________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-24710
-------------------
SIRIUS SATELLITE RADIO INC.
(EXACT NAME OF REGISTRANT IN ITS CHARTER)
-------------------
DELAWARE 52-1700207
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OF ORGANIZATION)
1221 AVENUE OF THE AMERICAS, 36TH FLOOR
NEW YORK, NEW YORK 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 584-5100
-------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
-------------------- --------------------
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS)
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
On March 23, 2000, the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant, using the closing price
of the Registrant's Common Stock on such date, was $1,915,442,879.
The number of shares of the Registrant's common stock outstanding as of
March 23, 2000 was 38,841,070.
DOCUMENTS INCORPORATED BY REFERENCE
None
________________________________________________________________________________
SIRIUS SATELLITE RADIO INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
ITEM NO. DESCRIPTION PAGE
- -------- ----------- ----
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 24
Item 3. Legal Proceedings........................................... 24
Item 4. Submission of Matters to a Vote of Security Holders......... 24
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 25
Item 6. Selected Consolidated Financial Data........................ 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 26
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 31
Item 8. Financial Statements and Supplementary Data................. 31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 31
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 32
Item 11. Executive Compensation...................................... 33
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 39
Item 13. Certain Relationships and Related Transactions.............. 41
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................. 42
1
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
forward-looking statements made in this Annual Report on Form 10-K and in other
reports and documents published by us from time to time. Any statements about
our expectations, beliefs, plans, objectives, assumptions or future events or
performance are not historical facts and may be forward-looking. Such 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 'outlook.' Accordingly, these
statements involve estimates, assumptions and uncertainties that could cause our
actual results to differ materially from those expressed in the forward-looking
statements. Any forward-looking statements are qualified in their entirety by
reference to the factors discussed throughout this Annual Report on Form 10-K,
and particularly the risk factors set forth under the caption 'Business -- Risk
Factors' in Part I of this Annual Report on Form 10-K. Among the significant
factors that have a direct bearing on our results of operations are:
unavailability of receivers and antennas and our dependence upon third
parties to design, develop, manufacture and distribute receivers and
antennas;
our dependence on Space Systems/Loral, Inc. for construction and launch of
our satellites;
the potential risk of delay in implementing our business plan;
risk of launch failure;
unproven market for our service and unproven applications of technology;
and
our need for additional financing.
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 such forward-looking statements. Further, any forward-looking statement
speaks only as of the date on which such statement 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 such statement is made or to
reflect the occurrence of unanticipated events. New factors emerge from time to
time, and it is not possible for us to predict which will arise. In addition, we
cannot assess the impact of each such 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.
ITEM 1. BUSINESS
We are building a subscription radio service that will broadcast up to 100
channels of audio entertainment directly from satellites to vehicles throughout
the continental United States. Sirius Radio will offer a wide selection of music
formats and program types; commercial free digital quality music; and nearly
seamless signal coverage across the continental United States. We believe this
service will be a substantial improvement over traditional radio. Sirius Radio
will be broadcast over a frequency band, the 'S-band,' that will augment
conventional (terrestrial broadcast) 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 MHz portion of the S-band for
this purpose. Our service 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 broadcasting at the
end of the fourth quarter of 2000, at an anticipated subscription price of $9.95
per month.
Our objective is to have radios capable of receiving our broadcasts included
as standard equipment in all cars and trucks sold in the continental United
States. We only intend to bill our subscribers electronically by credit card or,
in the case of leased vehicles, by including our monthly subscription fee in the
cost of leasing the vehicle. Approximately one-third of all new cars sold in the
United States in 1999 were leased.
2
We currently have alliances with Ford Motor Company, DaimlerChrysler
Corporation and BMW of North America, Inc. which contemplate manufacturing,
marketing and selling vehicles that include receivers capable of receiving our
broadcasts. These alliances cover all brands and affiliates of these automakers,
including Ford, Chrysler, Mercedes, BMW, Jaguar, Mazda and Volvo. Our agreement
with DaimlerChrysler also includes Freightliner and Sterling heavy trucks. In
1999, Ford, DaimlerChyrsler and BMW vehicles accounted for approximately 7.5
million vehicles, or approximately 43% of all new cars and trucks sold in the
continental United States.
Sirius Satellite 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. On November 18, 1999, we
changed our name again to Sirius Satellite Radio Inc. 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 www.siriusradio.com.
Material on our website is not part of this report.
THE SIRIUS RADIO SERVICE
Sirius Radio will offer motorists: (1) a wide choice of finely focused music
and non-music formats; (2) commercial-free music programming; and (3) nearly
seamless signal coverage throughout the continental United States. The monthly
subscription fee for Sirius Radio will entitle subscribers to receive all Sirius
Radio channels.
Wide Choice of Programming. We will program each of our 50 commercial-free
music channels and offer each under our brand, 'Sirius Radio'. Sirius Radio will
offer subscribers a far broader range of programming formats than conventional
radio. 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. Because the economics of the existing advertiser
supported radio industry dictate that conventional radio stations generally
program for the greatest potential audience, nearly half of all commercial radio
stations in the United States offer one of only three formats: country, adult
contemporary and news/talk. The next five most prevalent formats account for
another 30% of all commercial radio stations. Although niche music categories,
including classical, jazz, rap, gospel, oldies, soundtracks, new age and
children's programming, 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 others. Sirius Radio's wide choice
of formats is expected to appeal to the large number of currently underserved
radio listeners. Sirius Radio's ability to offer a number of channels devoted to
many of these genres will enable subscribers to listen to a wider range of music
within their preferred format than is available on conventional radio.
Commercial-Free Music Programming. Sirius Radio's 50 channels of music
programming will be entirely commercial-free. Our market research indicates that
a principal complaint of radio listeners concerning conventional radio is the
frequency of commercials, which in some cases can reach 18 minutes an hour, and
some industry analysts attribute a decline in listening to conventional radio to
this significant intrusion of commercials.
'Seamless' Signal Coverage. Sirius Radio will be broadcast throughout the
continental United States, enabling listeners to be almost always within its
broadcast range. We expect that our nearly seamless signal will appeal to
motorists who frequently outdrive the range of their preferred AM or FM radio
station, which typically fade after 30 to 40 miles. In addition, we expect that
our broadcasts will appeal to the 45 million underserved consumers who live in
areas that currently receive only a small number of FM stations.
We believe there will be significant consumer demand for Sirius Radio.
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. Market research conducted for us by The Yankee Group, an independent
market research organization, shows that radio listeners today are substantially
dissatisfied
3
with both AM and FM radio because of lack of variety in programming, frequent
commercial interruptions and loss of signal strength. Our service has been
designed to address these key disadvantages of conventional radio.
We are designing Sirius Radio primarily as a service for motorists. The
Federal Highway Administration estimates that there were approximately 200
million registered private motor vehicles in the United States at the end of
1999. According to Radio Advertising Bureau, more than 40% of all radio
listening is done in cars. In addition, according to Arbitron, in 1998
approximately 79% of total radio listening was to FM stations, which provide
primarily music programming, as compared with AM stations which devote a greater
proportion of their programming to talk and news. We believe the market for our
service will not be significantly affected by the widespread availability of
cassette players and CD players in vehicles. According to Arbitron, a radio
industry rating agency, in 1998 the average person (age 12 and over) listened to
the radio an average of 50 minutes a day while in the car, despite the fact that
87% of these cars have a compact disc or cassette player.
PROGRAMMING
We intend to program 50 channels of commercial-free music under our brand
'Sirius Radio,' and to offer up to 50 additional channels of other formats, such
as news, sports and talk programming. 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 conventional
radio, even in the most widely broadcast formats.
Our Music Channels. We intend to design and originate the 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. Sirius Radio will initially offer the following
range of music channels:
Symphonic NAC Jazz Country Hits
Chamber Music New Age Modern Country
Opera Soul Ballads Classic Country
Top of the Charts Contemporary R&B Folk Rock
50's Hits Classic Soul Hits Alternative Rock I
60's Hits R&B Oldies Alternative Rock II
70's Hits Rap/Hip Hop Classic Rock I
80's Hits Dance Classic Rock II
90's Hits Tropical Album Rock
Soft Rock Latin Jazz Hard Rock/Metal
Love Songs Boleros Blues
Singers & Songs Latin Contemporary Reggae
Beautiful Instrumentals Merengue World Beat
Broadway's Best Cumbia Gospel
Big Band/Swing Mexicana Contemporary Christian
Classic Jazz Tex Mex Children's Entertainment
Contemporary Jazz Rock en Espanol
Music programming will be selected from our music library. We are creating
an extensive music library consisting of a deep range of recorded music in each
genre. To date, we have acquired approximately one million music titles and
expect our music library to consist of approximately two million titles when we
commence commercial broadcasts. Our music library will be updated with new
recordings as they are released and, in some cases, we intend to acquire
recordings that are no longer commercially available.
We have recruited program managers from the recording, broadcasting and
entertainment industries to manage the development of daily programming for each
Sirius Radio music channel and intend to recruit additional program managers. To
be accessible to these industries, we have built our National Broadcast Studio
in Rockefeller Center in New York City.
4
We expect that well-known music experts and celebrity talent will have a
regular presence, and in some cases will perform, on our service. As local
businesess, conventional radio stations generally do not have the economies of
scale or large enough audiences to attract regular appearances by celebrity
hosts. We believe that, as a national service, Sirius Radio will have the
ability to support and attract regular appearances by celebrity hosts. We
believe these appearances will emphasize our brand and further differentiate us
from conventional radio. To date, we have alliances with the artists Grandmaster
Flash, MC Lyte, and Sting to appear on our service.
In connection with our music programming, we must negotiate and enter into
music programming royalty arrangements with performing rights societies such as
the American Society of Composers, Authors and Publishers, Broadcast Music, Inc.
and SESAC, Inc. These organizations collect royalties and distribute them to
songwriters and music publishers and negotiate fees with copyright users based
on a percentage of revenues. Radio broadcasters currently pay a combined total
of approximately 3-4% of their revenues to these performing rights societies. We
expect to negotiate or establish by arbitration royalty arrangements with these
organizations, but such royalty arrangements may be more costly than anticipated
or unavailable. Under the Digital Performance Right in Sound Recordings Act of
1995, we also must negotiate royalty arrangements with the owners of the sound
recordings. The Recording Industry Association of America negotiates licenses
and collect royalties on behalf of copyright owners for performance rights in
sound recordings. Cable audio services currently pay a royalty rate of 6.5% of
gross subscriber revenue for audio services broadcast over cable television
systems. This rate was set by the Librarian of Congress, which has statutory
authority to decide rates through arbitration, and this determination was
affirmed on May 21, 1999 by the United States Court of Appeals for the District
of Columbia. Although we believe we can distinguish Sirius Radio sufficiently
from cable audio services in order to negotiate a lower statutory rate, we may
not be able to do so, and we could be required to pay a higher rate. We expect
to commence the negotiations of these royalty arrangements prior to commencing
operations.
Our News, Sports and Entertainment Channels. 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 believe that
this array of non-music programming will increase consumer interest in our
service because much of this content is unavailable on conventional radio. 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 24 channels with content
providers, such as CNBC, NPR and the BBC.
MARKETING AND DISTRIBUTION
Our marketing strategy for Sirius Radio has three interrelated components:
(1) creating consumer awareness of Sirius Radio, (2) generating purchases of
consumer electronic devices capable of receiving our broadcasts, and
(3) generating subscriptions to Sirius Radio.
We believe that the introduction of Sirius Radio will have high news value,
which we expect will result in significant national and local publicity before
and during the initial launch of our service. In addition, we plan to engage in
extensive marketing, advertising and promotional activities to create consumer
awareness of Sirius Radio. This includes an ongoing major advertising campaign
funded by us which will utilize a full mix of media, including network and cable
television, radio, print, internet and billboards. We also expect this campaign
to be supported by receiver manufacturer and retailer cooperative advertising.
We intend to focus our initial efforts on a number of demographic groups
that we believe represent target markets for Sirius 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 Sirius Radio.
Commuters. Of the more than 100 million commuters, we have identified 34
million as highly addressable because of their extended commute times. To reach
these commuters, we plan to purchase
5
radio advertising spots on stations with frequent traffic reports, outdoor
billboard advertising on long commute roads and advertising on websites
targeting commuters.
Niche Music Listeners. Niche music categories accounted for approximately
33% of sales of recorded music in 1998, according to the Recording Industry
Association of America. To reach niche music listeners, we intend to 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 32 million
Spanish-speaking Americans, many of whom have limited access to Spanish language
radio, and this population group is growing rapidly. To reach this market, 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 channels containing sports programming.
We plan to attract these enthusiasts through the purchase of advertising on
national and regional cable television sports channels, in sports magazines and
on sports related websites.
Truck Drivers. According to U.S. government estimates, there are
approximately three million professional truck drivers in the United States, of
whom approximately 1.1 million are long-distance haulers. To address this
market, we intend to place sampling displays at truck stops and to advertise in
publications and on websites that cater to truck drivers. We also have an
agreement with Freightliner Corporation, a subsidiary of DaimlerChrysler
Corporation and the largest manufacturer of heavy trucks sold in the United
States, to install Sirius receivers in vehicles manufactured by Freightliner and
to distribute receivers through heavy truck dealers affiliated with
Freightliner.
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.
Consumers in Sparse Radio Zones. More than 45 million people aged 12 and
over live in areas with limited radio station coverage. 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 distribution channels
similiar to satellite television and to utilize catalog/direct marketing, the
internet, infinity group marketing, local newspaper advertising and direct
mailings to music enthusiasts in these areas.
Receiver Sales and Distribution. In 1999, radio manufacturers sold over 29
million car radios, including 17 million original equipment automobile radios
and 11 million aftermarket automobile radios, as well as 1.2 million aftermarket
automobile CD changers. Original equipment radios are installed in new vehicles;
aftermarket radios are installed in vehicles after purchase. We expect that
Ford, Chrysler, Mercedes, BMW, Jaguar, Mazda and Volvo will install radios
capable of receiving our broadcasts in new vehicles manufactured by them. In the
aftermarket, we intend to market radios capable of receiving our broadcasts and
our service through national electronics retailers, car audio dealers and mass
retailers.
ALLIANCES WITH AUTOMAKERS
Our objective is to have radios capable of receiving our broadcasts included
as standard equipment in all cars and trucks sold in the continental United
States. We only intend to bill our subscribers electronically by credit card or,
in the case of leased vehicles, by including our monthly subscription fee in the
cost of leasing the vehicle. Approximately one-third of all new cars sold in the
United States in 1999 were leased.
