGETHER WITH THE CERTIFICATE(S) FOR INITIAL NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SUCH INITIAL NOTES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND INITIAL NOTES; GUARANTEED DELIVERY PROCEDURE. This Letter is to be used to forward, and must accompany, all certificates representing Initial Notes tendered pursuant to the Exchange Offer unless such certificates are accompanied by an Agent's Message (as defined in the Prospectus) in which case you need not submit this Letter to the Exchange Agent. Certificates representing the Initial Notes in proper form for transfer (or a confirmation of book-entry transfer of such Initial Notes into the Exchange Agent's account at the book-entry transfer facility) must be received by the Exchange Agent at its address set forth herein on or before the Expiration Date. A tender will not be deemed to have been timely received when the tendering holder's properly completed and duly signed Letter or an Agent's Message accompanied by the Initial Notes is mailed prior to the Expiration Date but is received by the Exchange Agent after the Expiration Date. THE METHOD OF DELIVERY OF THIS LETTER, THE INITIAL NOTES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY DELIVERY. If a holder desires to tender Initial Notes and such holder's Initial Notes are not immediately available or time will not permit such holder's Letter of Transmittal, Initial Notes (or a confirmation of book-entry transfer of Initial Notes into the Exchange Agent's account at the book-entry transfer facility with an Agent's Message) or other required documents to reach the Exchange Agent on or before the Expiration Date, such holder may still tender in the Exchange Offer if: (a) the tender is made through an Eligible Institution (as defined below); (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by us (by facsimile transmission, mail or hand delivery), setting forth your name and address as holder of the Initial Notes and the amount of Initial Notes tendered, stating that the tender is being made thereby and guaranteeing that within three business days after the Expiration Date the certificates for all physically tendered Initial Notes, in proper form for transfer, or a book-entry confirmation with an Agent's Message, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) the certificates for all physically tendered Initial Notes, in proper form for transfer, or a book-entry confirmation as the case may be, and all other documents required by this Letter of Transmittal, are received by the Exchange Agent within three business days after the Expiration Date. See 'The Exchange Offer -- Terms of the Exchange Offer -- Procedures for Tendering' in the Prospectus. 2. WITHDRAWALS. Any holder who has tendered Initial Notes may withdraw the tender by delivering written notice of withdrawal (which may be sent by telegram, facsimile (receipt confirmed by telephone and an original delivered by guaranteed overnight courier)) to the Exchange Agent prior to the close of business on the Expiration Date and prior to acceptance for exchange thereof by us. For a withdrawal to be effective, a written notice of withdrawal must (i) specify the name of the person having tendered the Initial Notes to be withdrawn (the 'Depositor'), (ii) identify the Initial Notes to be withdrawn (including the certificate number or numbers and principal amount of such Initial Notes), (iii) signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Initial Notes were tendered or as otherwise set forth in Instruction 3 below (including any required signature guarantees), or be accompanied by documents of transfer sufficient to have the trustee for the indenture governing the Initial Notes register the transfer of such Initial Notes pursuant to the terms of such indenture into the name of the person withdrawing the tender and (iv) specify the name in which any such Initial Notes are to be registered, if different from that of the Depositor. If Initial Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the participant's account at the book-entry transfer facility to be credited, if different from that of the Depositor, with the withdrawn Initial Notes or otherwise comply with the book-entry transfer facility's procedures. See 'The Exchange Offer -- Terms of the Exchange Offer -- Withdrawal of Tenders' in the Prospectus. 8 3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the registered holder of the Initial Notes tendered hereby, the signature must correspond with the name as written on the face of the certificates without alteration, enlargement or any change whatsoever. If this Letter is signed by a participant in DTC, the signature must correspond with the name as it appears on the security position listing as the holder of the Initial Notes. If this Letter or any Initial Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by us, evidence satisfactory to us of their authority to so act must also be submitted with the Letter of Transmittal. If any tendered Initial Notes are owned of record by two or more joint owners, all such owners must sign this Letter. The signatures on this Letter or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an 'eligible guarantor' institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended -- (each, an 'Eligible Institution'), unless the Initial Notes are tendered: (i) by a registered holder (or by a participant in DTC whose name appears on a security position listing as the owner) who has not completed the box entitled 'Special Issuance Instructions' or 'Special Delivery Instructions' on this Letter and the Exchange Notes are being issued directly to such registered holder (or deposited into the participant's account at DTC), or (ii) for the account of an Eligible Institution. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Initial Notes should indicate in the applicable box the name and address to which Exchange Notes issued pursuant to the Exchange Offer are to be issued or sent, if different from the name or address of the person signing this Letter. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. If no such instructions are given, any Exchange Notes will be issued in the name of, and delivered to, the name or address of the person signing this Letter and any Initial Notes not accepted for exchange will be returned to the name or address of the person signing this Letter. 