On June 11, 1999, we entered into an agreement with Ford Motor Company which
anticipates Ford manufacturing, marketing and selling vehicles, including cars
and trucks, that include receivers capable
6
of receiving our broadcasts. We expect that the first such vehicles will be
available in the first quarter of 2001. This exclusive agreement includes all
Ford brands, including Ford, Jaguar, Mazda and Volvo. As part of this agreement,
we agreed to share with Ford a portion of the revenues we will derive from new
Ford vehicles equipped to receive our broadcasts ('Ford Enabled Vehicles'). We
also agreed to reimburse Ford for certain hardware costs of Ford Enabled
Vehicles, and issued to Ford warrants to purchase 4,000,000 shares of our Common
Stock at an exercise price of $30 per share. These warrants are exercisable
based upon the number of Ford Enabled Vehicles that Ford manufactures, and are
fully exercisable after 4,000,000 Ford Enabled Vehicles are manufactured.
On January 28, 2000, we entered into an agreement with DaimlerChrysler
Corporation, Mercedes-Benz USA, Inc. and Freightliner Corporation (collectively,
'DaimlerChrysler') which anticipates DaimlerChrysler manufacturing, marketing
and selling vehicles that include receivers capable of receiving our broadcasts.
This agreement grants use exclusivity in all cars and light trucks manufactured
by DaimlerChrysler and provides us a preferred status in Freightliner and
Sterling heavy trucks. As part of this agreement, we agreed to share with
DaimlerChrysler a portion of the revenues we will derive from new
DaimlerChrysler vehicles equipped to receive our broadcasts ('DaimlerChrysler
Enabled Vehicles'). We also agreed to reimburse DaimlerChrysler for certain
hardware costs of DaimlerChrysler Enabled Vehicles and issued to DaimlerChrysler
Corporation warrants to purchase 4,000,000 shares of our Common Stock at an
exercise price of $60 per share. These warrants are exercisable based upon the
number of DaimlerChrysler Enabled Vehicles that DaimlerChrysler manufactures,
and are fully exercisable after 4,000,000 DaimlerChrysler Enabled Vehicles are
manufactured. Concurrently, DaimlerChrysler Corporation purchased 2,290,322
shares of our Common Stock for an aggregate purchase price of approximately $100
million.
On January 4, 2000, we entered into a letter agreement with BMW of North
America, Inc. which anticipates BMW marketing and selling vehicles that include
receivers capable of receiving our broadcasts. This letter agreement sets forth
the principal terms of a definitive agreement under which BMW will agree to
exclusively install Sirius Radio receivers in BMW vehicles, including cars and
trucks. As part of this definitive agreement, we will share with BMW a portion
of the revenues we will derive from BMW vehicles equipped to receive our
broadcasts ('BMW Enabled Vehicles'). In addition, we expect to reimburse BMW for
certain hardware costs of BMW Enabled Vehicles. We expect to complete a
definitive agreement with BMW in the second quarter of 2000.
In addition to our alliances with Ford, DaimlerChrysler and BMW, we are in
discussions with several other automobile manufacturers to include Sirius Radio
reception capability in new cars and trucks. Under our Joint Development
Agreement with XM Satellite Radio Inc., any new agreements with automakers will
be on a non-exclusive basis.
THE SIRIUS RADIO DELIVERY SYSTEM
The Sirius Radio delivery system is designed to provide nearly seamless
signal coverage throughout the continental United States. Listeners will almost
always be within the broadcast range of Sirius Radio, unlike current FM radio
broadcasts, which have an average range of only approximately 30 miles. Our
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 Sirius 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. We
will use 12.5 MHz of bandwidth in the 2320.0-2332.5 MHz frequency allocation to
transmit our signals from our satellites to our subscribers. Uplink
transmissions (from the ground to our satellites) will use 12.5 MHz of bandwidth
in the 7060-7072.5 MHz band.
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. At any given time, two of our three satellites will operate north of
the equator while the third satellite will not broadcast as it traverses the
7
portion of the orbit south of the equator. This orbital configuration will yield
very high signal elevation angles and thereby mitigate service interruptions
that can result from signal blockage.
The Sirius Radio delivery system will consist of three principal components:
(1) satellites and terrestrial repeaters; (2) receivers; and (3) our National
Broadcast Studio.
SATELLITES AND TERRESTRIAL REPEATERS
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 350 years of
in-orbit operation time. Each satellite is 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.
Our satellites are designed to act as a 'bent pipe,' receiving, amplifying
and relaying the broadcast transmissions directly to the ground, and do 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.
Satellite Construction and Launch Services. We have contracted with Space
Systems/Loral to construct, launch and deliver three satellites, in-orbit and
checked-out, and to construct for us a fourth satellite for use as a ground
spare. We have also contracted with Space Systems/Loral to procure certain
long-lead time parts for a fifth satellite.
Our four satellites are currently being tested or are under construction.
Our first satellite is undergoing its final tests and we expect to ship this
satellite to the launch site in May 2000. Our second satellite has completed
thermal vacuum testing and is being readied for launch vibration testing; we
expect that this satellite will be ready to ship to the launch site in
July 2000. All of the subsystems for our third and fourth satellites have been
manufactured and are undergoing initial performance testing.
Each of our first three satellites is scheduled to be launched on a Proton
launch vehicle. Loral has scheduled the launch of our first satellite between
June 21 and July 20, 2000, the launch of our second satellite between August 30
and September 29, 2000, and the launch of our third satellite between
September 30 and October 29, 2000, and expects to deliver our fourth satellite
to a designated ground storage site by October 2000. Loral expects to deliver
all three of our satellites in-orbit and checked-out by November 2000.
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.
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 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.
There is no assurance that the launches of our satellites will be successful.
Although past experience is not necessarily indicative of future performance,
the Proton family of Russian-built launch vehicles has a 90% launch success rate
based on its last 50 launches (including two failed launches in 1999).
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 relaunch if there is
a failure of the first or third Proton launch vehicle that is used to launch one
of our satellites. In that event, we would attempt to launch the spare satellite
that we are having constructed.
8
Loral also 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 December 1,
2000 or fails to deliver the fourth satellite to its storage site by
December 1, 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.
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 46 urban areas, we plan
to install terrestrial repeating transmitters to rebroadcast our satellite
signals, increasing the availability of service. We estimate that these 46 urban
areas will require a total of approximately 105 terrestrial repeater sites.
During 1998, we completed the construction and testing of our terrestrial
repeater network in San Francisco on an experimental basis. During 1999, we
entered into agreements with several third party contractors to deploy our
terrestrial repeater network. These include agreements with:
Black & Veatch Corporation, a construction services firm based in Kansas
City, Missouri, which is providing radio frequency design, site
acquisition, site design and site construction services. To date, Black &
Veatch has completed the radio frequency design work for each of the 46
urban areas where we intend to erect terrestrial repeaters and is in the
process of identifying, leasing and constructing our repeater sites.
Globecomm Systems, Inc., a systems integration and satellite operations
company based in Hauppauge, New York, which is designing, developing and
manufacturing custom digital audio broadcast equipment for our terrestrial
repeater network. The design of this digital audio broadcast equipment has
been completed by Globecomm and the equipment is currently being
manufactured.
Loral CyberStar, Inc., a leading satellite service provider, which will
transmit our broadcasts via one of its satellites from our National
Broadcast Studio to individual terrestrial repeater sites.
We expect to substantially complete the deployment of our terrestrial
repeater network during the fourth quarter of 2000.
Risk Management and Insurance. We have procured insurance covering launch
risks and in-orbit failure during the first two years of operation for each of
our satellites. This insurance covers losses arising from partial and total
failure of the satellites, will attach upon intentional ignition of the launch
vehicle and will remain in force for a period of two years from the date of
launch.
Our agreement with Loral includes a free relaunch if there is a failure of
the Proton launch vehicle used to launch our first or third satellite. Our
insurance provides coverage against other contingencies, including a failure
during launch caused by factors other than the launch vehicle, failure of launch
vehicles other than the first or third Proton launch vehicle and incurred costs
other than the free relaunch required to launch a replacement satellite.
Before 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 begin to generate revenues,
we will evaluate the need for business interruption insurance. 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.
If we are required to launch our spare satellite due to a launch failure,
our operational timetable would likely be delayed. The launch or in-orbit
failure of two satellites would require us to arrange for an additional
satellite to be built and would likely delay the commencement or continuation of
our operations by at least 16 months.
Satellites are designed to minimize the adverse effects of transmission
component failure through the incorporation of redundant components that
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.
9
RECEIVERS
Consumers purchasing new vehicles will be able to receive Sirius Radio
through a new generation of radios installed by Ford, DaimlerChrysler, BMW or
other automotive manufacturers. In addition, consumers will be able to receive
Sirius Radio by installing specially designed radio receivers in their existing
vehicles. In 1999, radio manufacturers sold approximately 11 million aftermarket
automobile radios. In the automotive aftermarket, we expect that Sirius Radio
subscribers will have the choice of two different receiving devices for their
cars -- an FM modulated receiver or a three-band receiver. These devices, along
with Sirius Radio satellite antennas, are expected to be manufactured and
distributed by a number of consumer electronics manufacturers. To date, we have
entered into alliances with Alpine Electronics Inc., Audiovox Corporation,
Clarion Co., Ltd., Delphi Delco Electronics Systems, Kenwood Corporation,
Matsushita Communication Industrial Corporation of USA, Recoton Corporation,
Sanyo Electric Co. Ltd. and Visteon Automotive Systems, an enterprise of Ford,
to design and develop Sirius Radio receivers.
Many Sirius 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. Each of our receivers will
also incorporate a memory buffer chip. This memory buffer chip is designed to
store signals and to mitigate service interruptions which can result from signal
blockage and fading. Where the service from our satellites will be briefly
interrupted by nearby tall buildings, elevations in topography, tree clusters,
highway overpasses and similar obstructions, we expect that subscribers will
continue to receive a signal from their receiver's memory buffer.
All of the receivers under development will employ system architecture
designed by Lucent Technologies Inc., which was completed and successfully
delivered in March 1999. These receivers will also employ a digital signal
processor and conditional access technology developed by Lucent. Lucent is also
developing a set of integrated circuits for receivers capable of receiving our
broadcasts and we have agreed to pay the cost of this development.
Alpine, Audiovox, Clarion, Delphi Delco, Kenwood, Panasonic, Recoton, Sanyo,
Visteon and various contract electronics manufacturers are currently developing
receivers for us. We expect that receivers will be available at the end of 2000
in limited quantities, and will be manufactured and distributed by one or more
of these parties.
FM Modulated Receivers. The Sirius Radio FM modulated receiver 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 in the vehicle's
trunk. Each FM modulated receiver will interface with a vehicle's existing radio
through the FM antenna input. The Sirius 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 as low as $299 when produced in commercial quantities. We
anticipate that FM modulated receivers will be sold through electronics
superstores as well as independent autosound retailers and will be available to
be purchased by consumers before three-band receivers are available.
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 are also controlled through
remote controls. Approximately 700,000 FM modulated compact disc changers were
sold in the United States in 1998.
Three-Band Receivers. Three-band receivers will be nearly identical in
appearance to existing aftermarket car stereos and will allow the user to listen
to AM, FM or Sirius 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. In the first generation, the receiver will include a
head-unit, which will accept the output of a Sirius Radio receiver device
mounted in the vehicle's trunk. We expect the retail price of these receivers,
when produced in commercial quantities, will be approximately $100 more than
similar receivers not capable of receiving our broadcasts.
Unified Standard for Satellite Radios. On February 16, 2000, we signed an
agreement with XM Satellite Radio Inc., the other holder of an FCC license to
provide a satellite-based digital audio radio
10
service, to develop a unified standard for satellite radios to enable consumers
to purchase one radio capable of receiving both our and XM's services. We expect
the unified standard to detail the technology to be employed by manufacturers of
such dual-mode receivers. The technology relating to this unified standard will
be jointly developed, funded and owned by the two companies. In addition, we
will work together with XM to promote adoption of the new standard by creating a
service mark for satellite radio. This unified standard is also intended to meet
FCC rules that require interoperability of both licensed satellite radio
systems.
As part of the agreement, we and XM have licensed our intellectual property
to one another; the value of this license will be considered part of each
company's contribution toward the joint development. In addition, each company
has agreed to license its non-core technology, including non-essential features
of its system, to the other at commercially reasonable rates. As part of this
agreement, our previous patent litigation against XM has been resolved.
We anticipate that it will take several years to develop receivers capable
of receiving both services. At the commercial launch of our service, we
anticipate that consumers will be able to purchase receivers capable of
receiving our service only.
Both companies expect to work with their automobile and radio manufacturing
partners to integrate the new unified standard and have agreed that future
agreements with automakers and radio manufacturers will specify the unified
satellite radio standard. Furthermore, we and XM have agreed that future
agreements with retail and automotive distribution partners and content
providers will be on a non-exclusive basis. We and XM have also agreed to
negotiate in good faith an arrangement to provide service to each other's
subscribers in the event of a catastrophic failure of the XM system or our
system.
NATIONAL BROADCAST STUDIO
We will originate our broadcasts from our National Broadcast Studio in
Rockefeller Center in New York City. The National Broadcast Studio houses our
corporate headquarters, our music library, facilities for programming
origination, programming personnel and program hosts, and facilities to transmit
programming to our orbiting satellites and to perform the tracking, telemetry
and control of the satellites. Construction of our National Broadcast Studio was
completed in November 1999.
The studios and transmission facilities at our National Broadcast Studio are
100% digital, resulting in no cumulative distortion to degrade the sound of our
music and entertainment product. The National Broadcast Studio contains twenty
recording studios and two live performance studios, and has been designed to
support the live transmission of video and audio performances in any medium.
Broadcasting will be originated at the National Broadcast Studio and
transmitted to our satellites for broadcast to Sirius Radio subscribers. Our
broadcast transmissions will be uplinked to our satellites from our completed
earth station in Vernon Valley, New Jersey. The satellites will receive and
convert the signal for broadcast to the continental United States at a power
level sufficient to enable 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 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, a leading provider of satellite communications
services in the United States and a subsidiary of Loral Space and Communications
Ltd., has designed, developed, integrated, installed and tested our tracking,
telemetry and command facilities. Loral Skynet will provide back-up tracking,
telemetry and command capabilities from its facilities in Hawley, Pennsylvania
and Three Peaks, California. As part of our tracking, telemetry and command
facilities, Loral Skynet has constructed two earth stations for us in Quito,
Ecuador, and Utive, Panama. These earth stations, which will be operated by
Loral Skynet, will permit us to communicate continuously with our satellites.
11
SUBSCRIPTION AND BILLING
We only intend to bill our subscribers electronically by credit card or, in
the case of leased vehicles, by including our monthly subscription fee in the
cost of leasing the vehicle. Approximately one-third of all new cars sold in the
United States in 1999 were leased.
We have selected Stream International Inc., a call center operator, to
provide our customer care operations for our subscribers. Employees of Stream
International will have the ability to access our billing system for various
functions including account activation, billing inquiries, program service
changes, address changes and other general account updates. When appropriate,
representatives at a call center that will be operated for us by Stream
International will have the ability to escalate technical concerns to either a
Sirius Radio help desk or to the appropriate equipment manufacturer. We intend
to automate customer care functions where appropriate using interactive voice
response technology and our website. We plan to pay Stream International an
hourly rate for each representative assigned to support Sirius Radio.
We are deploying an integrated customer relationship management and billing
solution to meet the needs of our business, including all customer service,
subscriber management and billing operations. We have contracted with Infintium
Technologies Corp., a leading provider of information technology services, to
design and deploy this integrated customer relationship management and billing
solution. In creating this product, Infintium plans to integrate a customer
relationship management application created by The Vantive Corporation, which
was recently acquired by PeopleSoft, and a billing system application created by
Portal Software Inc. The customer relationship management solution being
developed by Infintium will be designed to manage the rapid growth of our
subscriber base. Our customer relationship management program will enable us to
interface electronically and exchange information with automobile manufacturers,
automobile dealers and consumer electronic retailers, and will facilitate and
encourage subscriber interaction through the internet and by other electronic
means. Infintium will manage our customer relationship management operations
from its Richmond, Virginia data center, and will be paid for billing services
on a per subscriber basis.
To reduce fraud, each Sirius 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 Sirius Radio capability. This feature will help us protect
against piracy of our broadcasts. Through this feature, we will directly (via
satellite) deactivate receivers of subscribers who are delinquent in paying the
monthly subscription fee.
DEMONSTRATIONS OF THE SIRIUS 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 to integrate a 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
terrestrial repeater system in San Francisco. Before testing with orbiting
satellites, antennas and receivers suitable for commercial production, we cannot
assure you that the Sirius Radio system will function as intended.
12
COMPETITION
We expect to face competition from two principal sources:
conventional AM/FM radio broadcasting, including, when available,
terrestrial digital radio broadcasting; and
XM, the other holder of an FCC license to provide a satellite-based digital
audio radio service.
During 1999 XM entered into an exclusive agreement with General Motors
Corporation, which has a significant equity interest in XM's parent company,
under which GM will install devices capable of receiving XM's signal. In
addition, XM has obtained substantial financing from GM, Hughes Electronics
Corporation (a GM subsidiary) and several other investors.
The AM/FM radio broadcasting industry is well-established and 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. Some of our
radio broadcasting competitors have greater financial resources than we do.
Unlike Sirius 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 non-commercial public radio stations, 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
will not offer. Sirius Radio will compete with conventional radio stations on
the basis of its targeted programming formats, nearly seamless signal coverage,
freedom from advertising on its music channels and digital quality sound,
features which are largely unavailable on conventional radio.
Currently, radio stations broadcast by means of analog signals, as opposed
to digital transmission. We believe, however, that within several years
conventional 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 Sirius Radio over
FM radio, we do not believe it would affect broadcasters' ability to address the
other advantages of Sirius 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 our broadcasts.
Although some existing satellite operators currently provide music
programming to customers at fixed locations, these operators are incapable of
providing Sirius Radio-type service to vehicles as a result of some or all of
the following reasons:
these operators do not broadcast on radio frequencies suitable for
reception in a mobile environment;
Sirius Radio-type service requires fully dedicated satellites;
Sirius Radio-type service requires a custom satellite system design; and
Sirius 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. 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
13
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. 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,
Sirius 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. 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 Sirius Radio.
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 alleged
infringement by XM of our U.S. Patent Nos. 5,319,673, 5,485,485 and 5,592,471.
On February 16, 2000, we and XM entered into a Joint Development Agreement to
design and develop receivers that are capable of receiving our and XM's
broadcasts and we agreed to withdraw this lawsuit. We and XM have agreed to
cross-license our respective intellectual property. Only if this Joint
Development Agreement is terminated before the value of the licenses has been
determined due to XM's failure to perform a material covenant or obligation
under the Joint Development Agreement could we refile this suit.
GOVERNMENT REGULATION
As an operator of a privately owned satellite system, we are regulated by
the FCC under the Communications Act of 1934 (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 license application were entitled to petition for
reconsideration the International Bureau or to 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
14
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 of such date; 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. We satisfied this first milestone and expect to
satisfy the second milestone by launching our first satellite, which is expected
to occur between June 21 and July 20, 2000. 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.
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 FCC
Licensing Rules, the United States government must still coordinate the United
States' use of this spectrum with the Mexican government. The United States
government continues to meet and discuss this coordination process with Mexico.
We have been advised by the FCC that the current discussions with Mexico in this
coordination process involve a segmentation of the S-band frequency to permit
Mexico to launch and operate its own satellite digital radio system. Any plan to
segment the S-band to permit Mexico to launch and operate its own satellite
digital radio system may require the consent of certain FCC licensees in
spectrum adjoining that awarded to XM and ourselves. We cannot assure you that
we will be able to coordinate the use of this spectrum with Mexico or will be
able to do so in a timely manner.
In 1998, we decided to increase the number of satellites in our system from
two to three and change our orbits from geostationary to inclined, elliptical
geosynchronous, requiring modification of our FCC license. We filed an
application with the FCC for this modification on December 11, 1998. 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 on
our application with the FCC. These comments requested the FCC to condition
approval of our modification on receiver interoperability and request us to
insure that our service will not cause harmful interference with wireless
services in Central and South America. We cannot predict the time it will take
the FCC to act on our application or any of those comments, or whether
additional submissions or waiver requests will be necessary, and we cannot be
sure that the modification we have requested will be granted. 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. In the interim, on December 20, 1999, we received special temporary
authority from the FCC to launch and test our satellites. This special temporary
authority will expire on April 18, 2000 and does not authorize us to begin
providing our service using our three satellites. On March 17, 2000 we submitted
a letter to the FCC requesting approval of the modification to our license or,
alternatively, an extension of our special temporary authority. We expect the
FCC to issue the requested modification to our license upon completion of the
coordination process with Mexico.
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
15
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.
To operate our satellites, we also will have to obtain a license from the
FCC to operate our uplink facility. Normally, this type of approval is sought
after issuance of an FCC satellite license. We applied for a license to operate
our uplink facility on June 25, 1999. The deadline for the public to file
comments on our application was October 16, 1999, and no comments were filed.
The FCC has indicated that it intends to consider our application to operate our
uplink facility in connection with the approval of our pending application to
modify our satellite license. Although we cannot assure you that this license
will be granted, we do not expect difficulties in obtaining this license 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.
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 Sirius 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 and is still
pending. 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. On December 17, 1999, XM filed supplemental comments in
this rulemaking and we filed supplemental comments in this rulemaking on January
18, 2000. On February 22, 2000, the National Association of Broadcasters, the
Wireless Communications Association and BellSouth Corporation filed comments on
these filing. These comments seek to protect adjoining wireless service and
ensure that we do not originate local programming through our terrestrial
repeater network. On March 8, 2000, we filed a reply to these comments
reaffirming that we do not intend to originate local programming through our
terrestrial repeater network and denying that our repeater network will
interfere with adjoining wireless services. Metricom, Inc., MCI WorldCom, Inc.
and the Aerospace & Flight Test Radio Coordinating Council also filed reply
comments on March 8, 2000 seeking to protect adjoining wireless services,
including flight test receivers. On March 22, 2000, we filed a supplemental
reply to these reply comments reaffirming that our terrestrial repeater network
will not interfere with wireless services in nearby spectrum. 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.
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. On
February 16, 2000, we signed an agreement with XM to jointly develop a unified
standard for satellite radios to facilitate the ability of consumers to purchase
one radio capable of receiving both our and XM's services. We believe that this
agreement, and our efforts with XM to develop this unified standard for
satellite radios, will satisfy the interoperability condition contained in our
FCC license.
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 Sirius
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 and filed comments expressing this view on July 8, 1998 and reply
comments on August 24, 1998. 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
16
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. 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 service
proposed by us could adversely affect our ability to retain our FCC license and
obtain or retain other approvals required to provide Sirius 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.
THE SIRIUS TRADEMARK
We have an application pending in the United States Patent and Trademark
Office for the registration of the trademark 'Sirius' in connection with our
service. We intend to maintain our trademark and the anticipated registration.
We are not aware of any material claims of infringement or other challenges to
our right to use the 'Sirius' trademark in the United States in connection with
our service.
PERSONNEL
As of March 30, 2000, we had 99 employees. By commencement of operations, we
expect to have approximately 250 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
excellent.
LEGAL PROCEEDINGS
We are not a party to any material litigation.
RISK FACTORS
In addition to the other information in this Annual Report on Form 10-K, the
following factors should be considered carefully in evaluating us and our
business. This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of the federal securities laws. Actual results and
the timing of certain events could differ materially from those projected in the
forward looking statements due to a number of factors, including those set forth
below and elsewhere herein. See 'Special Note Regarding Forward Looking
Statements.'
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 and failure to achieve a proper orbit
or operate as planned. Our agreement with Loral 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 launch
success rate of 90% based on its last 50 launches. Past experience, however, is
not necessarily indicative of future performance.
On July 5, 1999 and October 27, 1999, the second stage of Proton rockets
launched from the Baikonur Cosmodrome in Kazakhstan malfunctioned during flight.
As a result of these failures, Proton rocket launches were suspended and the
Russian government appointed official investigatory commissions. On January 20,
2000, a commission announced that the October 27th failure was caused by a fire
which started in one of the launch vehicle's engines. Proton launches were
resumed on February 12, 2000, with the successful launch of a Garuda
communications satellite. We expect that
17
there will be approximately three additional Proton launches prior to the launch
of our first satellite, which is scheduled to occur between June 21 and July 20,
2000.
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 and for
some of the long-lead time parts for a fifth satellite. We also have procured
insurance covering a replacement launch to the extent required to cover risks
Loral does not assume.
WE ARE DEPENDENT UPON LORAL TO BUILD AND LAUNCH OUR SATELLITES
Our business depends upon Loral successfully constructing and launching the
satellites to transmit Sirius 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, 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 or the third Proton launch vehicle used to launch our
satellites fails, Loral will provide us with a free replacement launch. The
timing of these replacement launches cannot be predicted.
RECEIVERS FOR OUR SERVICE ARE NOT YET AVAILABLE AND WE ARE DEPENDENT UPON OTHERS
TO DESIGN, DEVELOP, MANUFACTURE AND DISTRIBUTE RECEIVERS
To receive our service, a subscriber will need to purchase a device capable
of receiving our broadcasts. Receivers capable of receiving our broadcasts are
being developed by several parties, including Lucent; however, receivers have
not yet been tested or completed. We expect that receivers will be available at
the end of 2000 in limited quantities. Initial receivers will be somewhat more
expensive than subsequent receivers we introduce because they will not utilize
the complete set of integrated circuits being developed by Lucent.
Lucent is designing and developing a set of integrated circuits for
receivers capable of receiving our broadcasts and we have agreed to pay the cost
of this development. The cost of this development has increased since we
contracted with Lucent. We cannot assure you that:
the cost of the chip set development, which we estimate will be
approximately $35 million, will not increase;
Lucent will deliver final integrated circuits in a timely manner and in
sufficient quantities to allow consumer electronics manufacturers to
produce commercial quantities of receivers capable of receiving our
broadcasts in accordance with our business plan; or
18
Lucent will price the chip sets low enough to encourage and support the
widespread introduction of receivers capable of receiving our broadcasts.
No one currently manufactures devices capable of receiving our broadcasts or
suitable antennas. We may not be able to obtain a commitment on the part of any
manufacturer to produce, market and sell devices capable of receiving our
broadcasts and suitable antennas in a timely manner and at a price that would
permit the widespread introduction of Sirius Radio. In addition, any
manufacturers of devices capable of receiving our broadcasts may not produce
them in sufficient quantities to meet consumer demand. Our business would be
materially adversely affected if we cannot complete the timely development of
these products for commercial sale at an affordable price with sufficient
distribution.
WE ARE NOT SURE THERE WILL BE A MARKET FOR SIRIUS RADIO
Currently no one offers a commercial satellite radio service such as Sirius
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 Sirius Radio to enable us to achieve
significant revenues or cash flow or profitable operations. Sirius Radio will
achieve or fail to gain market acceptance depending upon many 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 Sirius Radio;
our marketing and pricing strategies and those of XM, our direct
competitor;
the development of alternative technologies or services; and
general economic conditions.
OUR BUSINESS IS STILL IN THE DEVELOPMENT STAGE
Historically, we have generated only losses. We are a development stage
company. The service we propose to offer, Sirius Radio, is still in 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 December 31, 1999, are as follows:
no revenues;
net losses of approximately $134 million (including a net loss of $63
million during the year ended December 31, 1999); and
net losses applicable to common stock of approximately $261 million, which
includes a deemed dividend on our former 5% Delayed Convertible Preferred
Stock of $52 million.
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 Sirius 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 2002, at the earliest. Our ability to generate revenues,
generate positive cash flow and achieve profitability will depend upon a number
of factors, including:
the timely receipt of all necessary regulatory authorizations;
the successful and timely construction and deployment of our satellite
system and terrestrial repeater network;
the development and manufacture by one or more consumer electronics
manufacturers of devices capable of receiving Sirius Radio; and
the successful marketing and consumer acceptance of Sirius Radio.
19
We cannot assure you that we will accomplish any of the above, that Sirius 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 OPERATE OUR SERVICE
We need more money to continue implementing our business plan. We believe we
can fund our planned operations, including the completion of our satellite and
terrestrial system, into the third quarter of 2001 from our working capital at
December 31, 1999. We estimate that we will need an additional $120 million to
fund our business through the first full year of operations and additional funds
until our revenues grow substantially. We will require more money than estimated
if there are delays, cost overruns, launch failures or other adverse
developments.
The funding required to develop a unified satellite radio standard could be
significant. We cannot predict at this time the amount of the license fees or
contribution that will be payable by XM or us under our joint development
agreement or the size of the credits to XM and us from the use of our or their
technology. This agreement may require us to invest significant additional
capital. Under this agreement, each party is obligated to fund one half of the
development costs of the technologies used to develop a unified standard for
satellite radios. Each party will be entitled to license fees or a credit
towards its one half of the costs based upon the validity, value, use,
importance and available alternatives of the technology it contributes. The
amounts of these fees or credits will be determined over time by agreement of
the parties or by arbitration.
Initially we may be required to arrange for the production of receivers. We
are currently discussing with several electronics manufacturers agreements to
produce receivers capable of receiving our broadcasts; however, no agreement has
yet been executed. As part of any such agreement, we may have to bear some costs
associated with receivers, the cost of which could be material.
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 indentures
governing our 15% senior secured discount notes due 2007 and our 14 1/2% senior
secured notes due 2009 limit our ability to incur additional indebtedness. In
addition, we expect any future senior indebtedness will contain similar limits
on our ability to incur additional indebtedness.
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 additional financing we need by adversely affecting our
expected results of operations and increasing our cost of capital. 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 the testing or launch of our satellites;
delay in commercial availability of devices capable of receiving Sirius
Radio; and
failure of our vendors to perform as anticipated.
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 breakeven from
operations. Additional financing may not be available on favorable terms or at
all during periods of delay.
20
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 conventional radio stations, which, unlike Sirius
Radio:
do not charge subscription fees;
do not require users to purchase a separate receiver and antenna; and
often offer local information programming such as local news and traffic
reports.