5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the federal income tax laws, payments that may be made by the Company on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 31%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this Letter and either (a) provide the correct taxpayer identification number ('TIN') and certify, under penalties of perjury, that the TIN provided is correct and that (i) the holder has not been notified by the Internal Revenue Service (the 'IRS') that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write 'Applied For' in the space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9, and sign the Certification of Payee Awaiting Taxpayer Identification Number. If 'Applied For' is written in Part I, the Company (or the Paying Agent under the Indenture governing the Exchange Notes) shall retain 31% of payments made to the tendering holder during the sixty (60) day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent or the Company with his or her TIN within sixty (60) days after the date of the Substitute Form W-9, the Company (or the Paying Agent) shall remit such amounts retained during the sixty (60) day period to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent or the Company with his or her TIN within such sixty (60) day period, the Company (or the Paying Agent) shall remit such previously retained amounts to the IRS as backup withholding. In general, if a holder is an individual, the taxpayer identification number is the Social Security number of such individual. If the Exchange Agent or the Company is not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the IRS. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup 9 withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such holder must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if Initial Notes are registered in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Failure to complete the Substitute Form W-9 will not, by itself, cause Initial Notes to be deemed invalidly tendered, but may require the Company (or the Paying Agent) to withhold 31% of the amount of any payments made on account of the Exchange Notes. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of Initial Notes to it or its order pursuant to the Exchange Offer. If, however, Exchange Notes and/or substitute Initial Notes not exchanged or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Initial Notes tendered hereby, or if tendered Initial Notes are registered in the name of any person other than the person signing this Letter, or if a transfer tax is imposed for any reason other than the transfer of Initial Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Initial Notes specified in this Letter. 7. WAIVER OF CONDITIONS. Conditions enumerated in the Prospectus may be waived by the Company, in whole or in part, at any time from time to time in its reasonable discretion. 8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Initial Notes, by execution of this Letter, shall waive any right to receive notice of the acceptance of their Initial Notes for exchange. Neither the Company nor any other person is obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 9. INADEQUATE SPACE. If the space provided herein is inadequate, the aggregate principal amount of Initial Notes being tendered and the certificate number or numbers (if available) should be listed on a separate schedule attached hereto and separately signed by all parties required to sign this Letter. 10. MUTILATED, LOST, STOLEN OR DESTROYED INITIAL NOTES. If any certificate has been lost, mutilated, destroyed or stolen, the holder should promptly notify the United States Trust Company of New York at the telephone number indicated above. The holder will then be instructed as to the steps that must be taken to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the Initial Notes have been replaced. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter, may be directed to the United States Trust Company of New York at the address and telephone number indicated above. 10 TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5) PAYER'S NAME: CD RADIO INC. - ------------------------------------------------------------------------------------------------------------------------------ SUBSTITUTE Part I -- Taxpayer Identification Number _______________________________ FORM W-9 Social Security Number Department of the Treasury Enter your taxpayer identification Internal Revenue Service number in the appropriate box. For most individuals, this is your social security number. If you do not have a OR number, see how to obtain a 'TIN' in the enclosed Guidelines. NOTE: If the account is in more than ________________________________ one name, see the chart on page 2 of Employer Identification Number the enclosed Guidelines to determine what number to give. ---------------------------------------------------------------------------------- Part II -- For Payees Exempt From Backup Withholding (see enclosed Guidelines) ---------------------------------------------------------------------------------- CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT: PAYER'S REQUEST FOR (1) the number shown on this form is my correct Taxpayer Identification Number TAXPAYER IDENTIFICATION (or I am waiting for a number to be issued to me), and NUMBER (TIN) AND CERTIFICATION (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the 'IRS') that I am subject to backup withholding as a result of a failure to report all interest or dividends or the IRS has notified me that I am no longer subject to backup withholding. ---------------------------------------------------------------------------------- Signature ________________________________ Date __________________________ - ------------------------------------------------------------------------------------------------------------------------------ CERTIFICATION GUIDELINES -- You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to backup withholding because of under reporting of interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). - ------------------------------------------------------------------------------------------------------------------------------
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER I CERTIFY, UNDER PENALTIES OF PERJURY, THAT A TAXPAYER IDENTIFICATION NUMBER HAS NOT BEEN ISSUED TO ME, AND THAT I MAILED OR DELIVERED AN APPLICATION TO RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE (OR I INTEND TO MAIL OR DELIVER AN APPLICATION IN THE NEAR FUTURE). I UNDERSTAND THAT IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER TO THE PAYER, 31 PERCENT OF ALL PAYMENTS MADE TO ME ON ACCOUNT OF THE EXCHANGE NOTES SHALL BE RETAINED UNTIL I PROVIDE A TAXPAYER IDENTIFICATION NUMBER TO THE PAYER AND THAT, IF I DO NOT PROVIDE MY TAXPAYER IDENTIFICATION NUMBER WITHIN SIXTY (60) DAYS, SUCH RETAINED AMOUNTS SHALL BE REMITTED TO THE INTERNAL REVENUE SERVICE AS BACKUP WITHHOLDING AND 31 PERCENT OF ALL REPORTABLE PAYMENTS MADE TO ME THEREAFTER WILL BE WITHHELD AND REMITTED TO THE INTERNAL REVENUE SERVICE UNTIL I PROVIDE A TAXPAYER IDENTIFICATION NUMBER. Signature ____________________________________ Date _____________________ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 11 -----END PRIVACY-ENHANCED MESSAGE-----