In addition to direct competition from XM, we face the possibility of
additional satellite broadcast radio competition:
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.
OUR SYSTEM RELIES ON UNPROVEN APPLICATIONS OF TECHNOLOGY
Our satellite system applies technology in new and unproven ways. Sirius
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
Sirius Radio system will work as planned.
Some obstructions will adversely affect Sirius Radio reception. High
concentrations of tall buildings, 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
Sirius Radio in 46 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 Sirius 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 Sirius 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.
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 Sirius 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.
21
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. 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. 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 to perform to specifications after
launch;
damages from business interruption, loss of business and any expenditures
arising from satellite failures or launch delays; and
losses for which there are deductibles, exclusions and conditions.
WE ARE SUBJECT TO CONTINUING AND DETAILED REGULATION BY THE FCC
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 on our
application with the FCC. These comments requested the FCC to condition approval
of our modification on receiver interoperability and request us to insure that
our service will not cause harmful interference with wireless services in
Central and South America. We cannot predict the time it will take the FCC to
act on our application or any of these comments, or whether additional
submissions or waiver requests will be necessary, and we cannot be sure that the
modification we have requested will be granted.
In the interim, on December 20, 1999, we received special temporary
authority from the FCC to launch and test our satellites. This special temporary
authority will expire on April 18, 2000 and does not authorize us to begin
providing our service using our three satellites. Although we have applied for
an extension of this authority, we cannot predict whether the FCC will reissue
this special temporary authority prior to April 18, 2000.
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. This coordination process may require the
consent of certain FCC licensees in spectrum adjoining that assigned to
ourselves and XM. 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.
Our FCC license is being challenged. 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 that 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 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.
22
When the term of our FCC license for each satellite expires, we must apply for a
renewal of the relevant license. If the FCC does not renew our FCC license, we
would be forced to cease broadcasting Sirius 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
Sirius Radio in 46 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. This rulemaking is still pending. Both we and XM filed
supplemental comments in this rulemaking. On February 22, 2000, the National
Association of Broadcasters, the Wireless Communications Association and
BellSouth Corporation filed comments seeking to protect adjoining wireless
service and to ensure that we do not originate local programming through our
terrestrial repeater network. On March 8, 2000, we filed a reply to these
comments reaffirming that we do not intend to originate local programming
through our terrestrial repeater network and denying that our repeater network
will interfere will adjoining wireless services. Metricom, Inc., MCI WorldCom,
Inc. and the Aerospace & Flight Test Radio Coordinating Council also filed reply
comments on March 8, 2000 seeking to protect adjoining wireless services,
including flight test receivers. On March 22, 2000, we filed a supplemental
reply to these reply comments reaffirming that our terrestrial repeater network
will not interfere with wireless services in nearby spectrum. 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.
New devices may interfere with our 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 Sirius 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 Sirius
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 Sirius Radio. In addition,
the manner in which Sirius Radio would be offered or regulated could be affected
by these changes.
We may be adversely affected by foreign ownership restrictions. The
Communications Act 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.
OUR TECHNOLOGY MAY BECOME OBSOLETE
We will depend on technologies being developed by third parties to implement
key aspects of our 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.
23
WE MAY NOT BE ABLE TO 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 currently employ sufficient staff to program our
broadcast service, or handle all of our sales and marketing efforts. Although we
have hired experienced executives in these areas, we must hire additional
employees before we begin commercial operations of our service. This growth may
strain 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.
CONSUMERS MAY STEAL OUR SERVICE
Consumers may steal the Sirius 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 Sirius Radio signal. Widespread signal theft could 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.
ITEM 2. PROPERTIES
On March 31, 1998, we signed a lease for the 36th and 37th floors and
certain portions of the roof and basement at 1221 Avenue of the Americas, New
York, New York, to house our headquarters and National Broadcast Studio. We will
use portions of the roof to install and maintain satellite transmission
equipment and will use a portion of the 8th floor setback to install an
emergency electric power generator. The term of the lease is 15 years and 10
months, with an option to renew for an additional five years at fair market
value. We also have a right of first refusal, from and after October 8, 2001, to
lease any full floor that becomes available on floors 27 through 37 of the
building at fair market value. The initial annual rental is approximately $4.3
million, with specified increases and escalations based on operating expenses.
On March 22, 2000, we signed a lease for the 32nd floor at 1221 Avenue of
the Americas to house our staff. The term of the lease for the 32nd floor
commences on August 1, 2000 and expires on December 31, 2002. Upon expiration of
the lease for the 32nd floor, the lease will automatically extend to cover the
34th floor of the same building and will expire on the date our lease for the
36th and 37th floor terminates. The initial annual rental for this additional
floor is approximately $2.7 million, with specified increases and escalations
based on operating expenses.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered
by this Annual Report on Form 10-K to a vote of security holders, through the
solicitation of proxies or otherwise.
24
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock began trading on the Nasdaq SmallCap Market on September
13, 1994. From October 24, 1997 to January 11, 2000, our Common Stock was traded
on the Nasdaq National Market under the symbol 'CDRD'. On January 12, 2000, our
Common Stock began trading on the Nasdaq National Market under the symbol
'SIRI'.
The following table sets forth the high and low closing bid price for our
Common Stock, as reported by Nasdaq, for the periods indicated below:
HIGH LOW
---- ---
Year Ended December 31, 1999
First Quarter........................................... 38 5/8 20 1/2
Second Quarter.......................................... 32 19 1/2
Third Quarter........................................... 38 1/2 23 1/4
Fourth Quarter.......................................... 48 1/2 23 1/8
Year Ended December 31, 1998
First Quarter........................................... 23 1/2 12 1/8
Second Quarter.......................................... 41 1/2 24 1/8
Third Quarter........................................... 36 7/8 15 1/4
Fourth Quarter.......................................... 38 1/2 14 9/16
On March 23, 2000, the closing bid price of our Common Stock on Nasdaq was
$54 3/4 per share. On March 23, 2000, there were approximately 278 record
holders of our Common Stock. We have never paid cash dividends on our capital
stock. We currently intend to retain earnings, if any, for use in our business
and do not anticipate paying any cash dividends in the foreseeable future. The
agreements governing our outstanding debt and the instruments governing our
outstanding preferred stock contain provisions that limit our ability to pay
dividends on our Common Stock. See Item 7, 'Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources.'
Recent Sales of Unregistered Securities. On January 31, 2000, we sold
2,000,000 shares of our 9.2% Series D Junior Cumulative Convertible Preferred
Stock to certain affiliates of The Blackstone Group, L.P. for an aggregate
purchase price of $200 million. In connection with this sale, we paid an
aggregate of $7 million in fees to an investment banking firm. Each share of our
9.2% Series D Junior Cumulative Convertible Preferred Stock is convertible into
shares of Common Stock at a price of $34 per share. The proceeds from this sale
of our 9.2% Series D Junior Cumulative Convertible Preferred Stock will be used
for general corporate purposes.
On February 1, 2000, we sold 2,290,322 shares of our Common Stock to
DaimlerChrysler Corporation for an aggregate purchase price of approximately
$100 million. We did not pay any amounts to investment banking firms in
connection with this sale. The proceeds from this sale of our Common Stock will
be used for general corporate purposes.
These sales were exempt from registration under the Securities Act of 1933,
as amended (the 'Securities Act'), by virtue of Section 4(2) thereof. We
determined that The Blackstone Group, L.P. and its affiliates and
DaimlerChrysler Corporation had such knowledge and experience in financial and
business matters that they were capable of evaluating the merits and risks of
purchasing shares of our 9.2% Series D Junior Cumulative Convertible Preferred
Stock and our Common Stock, respectively. We did not sell the shares of 9.2%
Series D Junior Cumulative Convertible Preferred Stock or Common Stock by any
form of general solicitation or general advertising, and we determined that each
of The Blackstone Group, L.P. and their affiliates and DaimlerChrysler
Corporation were acquiring these shares for their own accounts and with no
intention of distributing or reselling them. In addition, prior to these sales,
we provided each of The Blackstone Group, L.P. and their affiliates and
DaimlerChrysler Corporation with reports we filed with the Securities and
Exchange Commission, and other information, as contemplated by Rule 502 under
the Securities Act, and we afforded each of them an opportunity to
25
ask questions concerning the information provided to them and to obtain any
other information concerning us.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Our selected consolidated financial data set forth below with respect to the
statements of operations for the years ended December 31, 1997, 1998 and 1999
and with respect to the balance sheets at December 31, 1998 and 1999 are derived
from our consolidated financial statements, audited by Arthur Andersen LLP,
independent public accountants, included in Item 8 of this report. Our selected
consolidated financial data with respect to the balance sheets at December 31,
1995, 1996 and 1997 and with respect to the statement of operations data for the
years ended December 31, 1995 and 1996, are derived from our audited
consolidated financial statements, which are not included herein. This selected
consolidated financial data should be read in conjunction with the Consolidated
Financial Statements and related notes thereto included in Item 8 of this report
and 'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
STATEMENT OF OPERATIONS DATA
CUMULATIVE
FOR THE PERIOD
MAY 17, 1990
YEAR ENDED DECEMBER 31, (DATE OF INCEPTION)
------------------------------------------------- TO DECEMBER 31,
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- -------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating revenues............ $ -- $ -- $ -- $ -- $ -- $ --
Net loss...................... $(2,107) $(2,831) $(4,737) $(48,396) $(62,822) $(134,491)
Net loss per share (basic and
diluted).................... $ (.23) $ (.29) $ (.41) $ (2.70) $ (2.57)
Weighted average common shares
outstanding (basic and
diluted).................... 9,224 9,642 11,626 17,932 24,470
BALANCE SHEET DATA
DECEMBER 31,
------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(IN THOUSANDS)
Cash and cash equivalents................ $ 1,800 $ 4,584 $ 900 $150,190 $ 81,809
Restricted investments, at amortized
cost................................... $ -- $ -- $ -- $ -- $ 67,454
Marketable securities, at market......... $ -- $ -- $169,482 $115,433 $ 317,810
Working capital.......................... $ 1,741 $ 4,442 $170,894 $180,966 $ 304,010
Total assets............................. $ 2,334 $ 5,065 $323,808 $643,880 $1,206,612
Deficit accumulated during the
development stage...................... $(15,705) $(18,536) $(23,273) $(71,669) $ (134,491)
Stockholders' equity(1).................. $ 1,991 $ 4,898 $ 15,980 $ 77,953 $ 134,179
- ---------
(1) No cash dividends were declared or paid in any of the periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the federal securities laws. Actual results and the timing
of certain events could differ materially from those projected in the
forward-looking statements due to a number of factors, including those set forth
under 'Business -- Risk Factors' and elsewhere herein. See 'Special Note
Regarding Forward Looking Statements.'
26
(All dollar amounts referenced in this Item 7 are in thousands, unless
otherwise stated)
OVERVIEW
Sirius Satellite Radio Inc. was organized in May 1990 and is in its
development stage. Our principal activities to date have included developing our
technology, obtaining regulatory approval for our service, commencing the
construction of four satellites, constructing our production and broadcast
facility, acquiring content for our programming, developing our terrestrial
repeater network, arranging for the design and development of receivers,
strategic planning, market research, recruiting our management team and securing
financing for capital expenditures and working capital. We 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 Sirius 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.
Upon commencing operations, we expect our primary source of revenue to be
subscription fees. We currently anticipate that our subscription fee will be
$9.95 per month to receive Sirius Radio broadcasts, with a one time activation
fee per subscriber. In addition, we expect to derive revenues from directly
selling or bartering advertising on our non-music channels. We do not expect to
recognize revenues from operations until the first quarter of 2001, at the
earliest. We do not intend to manufacture the receivers necessary to receive
Sirius Radio and thus we will not receive any revenues from their sale.
We expect that the operating expenses associated with our service will
consist primarily of marketing, sales, programming, maintenance of our satellite
and broadcasting system and general and administrative costs. Costs to acquire
programming are expected to include payments to build and maintain an extensive
music library and royalty payments for broadcasting music (which are likely to
be 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.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
We recorded net losses of $62,822 ($2.57 per share) and $48,396 ($2.70 per
share) for the years ended December 31, 1999 and 1998, respectively. Our total
operating expenses were $63,518 and $39,079 for the years ended December 31,
1999 and 1998, respectively.
Engineering, design and development costs were $33,134 and $2,150 for the
years ended December 31, 1999 and 1998, respectively. Engineering costs incurred
in the year ended December 31, 1999 represented primarily payments to Lucent in
connection with our chip set development effort and payments to consumer
electronic manufacturers in connection with our receiver development efforts.
The increase in these costs in the 1999 period resulted primarily from the
increased activity in the receiver development efforts as we prepare to launch
our service.
General and administrative expenses increased for the year ended
December 31, 1999 to $30,384 from $11,247 for the year ended December 31, 1998.
General and administrative expenses increased due to the occupancy of our
National Broadcast Studio and the growth of our management team and workforce.
The major components of general and administrative expenses for the year ended
December 31, 1999 were salaries and employment related costs (32%), rent and
occupancy costs (18%) and legal and regulatory fees (10%), while in the year
ended December 31, 1998 the major components were salaries and employment
related costs (29%), rent and occupancy costs (20%) and legal and regulatory
fees (17%). The remaining portion of general and administrative expenses (40% in
1999 and 34% in 1998) consisted of other costs such as insurance, marketing,
consulting, travel, depreciation and supplies, with only marketing (14%)
exceeding 10% of the total in the 1999 period and no amount exceeding 10% of the
total in the 1998 period.
27
The increase in interest and investment income to $17,502 for the year ended
December 31, 1999 from $7,250 for the year ended December 31, 1998, was the
result of higher average balances of cash, marketable securities and restricted
investments during the year ended December 31, 1999. The higher average balances
of cash, marketable securities and restricted investments during 1999 were due
to the proceeds from financing activities during 1999, including the issuance of
our 14 1/2% Senior Secured Notes due 2009, 8 3/4% Convertible Subordinated Notes
due 2009, 9.2% Series B Junior Cumulative Convertible Preferred Stock and Common
Stock, exceeding the amount of our expenditures for satellite and launch vehicle
construction, other capital expenditures and operating expenses.
Interest expense, net of capitalized interest, was $16,806 for the year
ended December 31, 1999 and $14,272 for the year ended December 31, 1998. This
increase in net interest expense was due to interest expense increasing by an
amount ($42,618) greater than the corresponding increase in capitalized interest
($40,084). The increase in interest expense was due to interest accruing on our
14 1/2% Senior Secured Notes due 2009 issued in May 1999 and 8 3/4% Convertible
Subordinated Notes due 2009 issued in September and October 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
We recorded net losses of $48,396 ($2.70 per share) and $4,737 ($.41 per
share) for the years ended December 31, 1998 and 1997, respectively. Our total
operating expenses were $39,079 and $6,865 for the years ended December 31, 1998
and 1997, respectively.
Engineering, design and development costs were $2,150 and $776 for the years
ended December 31, 1998 and 1997, respectively. Engineering costs increased in
the year ended December 31, 1998 due to increased consulting costs and growth of
our engineering workforce.
General and administrative expenses increased for the year ended December
31, 1998 to $11,247 from $6,089 for the year ended December 31, 1997. General
and administrative expenses increased due to the growth of our management team
and workforce necessary to develop and commence the broadcast of our service.
The major components of general and administrative expenses for the year ended
December 31, 1998 were salaries and employment related costs (29%), rent and
occupancy costs (20%) and legal and regulatory fees (17%), while in the year
ended December 31, 1997 the major components were salaries and employment
related costs (27%), rent and occupancy costs (6%) and legal and regulatory fees
(28%). The remaining portion of general and administrative expenses (34% in 1998
and 39% in 1997) consisted of other costs such as insurance, market research,
consulting, travel, depreciation and supplies, with no such amount exceeding 10%
of the total in the 1998 period and only consulting (15%) exceeding 10% of the
total in the 1997 period.
The increase in interest and investment income to $7,250 for the year ended
December 31, 1998 from $4,074 for the year ended December 31, 1997 was the
result of higher average cash and marketable securities balances during the year
ended December 31, 1998. The higher average balances were due to the proceeds
resulting from the sale of our Common Stock to Prime 66 Partners, L.P. and the
sale of our 9.2% Series A Junior Cumulative Convertible Preferred Stock to
Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.
(collectively, the 'Apollo Investors') in 1998 and the unexpended proceeds from
our 1997 Common Stock sales exceeding the amount of our expenditures for
satellite and launch vehicle construction, other capital expenditures and
operating expenses.
Interest expense, net of capitalized interest, was $14,272 for the year
ended December 31, 1998 and $1,946 for the year ended December 31, 1997. The
increase in net interest expense was due to interest accruing on our 15% Senior
Secured Discount Notes due 2007 issued in November 1997, in conjunction with a
low level of interest capitalized during the 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, we had cash, cash equivalents, marketable securities
and restricted investments totaling $467,073 and working capital of $304,010
compared with cash, cash equivalents and marketable securities of approximately
$265,623 and working capital of $180,966 at December 31, 1998. These increases
reflect the proceeds from the issuance of (1) our 14 1/2% Senior Secured Notes
due 2009 and related warrants during the second quarter of 1999, (2) our 8 3/4%
Convertible Subordinated Notes
28
due 2009 during the third and fourth quarters of 1999, (3) a total of 3,450,000
shares of Common Stock during the third and fourth quarters of 1999 and (4) our
9.2% Series B Junior Cumulative Convertible Preferred Stock to the Apollo
Investors during the fourth quarter of 1999 exceeding capital expenditures and
operating expenses for 1999. As part of the issuance of our 14 1/2% Senior
Secured Notes due 2009 in the second quarter of 1999, we were required to place
approximately $79,300 of U.S. government securities in a restricted account to
pay the first six interest payments on these notes. We made the first interest
payment on these 14 1/2% Senior Secured Notes due 2009 from the proceeds of our
restricted investments during the fourth quarter of 1999. As of December 31,
1999, we had restricted investments, at amortized cost, of $67,454, which will
be used to make the next five interest payments on these 14 1/2% Senior Secured
Notes due 2009.
Funding Requirements. We believe we can fund our planned operations,
including the construction of our system, into the third quarter of 2001 from
our existing working capital. In addition, we anticipate cash requirements of
approximately $120,000 to fund our operations through the first full year of
commercial operations and additional funds until our revenues grow
substantially.
To build and launch the satellites necessary to transmit Sirius Radio we
entered into the Loral Satellite Contract. The Loral Satellite Contract provides
for Loral to construct, launch and deliver, in-orbit and checked-out, three
satellites, to construct for us a fourth satellite for use as a ground spare and
to provide satellite launch services. We are committed to make aggregate
payments of approximately $745,040 under the Loral Satellite Contract, which
includes $15,000 of long-lead time parts for a fifth satellite and $3,400 for
integration analysis of the viability of using the Sea Launch platform as an
alternative launch vehicle for our satellites. As of December 31, 1999, $434,804
of this obligation had been satisfied. Under the Loral Satellite Contract, with
the exception of a payment made to Loral in March 1993, payments are made in
installments that commenced in April 1997 and will end in December 2003.
Approximately half of all the payments under the Loral Satellite Contract are
contingent upon Loral meeting specified milestones in the construction of our
satellites.
We also will require funds for working capital, interest on borrowings,
acquisition of programming, financing costs and operating expenses until some
time after the commencement of our operations. We expect our interest expense
will increase significantly when compared to our 1999 interest expense as a
result of the issuance of our 14 1/2% Senior Secured Notes due 2009 in May 1999
and our 8 3/4% Convertible Subordinated Notes due 2009 in September and October
1999; however, our 15% Senior Secured Discount Notes due 2007 will not require
cash payments of interest until June 2003. A portion of the net proceeds of our
14 1/2% Senior Secured Notes due 2009 was used to purchase a portfolio of U.S.
government securities in an amount sufficient to pay in full interest on these
notes through May 15, 2002.
The amount and timing of our actual cash requirements will depend upon
numerous factors including costs associated with the construction and deployment
of our satellite system and terrestrial repeater network, costs associated with
the design and development of chip sets and receivers, the rate of growth of our
business after commencing service, costs of financing and the possibility of
unanticipated costs. We will require additional funds if there are delays, cost
overruns, unanticipated expenses, launch failures, launch services or satellite
system change orders or any shortfalls in estimated levels of operating cash
flow.
Sources of Funding. To date, we have funded our capital needs through the
issuance of debt and equity securities. As of March 20, 2000, we had received a
total of approximately $874,000 in equity capital, as a result of the following
transactions: (1) the sale of shares of our Common Stock prior to the issuance
of our FCC license (net proceeds of approximately $22,000); (2) the sale of
5,400,000 shares of 5% Delayed Convertible Preferred Stock (net proceeds of
approximately $121,000) in April 1997 (in November 1997, we exchanged 1,846,799
shares of our 10 1/2% Series C Convertible Preferred Stock for all the
outstanding shares of 5% Delayed Convertible Preferred Stock); (3) the sale of
4,955,488 shares of our Common Stock (net proceeds of approximately $71,000) in
1997; (4) the sale of 5,000,000 shares of our Common Stock to Prime 66 Partners,
L.P. (net proceeds of approximately $98,000) in November 1998; (5) the sale of
1,350,000 shares of our 9.2% Series A Junior Cumulative Convertible Preferred
Stock to the Apollo Investors (net proceeds of approximately $129,000) in
December 1998; (6) the sale of 650,000 shares of our 9.2% Series B Junior
Cumulative Convertible Preferred Stock to the Apollo
29
Investors (net proceeds of approximately $63,000) in November 1999; (7) the sale
of 3,000,000 shares of our Common Stock in an underwritten public offering (net
proceeds of approximately $68,000) in September 1999, and an additional 450,000
shares of our Common Stock in connection with the exercise of the underwriters'
over-allotment option (net proceeds of approximately $10,000) in October 1999;
(8) the sale of 2,000,000 shares of our 9.2% Series D Junior Cumulative
Convertible Preferred Stock to certain affiliates of The Blackstone Group, L.P.
(net proceeds of approximately $192,000) in February 2000; and (9) the sale of
2,290,322 shares of our Common Stock to DaimlerChrysler Corporation (net
proceeds of approximately $100,000) in February 2000.
In September 1999, we issued $125,000 aggregate principal amount of 8 3/4%
Convertible Subordinated Notes due 2009 in an underwritten public offering (net
proceeds of approximately $119,000). In October 1999, we issued an additional
$18,750 aggregate principal amount of 8 3/4% Convertible Subordinated Notes due
2009 to the underwriters of this convertible notes offering in connection with
their over-allotment option (net proceeds of approximately $18,000). In May
1999, we received net proceeds of approximately $190,000 from the issuance of
200,000 units, each consisting of $1 aggregate principal amount of 14 1/2%
Senior Secured Notes due 2009 and three warrants, each to purchase 3.792 shares
of our Common Stock as of December 31, 1999. We invested approximately $79,300
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 14 1/2% Senior
Secured Notes due 2009 through May 15, 2002. In November 1997, we received net
proceeds of $116,000 from the issuance of 12,910 units, each consisting of $20
aggregate principal amount at maturity of 15% Senior Secured Discount Notes due
2007 and a warrant to purchase additional 15% Senior Secured Discount Notes due
2007 with an aggregate principal amount at maturity of $3. All of these warrants
were exercised in 1997. The aggregate value at maturity of our 15% Senior
Secured Discount Notes due 2007 is approximately $297,000. Our 15% Senior
Secured Discount Notes due 2007 mature on December 1, 2007 and the first cash
interest payment is due in June 2003. The indentures governing our 14 1/2%
Senior Secured Notes due 2009 and our 15% Senior Secured Discount Notes due 2007
contain limitations on our ability to incur additional indebtedness and are
secured by a pledge of the stock of Satellite CD Radio Inc., our subsidiary that
holds our FCC license.
In July 1998, we entered into a term loan agreement with a group of
financial institutions pursuant to which these lenders provided us $115,000 of
term loans. The proceeds of these loans were 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 these loans. On February 29, 2000, we repaid these loans and
cancelled the related credit agreement.
Loral has deferred a total of $50,000 of the payments under the Loral
Satellite Contract originally scheduled for payment in 1999. These deferred
amounts bear interest at 10% per annum and all interest on these deferred
amounts will accrue until December 2001, at which time interest will be payable
quarterly in cash. The principal amounts of the deferred payments under the
Loral Satellite Contract are required to be paid in six installments between
June 2002 and December 2003. As collateral security for these deferred payments,
we have granted Loral a security interest in our terrestrial repeater network.
If there is a satellite or launch failure, we will be required to pay Loral the
deferred amount for the affected satellite no later than 120 days after the date
of the failure. If we elect to put one of our first three satellites into ground
storage, rather than having it shipped to the launch site, the deferred amount
for that satellite will become due within 60 days of this election.
Shares of our 9.2% Series A Junior Cumulative Convertible Preferred Stock
and 9.2% Series B Junior Cumulative Convertible Preferred Stock are convertible
into shares of our Common Stock at a price of $30.00 per share. The 9.2%
Series A Junior Cumulative Convertible Preferred Stock and 9.2% Series B Junior
Cumulative Convertible Preferred Stock are callable by us beginning
November 15, 2001 at a price of 100% if the current market price, as defined in
the Certificate of Designation of the 9.2% Series A Junior Cumulative
Convertible Preferred Stock and 9.2% Series B Junior Cumulative Convertible
Preferred Stock, of our Common Stock exceeds $60.00 per share for a period of 20
consecutive trading days, will be callable in all events beginning November 15,
2003 at a price of 100% and must be redeemed by us on November 15, 2011.
Dividends on our 9.2% Series A Junior Cumulative Convertible Preferred Stock and
9.2% Series B Junior Cumulative Convertible Preferred
30
Stock are payable in kind or in cash annually, at our option. Holders of our
9.2% Series A Junior Cumulative Convertible Preferred Stock and 9.2% Series B
Junior Cumulative Convertible 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.
Shares of our 9.2% Series D Junior Cumulative Convertible Preferred Stock
are convertible into shares of our Common Stock at a price of $34.00 per share.
The 9.2% Series D Junior Cumulative Convertible Preferred Stock is callable by
us beginning December 23, 2002 at a price of 100% if the market price, as
defined in the Certificate of Designation of the 9.2% Series D Junior Cumulative
Convertible Preferred Stock, of our Common Stock exceeds $68.00 per share for a
period of 20 consecutive trading days, will be callable in all events beginning
December 23, 2004 at a price of 100% and must be redeemed by us on November 15,
2011. Dividends on our 9.2% Series D Junior Cumulative Convertible Preferred
Stock are payable in kind or in cash annually, at our option. Holders of our
9.2% Series D Junior Cumulative Convertible Preferred Stock have the right to
vote, on an as-converted basis, on matters in which the holders of Common Stock
have the right to vote.
On March 3, 2000, we notified the holders of our 10 1/2% Series C
Convertible Preferred Stock and the holders of all outstanding warrants to
purchase shares of such 10 1/2% Series C Convertible Preferred Stock that on
April 12, 2000 we would redeem these securities. As of March 1, 2000, 1,200,627
shares of our 10 1/2% Series C Convertible Preferred Stock and warrants to
purchase up to 81,772 shares of 10 1/2% Series C Convertible Preferred Stock
were outstanding. On April 12, 2000, each outstanding share of 10 1/2% Series C
Convertible Preferred Stock will be redeemed for $100.00 (plus accrued and
unpaid dividends) and each outstanding warrant to purchase a share of 10 1/2%
Series C Convertible Preferred Stock will be redeemed for $35.34. The right of
holders of 10 1/2% Series C Convertible Preferred Stock to convert their shares
into shares of Common Stock (at a ratio of approximately 5.56 shares of Common
Stock for each share of 10 1/2% Series C Convertible Preferred Stock), or of
holders of warrants to purchase shares of 10 1/2% Series C Convertible Preferred
Stock, and to convert such 10 1/2% Series C Convertible Preferred Stock into
shares of Common Stock, will expire at 5:00 p.m., New York City time, on
April 11, 2000. Based on the closing sale price of the Common Stock on
March 21, 2000 of $51 1/16, a holder who converts his or her 10 1/2% Series C
Convertible Preferred Stock will receive Common Stock worth approximately
$283.68 (plus accrued and unpaid dividends). We anticipate that most holders
will convert their 10 1/2% Series C Convertible Preferred Stock into Common
Stock prior to April 12, 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements contained in Item 14 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding our directors and executive officers is
provided below.
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
David Margolese...................... 42 Chairman of the Board and Chief Executive Officer
Robert D. Briskman................... 67 Executive Vice President, Engineering, and
Director
Ira H. Bahr.......................... 37 Senior Vice President, Marketing, Alliances &
Communications
Joseph S. Capobianco................. 50 Senior Vice President, Content
Patrick L. Donnelly.................. 38 Senior Vice President, General Counsel & Secretary
Lawrence F. Gilberti(1)(2)........... 49 Director
Joseph V. Vittoria(1)(2)............. 64 Director
Ralph V. Whitworth(1)(2)............. 44 Director
- ---------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
DAVID MARGOLESE has served as Chairman of the Board and Chief Executive
Officer since August 1993, and as a director since August 1991. Prior to his
involvement with Sirius Radio, Mr. Margolese proposed and co-founded Cantel
Inc., Canada's national cellular telephone carrier, which was acquired by Roger
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 Sirius 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.
IRA H. BAHR has served as Senior Vice President, Marketing, Alliances &
Communications, 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, 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 &
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
company that was acquired by Starwood Hotels &
32
Resorts Worldwide, Inc. in February 1998. From October 1995 to June 1997, he was
Assistant General Counsel of ITT Corporation. Prior to October 1995, Mr.
Donnelly was an associate at the law firm of Simpson Thacher & Bartlett.
LAWRENCE F. GILBERTI has been a director of Sirius Radio since September
1993 and served as our Secretary from November 1992 until May 1998. Since
December 1992, he has been the Secretary and sole director, 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 Sirius
Radio since 1992. From August 1994 to May 1998, Mr. Gilberti was a partner in
the law firm of Fischbein Badillo Wagner & Harding. Mr. Gilberti is a member of
the Audit and Compensation Committees of our Board of Directors.
JOSEPH V. VITTORIA has been a director of Sirius 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. Mr.
Vittoria is a member of the Audit and Compensation Committees of our Board of
Directors.
RALPH V. WHITWORTH has been a director of Sirius Radio since March 1994. Mr.
Whitworth has been a principal and managing member at Relational Investors LLC,
a private investment company, since March 1996, and a partner in Batchelder &
Partners, Inc., a financial advisory firm, since January 1997. Since April 1998,
he has also been Chairman of Apria Healthcare Group, Inc., a home-health
company. From August to November 1999, he was Chairman of Waste Management,
Inc., a provider of integrated waste management services. From August 1988 to
December 1996, he was President of Whitworth and Associates, a Washington,
D.C.-based consulting firm. Mr. Whitworth is also a director of Mattel, Inc.,
Waste Management, Inc. and Tektronix, Inc. Mr. Whitworth is a member of the
Audit and Compensation Committees of our Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
The table below shows the compensation for the last three years for our
Chairman of the Board and Chief Executive Officer and the four next highest paid
executive officers at the end of 1999.
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------- ------------
NUMBER OF
SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION(1)
NAME AND PRINCIPAL POSITION YEAR $ $ # $
- --------------------------- ---- ------- ------ ------------ ---------------
David Margolese ............................ 1999 450,000 -- 2,500,000 10,000
Chairman of the Board and Chief 1998 400,000 -- -- 10,000
Executive Officer 1997 268,714 -- -- --
Robert D. Briskman ......................... 1999 280,000 40,000(2) 150,000 10,000
Executive Vice President, Engineering 1998 260,000 25,000(2) 57,500 10,000
1997 234,583 -- 30,000 --
Ira H. Bahr(3) ............................. 1999 234,167 -- 275,000 10,000
Senior Vice President, Marketing, 1998 103,183 -- 100,000 6,425
Alliances & Communications 1997 -- -- -- --
Joseph S. Capobianco ....................... 1999 241,667 -- 100,000 10,000
Senior Vice President, Content 1998 218,125 -- 25,000 9,200
1997 141,667 -- 75,000 --
Patrick L. Donnelly(4) ..................... 1999 277,500 -- 215,000 10,000
Senior Vice President, General Counsel 1998 162,500 -- 110,000 --
& Secretary 1997 -- -- -- --
(footnotes on next page)
33
(footnotes from previous page)
(1) Represents matching contributions by us under the Sirius Satellite Radio
Inc. 401(k) Savings Plan (the '401(k) Plan'). These amounts were paid in the
form of our Common Stock.
(2) Amount represents bonus award for obtaining patents.
(3) Mr. Bahr became an executive officer in October 1998.
(4) Mr. Donnelly became an executive officer in May 1998.
-------------------
The following table sets forth certain information for the fiscal year ended
December 31, 1999, with respect to options granted to individuals named in the
summary compensation table above.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATE
OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM
------------------------------------------------------------------ ---------------------------
PERCENT OF
NUMBER OF SECURITIES TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO
GRANTED EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- -------------------- ------------- -------------- ---------- ------------ ------------
David Margolese................ 1,800,000 55.0% 31.25 1/1/09 35,375,323 89,648,013
700,000 30.50 12/17/09 13,426,900 34,026,402
Robert D. Briskman............. 60,000 3.3% 23.75 3/26/09 896,175 2,271,083
90,000 30.50 12/17/09 1,726,316 4,374,823
Ira H. Bahr.................... 100,000 6.0% 23.75 3/26/09 1,493,625 3,785,138
50,000 29.125 6/22/09 915,828 2,320,887
125,000 30.50 12/17/09 2,397,661 6,076,143
Joseph S. Capobianco........... 40,000 2.2% 23.75 3/26/09 597,450 1,514,055
60,000 30.50 12/17/09 1,150,877 2,916,549
Patrick L. Donnelly............ 90,000 4.7% 23.75 3/26/09 1,344,262 3,406,625
125,000 30.50 12/17/09 2,397,661 6,076,143
The following table sets forth certain information with respect to the
number of shares covered by both exercisable and unexercisable stock options
held by the individuals named in the summary compensation table above as of
December 31, 1999. Also reported are the values for 'in-the-money' stock options
that represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of our Common Stock as of
December 31, 1999 ($44.50 share).
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) (#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
David Margolese.......... 0 0 1,540,000 1,660,000 37,355,000 22,520,000
Robert D. Briskman....... 0 0 220,000 180,000 8,745,000 3,405,000
Ira H. Bahr.............. 0 0 25,000 350,000 449,375 5,941,875
Joseph S. Capobianco..... 0 0 42,500 157,500 1,320,000 3,403,125
Patrick L. Donnelly...... 0 0 35,000 290,000 385,000 4,442,500
EMPLOYMENT AGREEMENTS
We are a party to employment agreements with Messrs. Margolese, Briskman,
Bahr, Capobianco and Donnelly (the 'Employment Agreements').
34
MR. MARGOLESE
Effective January 1, 1999, we entered into an agreement to employ David
Margolese as our Chairman and Chief Executive Officer for a term of five years.
The employment agreement provides for an annual based salary of $450,000 in 1999
and increases of $50,000 for each year thereafter. If Mr. Margolese is
terminated without 'Cause' or resigns for 'Good Reason' (each as defined in the
Employment Agreement), we are obligated to pay Mr. Margolese the sum of
$5,000,000. If following the occurrence of a 'Change of Control' (as defined in
the Employment Agreement), Mr. Margolese is terminated for any reason (including
resignation by Mr. Margolese for Good Reason), we are obligated to pay to Mr.
Margolese the sum of $8,000,000 plus an amount equal to any excise taxes Mr.
Margolese is required to pay solely as a result of the acceleration of the
vesting of options and such additional amounts as are necessary to place Mr.
Margolese in the same financial position he would have been in if such excise
taxes were not imposed. Under the terms of the Employment Agreement, Mr.
Margolese may not disclose any of our proprietary information or during his
employment with us and for two years thereafter, engage in any business
involving the transmission of radio entertainment programming in North America.
MR. BRISKMAN
Effective December 31, 1999, we entered into an agreement to employ Robert
D. Briskman as Executive Vice President, Engineering, until his retirement in
February 2001. Pursuant to this agreement, we pay Mr. Briskman an annualized
base salary of $310,000. If Mr. Briskman's employment is terminated for any
reason, other than 'Cause' (as defined in the Employment Agreement), we are
obligated to pay to Mr. Briskman a sum equal to 50% of his then annual salary.
Under this agreement, Mr. Briskman may not disclose any of our proprietary
information during his employment with us or, for two years following the
termination of his employment or, in the event he has been terminated without
'Cause' or has resigned for 'Good Reason' (each as defined in the Employment
Agreement), for one year following such termination without Cause or resignation
for Good Reason, enter into the employment of, render services to, or otherwise
assist, any person or entity engaged in any operations in North America
involving the transmission of radio entertainment programming in competition
with us or that competes, or is likely to compete, with any other aspect of our
business as conducted on the date his employment terminates. Under the terms of
this agreement, we have also agreed to provide Mr. Briskman and his wife medical
insurance, on the same terms as they are receiving such insurance on the date of
Mr. Briskman's retirement, for the rest of their lives.
Upon Mr. Briskman's retirement from Sirius Radio in February 2001, we will
enter into a three year consulting agreement with Mr. Briskman. Under this
consulting agreement, Mr. Briskman will be paid a consulting fee of $10,000 per
month.
MESSRS. BAHR, CAPOBIANCO AND DONNELLY
On March 28, 2000, we entered into employment agreements with Ira H. Bahr to
serve as Senior Vice President, Marketing, Alliances & Communications, Joseph S.
Capobianco to serve as Senior Vice President, Content, and Patrick L. Donnelly
to serve as Senior Vice President, General Counsel and Secretary. The agreement
with Mr. Capobianco replaces an existing employment agreement expiring on
April 16, 2000; and the agreement with Mr. Donnelly replaces an existing
employment agreement expiring on May 18, 2001. Each of these employment
agreements has a term of three years.
Pursuant to these employment agreements, we pay Mr. Bahr an annualized base
salary of $290,000, Mr. Capobianco an annualized base salary of $275,000 and Mr.
Donnelly an annualized base salary of $290,000. These base salaries are subject
to increase from time to time by the Board of Directors.
Pursuant to these agreements, if the executive's employment is terminated,
except by us for 'Cause' (as defined in the Employment Agreements) or by the
executive voluntarily, we are obligated to pay him an amount equal to the sum of
his annual salary and the annual bonus last paid to him. Under these agreements,
none of Mr. Bahr, Mr. Capobianco and Mr. Donnelly may disclose any of our
proprietary information or, for two years following the termination of his
employment (or, in the event he has been terminated without Cause or has
resigned for 'Good Reason' (as defined in the
35
Employment Agreements), for one year following such termination without Cause or
resignation for 'Good Reason') enter into the employment of, render services to,
or otherwise assist, certain of our competitors.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the 'Committee') is
comprised solely of directors who are not current or former employees of the
Company. The Committee is responsible for overseeing and administering our
executive compensation programs. The Committee reviews, monitors and approves
executive compensation, establishes compensation guidelines for corporate
officers and administers our stock option plans.
COMPENSATION PHILOSOPHY
Our compensation philosophy is premised upon the belief that our employees
are Sirius Radio's most valuable asset. Our executive officers are charged with
directing our strategic planning, managing the growth of our organization,
overseeing the completion of our infrastructure and have overall responsibility
for our results. We have planned and implemented a compensation structure
intended to attract and retain highly talented individuals, energize and reward
the creativity of our executive officers in achieving our stated milestones, and
provide incentives to executive officers to execute our objectives and enhance
stockholder value by achieving short and long term business objectives.
COMPENSATION PROGRAM
Our compensation program has to date consisted of base salary and long term
incentive compensation comprised exclusively of the stock options under our
stock option plans.
BASE SALARIES
The base salaries paid to each of our executive officers during 1999 (with
the exception of Ira H. Bahr) were paid pursuant to written employment
agreements described above. The Committee reviews and considers base salary
adjustments for each of our executive officers annually based on recommendations
from management and considerations relating to the respective officers'
individual performances, the responsibilities of their positions and their
competitive positions vis-a-vis executives of other high performing companies.
During 1999, at the recommendation of our Chief Executive Officer, Mr.
Briskman's annual salary was increased from $280,000 to $310,000, Mr.
Capobianco's annual salary was increased from $230,000 to $250,000, Mr.
Donnelly's annual salary was increased from $260,000 to $290,000 and Mr. Bahr's
salary was increased from $225,000 to $280,000. Mr. Bahr's salary increase was
awarded, in part, to reflect Mr. Bahr's significant contributions during 1999 in
planning and executing alliances with our receiver and automobile partners.
Salary increases during fiscal year 1999 were based upon these criteria.
However, except as to the compensation reflected in the Employment Agreement
entered into by us and David Margolese as of January 1, 1999, we have not sought
to position executive compensation within any particular range as compared to
any stated peer group.
LONG-TERM INCENTIVES
We provide long-term incentives through stock options granted to our
executive officers under our stock option plans. The Committee believes that the
potential for stock ownership by executives and other employees is the most
effective method by which the interests of management may be aligned with those
of other Sirius Radio stockholders. The options granted typically vest over four
years, have a term of ten years and have an exercise price equal to the fair
market value of our Common Stock on the grant date.
In March 1999, the Committee awarded Mr. Briskman 60,000 stock options, Mr.
Bahr 100,000 stock options, Mr. Capobianco 40,000 stock options and Mr. Donnelly
90,000 stock options. These options have a ten year term and an exercise price
of $23.75. In June 1999, the Committee awarded Mr. Bahr an
36
additional 50,000 stock options. These options have a ten year term and an
exercise price of $29.125. In December 1999, the Committee awarded Mr. Briskman
an additional 90,000 stock options, Mr. Bahr an additional 125,000 stock
options, Mr. Capobianco an additional 60,000 stock options and Mr. Donnelly an
additional 125,000 stock options. These options have a ten year term and an
exercise price of $30.50 per share. The number of options granted by the
Committee to each executive officer during 1999 was based upon such criteria as
anticipated achievement, responsibilities, performance, experience and future
potential, as well as an awareness of the financial incentives required to
retain the quality of executive management essential to the attainment of our
strategic and financial objectives.
The Committee has authorized executive management to grant stock options to
employees below the executive officer level on an annual basis according to
performance guidelines intended to be competitive with comparable companies and
to reward individual achievement appropriately. The executive officers do not
receive annual stock options grants under this program.
ANNUAL BONUS/SHORT-TERM INCENTIVES
As of December 31, 1999, we have not implemented any plan or program of
annual cash bonuses or other similar short-term incentive awards for our
executive officers, other than the awarding of certain cash bonuses to our
employees upon the receipt of patent grants.
COMPENSATION OF OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER
In 1998, the Committee negotiated, and we entered into, a new employment
agreement with David Margolese, our Chairman and Chief Executive Officer,
effective January 1, 1999. (Mr. Margolese's prior employment agreement expired
on December 31, 1998.) The specific terms of this agreement are set forth and
described in detail above. During 1998, the Committee engaged independent
compensation consultants to assist it in the process of determining appropriate
compensation for Mr. Margolese. These consultants identified for the Committee
peer companies within the telecommunications and technologies industries whose
compensation arrangements with their respective CEO's served as comparative
compensation standards against which the Committee measured the compensation
package (comprised of annual base salary and stock options) agreed to with Mr.
Margolese. Mr. Margolese's base salary structure under this employment agreement
includes annual increases of $50,000 per year, commencing with a base salary of
$450,000 in 1999 and increasing $50,000 per year over the five year term of the
agreement. This stepped program of annual base salary increases fell within the
median parameter of the peer group data provided by the consultants.
In December 1999, the Committee awarded Mr. Margolese an additional 700,000
stock options. The Committee awarded Mr. Margolese these options after
evaluating his performance in achieving our goals and objectives to date, the
level of his management responsibilities and Mr. Margolese's clear importance to
our future success. The Committee conditioned the grant of these options upon us
executing an agreement with either DaimlerChrysler or BMW for the installation
in their vehicles of receivers capable of receiving our service. This condition
was satisfied on January 4, 2000, when we executed an agreement with BMW.
POLICY WITH RESPECT TO INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
'Code'), places a $1 million per person limitation on the tax deduction we may
take for compensation paid to our Chief Executive Officer and our four other
highest paid executive officers, except that compensation constituting
performance-based compensation, as defined by the Code, is not subject to the $1
million limit. The Committee generally intends to grant awards under our stock
option plans consistent with the terms of Section 162(m) so that such awards
will not be subject to the $1 million limit. In other respects, the Committee
expects to take actions in the future that may be necessary to preserve the
deductibility of executive compensation to the extent reasonably practicable and
consistent with other objectives of our compensation program. However, the
Committee reserves the discretion to pay compensation that does not qualify for
exemption under Section 162(m) where the Committee believes such action to be in
our best interest. The Committee believes that the compensation terms of Mr.
Margolese's employment
37
agreement which would take effect upon his termination without 'Cause' or his
resignation for 'Good Reason' will qualify as a tax-deductible expense under
Section 162(m). The terms of such agreement which would take effect on a 'Change
of Control' will result in compensation exceeding the deductibility limit.
SUMMARY
The Committee believes that our compensation programs are well structured to
encourage attainment of objectives and foster a stockholder perspective in
management through the potential for employee stock ownership. The Committee
believes, further, that the stock option awards made in 1999 were competitive,
appropriate and in our stockholders long-term interests.
Compensation Committee
Ralph V. Whitworth, Chairman
Lawrence F. Gilberti
Joseph V. Vittoria
38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below shows, as of February 29, 2000, each person we know to be a
beneficial owner of more than 5% of our Common Stock. In general, 'beneficial
ownership' includes those shares a person has the power to vote or transfer, and
options to acquire our Common Stock that are exercisable currently or become
exercisable within 60 days. Except as otherwise noted, the persons named in the
table below have sole voting and investment power with respect to all shares
shown as beneficially owned by them.
NUMBER OF SHARES
NAMES AND ADDRESS OF BENEFICIALLY
BENEFICIAL OWNER OWNED PERCENT OF CLASS
------------------- ----- ----------------
Apollo Investment Fund IV, L.P.(1) 7,055,587 18.0
Apollo Overseas Partners IV, L.P.
Two Manhattanville Road
Purchase, New York 10577
David Margolese(2) ......................................... 5,955,505 17.4
1221 Avenue of the Americas
New York, New York 10020
Prime 66 Partners, L.P.(3) ................................. 5,160,075 16.0
201 Main Street, Suite 3200
Forth Worth, Texas 76102
Blackstone Management Associates III L.L.C.(4) ............. 5,882,353 15.4
345 Park Avenue
New York, New York 10154
Everest Capital Master Fund, L.P.(5)(6) .................... 4,326,567 11.8
Everest Capital Limited
c/o Morgan Stanley & Co. Incorporated
One Pierpont Plaza
10th Floor
Brooklyn, New York 11201
Darlene Friedland(7) ....................................... 2,334,500 7.2
1210 Wolseley Road
Point Piper 2027
Sydney, Australia
DaimlerChrysler Corporation(8) ............................. 2,290,322 7.1
1000 Chrysler Drive
Auburn Hills, Michigan 48326
Loral Space & Communications Ltd.(9) ....................... 1,905,488 5.9
600 Third Avenue
New York, New York 10016
- ---------
(1) Represents 1,461,270 shares of 9.2% Series A Junior Cumulative Convertible
Preferred Stock and 655,406 shares of 9.2% Series B Junior Cumulative
Convertible Preferred Stock which entitle the holder to vote as if the
shares had been converted to Common Stock. Each share of 9.2% Series A
Junior Cumulative Convertible Preferred Stock and 9.2% Series B Junior
Cumulative Convertible Preferred Stock is entitled to three and one-third
votes per share.
(2) Includes 2,020,000 shares issuable pursuant to stock options that are
exercisable within 60 days and 1,005 vested shares acquired under the 401(k)
Plan as of February 29, 2000. Pursuant to a voting trust agreement ('Voting
Trust Agreement') entered into by Darlene Friedland, as grantor, David
Margolese, as trustee, and Sirius Radio, until November 20, 2002, Mr.
Margolese has the power to vote in his discretion all shares of Common Stock
owned or hereafter acquired by Darlene Friedland and certain of her
affiliates (2,334,500 shares as of February 29, 2000). See 'Voting Trust
Agreement'.
(3) This information is based upon the Schedule 13D dated September 29, 1999
filed by Prime 66 Partners, L.P. with the Securities and Exchange
Commission.
(4) Represents 2,000,000 shares of 9.2% Series D Junior Cumulative Convertible
Preferred Stock which entitle the holder to vote as if the shares had been
converted to Common Stock. Each share of 9.2%
(footnotes continued on next page)
39
(footnotes continued from previous page)
Series D Junior Cumulative Convertible Preferred Stock is entitled to 2.9412
votes per share. This information is based upon the Schedule 13D dated
January 31, 2000 filed by Blackstone Management Associates III L.L.C. with
the Securities and Exchange Commission.
(5) Represents 57,711 shares of Common Stock, shares of Common Stock issuable
upon conversion of 442,546 shares of 10 1/2% Series C Convertible Preferred
Stock and $2 million in aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009. This information is based upon the Form 4 filed
November 30, 1999 by Everest Capital Limited with the Securities and
Exchange Commission. On March 3, 2000, we called for redemption all shares
of our 10 1/2% Series C Convertible Preferred Stock and on March 10, 2000
Everest Capital converted its shares of 10 1/2% Series C Convertible
Preferred Stock into 2,666,717 shares of our Common Stock.
(6) Includes shares of Common Stock issuable pursuant to 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.
(7) Pursuant to the Voting Trust Agreement, until November 20, 2002, David
Margolese has the power to vote in his discretion all shares of Common Stock
owned or hereafter acquired by Darlene Friedland and certain of her
affiliates (2,334,500 shares as of February 29, 2000).
(8) This information is based upon the Schedule 13D dated February 2, 2000 filed
by DaimlerChrysler Corporation with the Securities and Exchange Commission.
(9) This information is based upon the Schedule 13D dated August 14, 1997 filed
by Loral Space & Communications Ltd. with the Securities and Exchange
Commission.
-------------------
The following table shows the number of shares of our Common Stock held by
each director, our Chief Executive Officer and the four other most highly
compensated executive officers on February 29, 2000. The table also shows stock
held by all of our directors and executive officers as a group on February 29,
2000.
NAME OF NUMBER OF SHARES ACQUIRABLE WITHIN
BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT OF CLASS 60 DAYS
---------------- --------------------- ---------------- -------
David Margolese(2)......................... 5,955,505 17.4% 2,020,000
Robert D. Briskman......................... 220,855 * 220,000
Lawrence F. Gilberti....................... 55,000 * 55,000
Joseph V. Vittoria......................... 45,000 * 45,000
Ralph V. Whitworth......................... 55,000 * 55,000
Ira H. Bahr................................ 47,240 * 45,000
Joseph S. Capobianco....................... 75,754 * 75,000
Patrick L. Donnelly........................ 50,136 * 50,000
All directors and executive officers as a
group (8 persons)(3)..................... 6,504,520 18.7% 2,565,000
- ---------
* Less than 1% of our outstanding shares of Common Stock.
(1) These amounts include shares which the individuals named hold and share they
have a right to acquire within the next 60 days as shown in the last column
through the exercise of stock options. Also included in the table are the
number of shares acquired under the 401(k) Plan as of February 29, 2000 for
the accounts of: Mr. Margolese -- 1,005 shares; Mr. Briskman -- 885 shares;
Mr. Bahr -- 240 shares; Mr. Capobianco -- 754 shares; and
Mr. Donnelly -- 136 shares.
(2) Pursuant to the Voting Trust Agreement, until November 20, 2002, David
Margolese, as trustee, has the power to vote in his discretion all shares of
Common Stock owned or hereafter acquired by Darlene Friedland and certain of
her affiliates (2,334,500 shares as of February 29, 2000).
(3) Does not include 2,140,000 shares issuable pursuant to stock options that
are not exercisable within 60 days.
40
VOTING TRUST AGREEMENT
We are a party to a voting trust agreement dated August 26, 1997 by and
among Darlene Friedland, as grantor, David Margolese, as voting trustee, and us.
The following summary description of the Voting Trust Agreement does not purport
to be complete and is qualified in its entirety by reference to the complete
text thereof.
The Voting Trust Agreement provides for the establishment of a trust (the
'Trust') into which (i) there has been deposited all of the shares of Common
Stock owned by Mrs. Friedland on August 26, 1997 and (ii) there shall be
deposited any shares of Common Stock acquired by Mrs. Friedland, her spouse
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 the date shares
are initially deposited and the termination of the Trust. The Voting Trust will
terminate on November 20, 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 deposited into the Trust, nor does it prohibit Mrs. Friedland or the
Friedland Affiliates from purchasing additional shares of our Common Stock,
provided those shares become subject to the Trust.
Under the Voting Trust Agreement, the trustee has the power to vote shares
held in the Trust in relation to any matter upon which the holders of such stock
would have a right to vote, including without limitation the election of
directors. For so long as David Margolese remains trustee of the Trust, he may
exercise such voting rights in his discretion. Any successor trustee or trustees
of the Trust must vote as follows:
on the election of directors, the trustee(s) must vote the entire number of
shares held by the Trust, with the number of shares voted for each director
(or nominee for director) determined by multiplying the total number of
votes held by the Trust by a fraction, the numerator of which is the number
of votes cast for such person by other stockholders of the Company and the
denominator of which is the sum of the total number of votes represented by
all shares casting any votes in the election of directors;
if the matter under Delaware law or our Certificate of Incorporation or our
Bylaws requires at least an absolute majority of all outstanding shares of
Common Stock in order to be approved, the trustee(s) must vote all of the
shares in the Trust in the same manner as the majority of all votes that
are cast for or against the matter by all other stockholders of the
Company; and
on all other matters, including, without limitation, any amendment of the
Voting Trust Agreement for which a stockholder vote is required, the
trustee(s) must vote all of the shares in the Trust for or against the
matter in the same manner as all votes that are cast for or against the
matter by all other stockholders of the Company.
The Voting Trust Agreement may not be amended without our prior written
consent, acting by unanimous vote of the Board of Directors, and approval of our
stockholders, acting by the affirmative vote of two-thirds of the total voting
power of the Company, except in certain limited circumstances where amendments
to the Voting Trust Agreement are required to comply with applicable law.
ITEM 13. 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.
Pursuant to an agreement dated October 21, 1992 (the 'Batchelder
Agreement'), we retained the services of Batchelder & Partners, Inc.
('Batchelder') to provide certain financial consulting services. The Batchelder
Agreement was terminated on November 30, 1997; however, the parties agreed that
the termination would not affect our obligations with respect to financing
transactions entered prior to November 30, 1999. In January 1997, Mr. Whitworth
became a partner in Batchelder. In the fiscal year ended December 31, 1999, Mr.
Whitworth, as a partner in Batchelder, received approximately $885,000 from the
total fees received by Batchelder from us. On December 29, 1997, Mr. Whitworth
received, pursuant to options given Batchelder, an option to purchase 17,800
shares of our Common Stock at an exercise price of $6.25. On February 2, 2000,
Mr. Whitworth exercised this option and sold the Common Stock received upon
exercise of the option.
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statement, Financial Statement Schedules and Exhibits
(1) Financial Statements
See index to financial statements appearing on page F-1.
(2) Financial Statement Schedules
None. All schedules have been included in the Consolidated Financial
Statements or Notes thereto.
(3) Exhibits
See Exhibit Index appearing on pages E-1 through E-4 for a list of
exhibits filed or incorporated by reference as part of this Annual
Report on Form 10-K.
(b) Reports on Form 8-K
On October 1, 1999, we filed a Current Report on Form 8-K to file
certain exhibits relating to our offering of 3,000,000 shares of Common
Stock and our offering of $125,000,000 aggregate principal amount of 8 3/4%
Convertible Subordinated Notes due 2009, which securities were registered
under the Securities Act of 1933 on Form S-3 (Registration No. 333-86003).
On December 28, 1999, we filed a Current Report on Form 8-K announcing
that we had entered into a Stock Purchase Agreement with Blackstone Capital
Partners III Merchant Banking Fund L.P. ('Blackstone') pursuant to which we
agreed to sell 2,000,000 shares of our 9.2% Series D Junior Cumulative
Convertible Preferred Stock to Blackstone for an aggregate purchase price of
$200 million.
As of the date of the filing of this Annual Report on Form 10-K, no proxy
materials have been furnished to security holders. Copies of all proxy materials
will be furnished to the Securities and Exchange Commission in compliance with
its rules.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 30th day of
March, 2000.
SIRIUS SATELLITE RADIO INC.
By: /S/ EDWARD WEBER, JR.
..................................
EDWARD WEBER, JR.
VICE PRESIDENT AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DAVID MARGOLESE Chairman of the Board and Chief March 30, 2000
......................................... Executive Officer (Principal
(DAVID MARGOLESE) Executive Officer and Principal
Financial Officer)
/s/ EDWARD WEBER, JR. Vice President and Controller March 30, 2000
......................................... (Principal Accounting Officer)
(EDWARD WEBER, JR.)
/s/ ROBERT D. BRISKMAN Director and Executive Vice March 30, 2000
......................................... President, Engineering
(ROBERT D. BRISKMAN)
/s/ LAWRENCE F. GILBERTI Director March 30, 2000
.........................................
(LAWRENCE F. GILBERTI)
/s/ JOSEPH V. VITTORIA Director March 30, 2000
.........................................
(JOSEPH V. VITTORIA)
/s/ RALPH V. WHITWORTH Director March 30, 2000
.........................................
(RALPH V. WHITWORTH)
43
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1999 and for the
period May 17, 1990 (date of inception) to December 31,
1999...................................................... F-3
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-4
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1999 and
for the period May 17, 1990 (date of inception) to
December 31, 1999......................................... F-5
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999 and for the
period May 17, 1990 (date of inception) to December 31,
1999...................................................... F-8
Notes to Consolidated Financial Statements.................. F-9
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Sirius Satellite Radio Inc.:
We have audited the accompanying consolidated balance sheets of Sirius
Satellite Radio Inc. (a Delaware corporation in the development stage) and
subsidiary as of December 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999 and for the period from May
17, 1990 (date of inception) to December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sirius Satellite Radio Inc.
and subsidiary, as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 and for the period from May 17, 1990 (date of inception) to
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
New York, New York
March 21, 2000
F-2
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CUMULATIVE FOR
THE PERIOD
MAY 17, 1990
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION)
--------------------------------- TO DECEMBER 31,
1997 1998 1999 1999
--------- --------- --------- -------------------
Revenue....................................... $ -- $ -- $ -- $ --
Operating expenses:
Engineering design & development.......... (776) (2,150) (33,134) (39,550)
General and administrative................ (6,089) (11,247) (30,384) (60,928)
Special charges........................... -- (25,682) -- (27,682)
-------- -------- -------- ---------
Total operating expenses.............. (6,865) (39,079) (63,518) (128,160)
-------- -------- -------- ---------
Other income (expense):
Interest and investment income............ 4,074 7,250 17,502 29,154
Interest expense.......................... (1,946) (14,272) (16,806) (33,190)
-------- -------- -------- ---------
2,128 (7,022) 696 (4,036)
-------- -------- -------- ---------
Loss before income taxes...................... (4,737) (46,101) (62,822) (132,196)
Income taxes:
Federal................................... -- (1,982) -- (1,982)
State..................................... -- (313) -- (313)
-------- -------- -------- ---------
Net loss...................................... (4,737) (48,396) (62,822) (134,491)
-------- -------- -------- ---------
Preferred stock dividends..................... (2,338) (19,380) (30,321) (52,039)
Preferred stock deemed dividends.............. (51,975) (11,676) (3,535) (67,186)
Accretion of dividends in connection with the
issuance of warrants on preferred stock..... -- (6,501) (303) (6,804)
-------- -------- -------- ---------
Net loss applicable to common stockholders.... $(59,050) $(85,953) $(96,981) $(260,520)
-------- -------- -------- ---------
-------- -------- -------- ---------
Net loss per share applicable to common
stockholders (basic and diluted)............ $(5.08) $(4.79) $(3.96)
------ ------ ------
------ ------ ------
Weighted average common shares outstanding
(basic and diluted)......................... 11,626 17,932 24,470
------ ------ ------
------ ------ ------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
---------------------------
1998 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................ $150,190 $ 81,809
Marketable securities, at market......................... 115,433 317,810
Restricted investments, at amortized cost................ -- 67,454
Prepaid expense and other................................ 166 741
-------- ----------
Total current assets.................................. 265,789 467,814
-------- ----------
Property and equipment:
Satellite construction in process........................ 188,849 375,294
Launch construction in process........................... 87,492 199,385
Broadcast studio equipment............................... 5,081 15,731
Leasehold improvements................................... 87 15,285
Technical equipment and other............................ 2,146 18,653
-------- ----------
283,655 624,348
Less accumulated depreciation............................... (21) (880)
-------- ----------
283,634 623,468
Other assets:
FCC license.............................................. 83,368 83,368
Debt issue cost, net..................................... 9,313 23,053
Deposits and other....................................... 1,776 8,909
-------- ----------
Total other assets.................................... 94,457 115,330
-------- ----------
Total assets.......................................... $643,880 $1,206,612
-------- ----------
-------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................... $ 5,481 $ 30,454
Satellite construction payable........................... 8,479 19,275
Short-term notes payable................................. 70,863 114,075
-------- ----------
Total current liabilities............................. 84,823 163,804
Long-term notes payable and accrued interest................ 153,033 488,835
Deferred satellite payments and accrued interest............ 31,324 55,140
Deferred income taxes....................................... 2,237 2,237
-------- ----------
Total liabilities..................................... 271,417 710,016
-------- ----------
Commitments and contingencies:
10 1/2% Series C Convertible Preferred Stock, no par
value: 2,025,000 shares authorized, 1,467,416 and
1,248,776 shares issued and outstanding at December 31,
1998 and 1999, respectively (liquidation preferences of
$146,742 and $124,878), at net carrying value including
accrued dividends....................................... 156,755 149,285
9.2% Series A Junior Cumulative Convertible Preferred
Stock, $.001 par value: 4,300,000 shares authorized,
1,350,000 and 1,461,270 shares issued and outstanding at
December 31, 1998 and 1999, respectively (liquidation
preferences of $135,000 and $146,127), at net carrying
value including accrued dividends....................... 137,755 148,894
9.2% Series B Junior Cumulative Convertible Preferred
Stock, $.001 par value: 2,100,000 shares authorized,
655,406 shares issued and outstanding at December 31,
1999 (liquidation preference of $65,541), at net
carrying value including accrued dividends.............. -- 64,238
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 23,208,949 and 28,721,041 shares issued
and outstanding at December 31, 1998 and 1999,
respectively............................................ 23 29
Additional paid-in capital............................... 149,599 268,641
Deficit accumulated during the development stage......... (71,669) (134,491)
-------- ----------
Total stockholders' equity............................ 77,953 134,179
-------- ----------
Total liabilities and stockholders' equity............ $643,880 $1,206,612
-------- ----------
-------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DEFICIT
COMMON STOCK ACCUMULATED
---------------------------------------------------------------- ADDITIONAL DURING
CLASS CLASS CLASS CLASS PAID- THE
A A B B IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
------ ------ ------ ------ ------ ------ ------- -----
Initial sale of no par value
common stock, $5.00 per
share, May 17, 1990.......... 11,080 $ 55 -- $-- -- $ -- $ -- $--
Initial issuance of common
stock in satisfaction of
amount due to related party,
$5.00 per share.............. 28,920 145 -- -- -- -- -- --
Conversion of no par value
common stock to Class A and
Class B no par value common
stock........................ (40,000) (200) 2,000,000 169 360,000 31 -- --
Sale of Class B common stock,
$0.4165 per share............ -- -- -- -- 442,000 184 -- --
Issuance of Class B common
stock in satisfaction of
amount due to related party,
$0.4165 per share............ -- -- -- -- 24,000 10 -- --
Net loss...................... -- -- -- -- -- -- -- (839)
--------- ------- ---------- ----- ---------- ------- ------- -------
Balance, December 31, 1990.... -- -- 2,000,000 169 826,000 225 -- (839)
Sale of Class B common stock,
$0.50 per share.............. -- -- -- -- 610,000 305 -- --
Issuance of Class B common
stock in satisfaction of
amount due to related party,
$0.50 per share.............. -- -- -- -- 300,000 150 -- --
Net loss...................... -- -- -- -- -- -- -- (575)
--------- ------- ---------- ----- ---------- ------- ------- -------
Balance, December 31, 1991.... -- -- 2,000,000 169 1,736,000 680 -- (1,414)
Sale of Class B common stock,
$0.50 per share.............. -- -- -- -- 200,000 100 -- --
Issuance of Class B common
stock in satisfaction of
amount due to related party,
$0.50 per share.............. -- -- -- -- 209,580 105 -- --
Conversion of note payable to
related party to Class B
common stock, $0.4165 per
share........................ -- -- -- -- 303,440 126 -- --
Conversion of Class A and
Class B common stock to no
par value common stock....... 4,449,020 1,180 (2,000,000) (169) (2,449,020) (1,011) -- --
Sale of no par value common
stock, $1.25 per share....... 1,600,000 2,000 -- -- -- -- -- --
Conversion of no par value
common stock to $.001 par
value common stock........... -- (3,174) -- -- -- -- 3,174 --
Sale of $.001 par value common
stock, $5.00 per share....... 315,000 -- -- -- -- -- 1,575 --
Net loss...................... -- -- -- -- -- -- -- (1,551)
--------- ------- ---------- ----- ---------- ------- ------- -------
Balance, December 31, 1992.... 6,364,020 6 -- -- -- -- 4,749 (2,965)
Sale of $.001 par value common
stock, $5.00 per share, net
of commissions............... 1,029,000 1 -- -- -- -- 4,882 --
Compensation expense in
connection with issuance of
stock options................ -- -- -- -- -- -- 80 --
Common stock issued in
connection with conversion of
note payable at $5.00 per
share........................ 60,000 -- -- -- -- -- 300 --
Common stock issued in
satisfaction of commissions
payable, $5.00 per share..... 4,000 -- -- -- -- -- 20 --
Net loss...................... -- -- -- -- -- -- -- (6,568)
--------- ------- ---------- ----- ---------- ------- ------- -------
Balance, December 31, 1993.... 7,457,020 7 -- -- -- -- 10,031 (9,533)
DEFERRED
COMPENSATION
ON
STOCK
OPTIONS
GRANTED TOTAL
------- -----
Initial sale of no par value
common stock, $5.00 per
share, May 17, 1990.......... $ -- $ 55
Initial issuance of common
stock in satisfaction of
amount due to related party,
$5.00 per share.............. -- 145
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
Issuance of Class B common
stock in satisfaction of
amount due to related party,
$0.4165 per share............ -- 10
Net loss...................... -- (839)
-------- -------
Balance, December 31, 1990.... -- (445)
Sale of Class B common stock,
$0.50 per share.............. -- 305
Issuance of Class B common
stock in satisfaction of
amount due to related party,
$0.50 per share.............. -- 150
Net loss...................... -- (575)
-------- -------
Balance, December 31, 1991.... -- (565)
Sale of Class B common stock,
$0.50 per share.............. -- 100
Issuance of Class B common
stock in satisfaction of
amount due to related party,
$0.50 per share.............. -- 105
Conversion of note payable to
related party to Class B
common stock, $0.4165 per
share........................ -- 126
Conversion of Class A and
Class B common stock to no
par value common stock....... -- --
Sale of no par value common
stock, $1.25 per share....... -- 2,000
Conversion of no par value
common stock to $.001 par
value common stock........... -- --
Sale of $.001 par value common
stock, $5.00 per share....... -- 1,575
Net loss...................... -- (1,551)
-------- -------
Balance, December 31, 1992.... -- 1,790
Sale of $.001 par value common
stock, $5.00 per share, net
of commissions............... -- 4,883
Compensation expense in
connection with issuance of
stock options................ -- 80
Common stock issued in
connection with conversion of
note payable at $5.00 per
share........................ -- 300
Common stock issued in
satisfaction of commissions
payable, $5.00 per share..... -- 20
Net loss...................... -- (6,568)
-------- -------
Balance, December 31, 1993.... -- 505
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DEFICIT
COMMON STOCK ACCUMULATED
---------------------------------------------------------------- ADDITIONAL DURING
CLASS CLASS CLASS CLASS PAID- THE
A A B B IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
------ ------ ------ ------ ------ ------ ------- -----
Sales of $.001 par value
common stock, $5.00 per
share, net of commissions.... 250,000 -- -- -- -- -- 1,159 --
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 -- -- -- -- 4,834 --
Deferred compensation on stock
options granted.............. -- -- -- -- -- -- 1,730 --
Forfeiture of stock options by
Company officer.............. -- -- -- -- -- -- (207) --
Compensation expense in
connection with issuance of
stock options................ -- -- -- -- -- -- 113 --
Amortization of deferred
compensation................. -- -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- (4,065)
---------- --- ---------- ----- ---------- ------- -------- --------
Balance, December 31, 1994.... 9,198,960 9 -- -- -- -- 17,660 (13,598)
Common stock issued for
services rendered, between
$3.028 and $3.916 per
share........................ 107,000 -- -- -- -- -- 347 --
Amortization of deferred
compensation................. -- -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- (2,107)
---------- --- ---------- ----- ---------- ------- -------- --------
Balance, December 31, 1995.... 9,305,960 9 -- -- -- -- 18,007 (15,705)
Exercise of stock warrants at
$6.00 per share.............. 791,931 1 -- -- -- -- 4,588 --
Exercise of stock options by
Company officers, between
$1.00 and $5.00 per share.... 135,000 -- -- -- -- -- 155 --
Common stock issued for
services rendered, between
$5.76 and $12.26 per share... 67,500 -- -- -- -- -- 554 --
Common stock options granted
for services rendered, to
purchase 60,000 shares at
$4.50 per share.............. -- -- -- -- -- -- 120 --
Amortization of deferred
compensation................. -- -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- (2,831)
---------- --- ---------- ----- ---------- ------- -------- --------
Balance, December 31, 1996.... 10,300,391 10 -- -- -- -- 23,424 (18,536)
Exercise of stock options
between $1.00 and $2.00 per
share........................ 43,000 -- -- -- -- -- 56 --
Value of beneficial conversion
feature on 5% Delayed
Convertible Preferred
Stock........................ 51,975 --
Accretion of deemed
dividend..................... -- -- -- -- -- -- (51,975) --
Sale of $.001 par value common
stock, $13.12 per share, net
of expenses.................. 1,905,488 2 -- -- -- -- 24,393 --
Exchange of 5% Delayed
Convertible Preferred Stock
into 10 1/2% Series C
Convertible Preferred
Stock........................ -- -- -- -- -- -- (63,450) --
Conversion of 5% Delayed
Convertible Preferred Stock
into $.001 par value common
stock........................ 749,812 1 -- -- -- -- 10,280 --
Public offering of $.001 par
value common stock at $18.00
per share, net of expenses... 3,050,000 3 -- -- -- -- 46,424 --
Dividends on preferred
stock........................ -- -- -- -- -- -- (2,338) --
Issuance of fully vested in
the money stock options...... -- -- -- -- -- -- 448
Net loss...................... -- -- -- -- -- -- -- (4,737)
---------- --- ---------- ----- ---------- ------- -------- --------
Balance, December 31, 1997.... 16,048,691 16 -- -- -- -- 39,237 (23,273)
DEFERRED
COMPENSATION
ON
STOCK
OPTIONS
GRANTED TOTAL
------- -----
Sales of $.001 par value
common stock, $5.00 per
share, net of commissions.... -- 1,159
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..................... -- 4,836
Deferred compensation on stock
options granted.............. (1,730) --
Forfeiture of stock options by
Company officer.............. 207 --
Compensation expense in
connection with issuance of
stock options................ -- 113
Amortization of deferred
compensation................. 883 883
Net loss...................... -- (4,065)
------- --------
Balance, December 31, 1994.... (640) 3,431
Common stock issued for
services rendered, between
$3.028 and $3.916 per
share........................ -- 347
Amortization of deferred
compensation................. 320 320
Net loss...................... -- (2,107)
------- --------
Balance, December 31, 1995.... (320) 1,991
Exercise of stock warrants at
$6.00 per share.............. -- 4,589
Exercise of stock options by
Company officers, between
$1.00 and $5.00 per share.... -- 155
Common stock issued for
services rendered, between
$5.76 and $12.26 per share... -- 554
Common stock options granted
for services rendered, to
purchase 60,000 shares at
$4.50 per share.............. -- 120
Amortization of deferred
compensation................. 320 320
Net loss...................... -- (2,831)
------- --------
Balance, December 31, 1996.... -- 4,898
Exercise of stock options
between $1.00 and $2.00 per
share........................ -- 56
Value of beneficial conversion
feature on 5% Delayed
Convertible Preferred
Stock........................ -- 51,975
Accretion of deemed
dividend..................... -- (51,975)
Sale of $.001 par value common
stock, $13.12 per share, net
of expenses.................. -- 24,395
Exchange of 5% Delayed
Convertible Preferred Stock
into 10 1/2% Series C
Convertible Preferred
Stock........................ -- (63,450)
Conversion of 5% Delayed
Convertible Preferred Stock
into $.001 par value common
stock........................ -- 10,281
Public offering of $.001 par
value common stock at $18.00
per share, net of expenses... -- 46,427
Dividends on preferred
stock........................ -- (2,338)
Issuance of fully vested in
the money stock options...... 448
Net loss...................... -- (4,737)
------- --------
Balance, December 31, 1997.... -- 15,980
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DEFICIT
COMMON STOCK ACCUMULATED
---------------------------------------------------------------- ADDITIONAL DURING
CLASS CLASS CLASS CLASS PAID- THE
A A B B IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
------ ------ ------ ------ ------ ------ ------- -----
Sale of $.001 par value common
stock, $20.00 per share, net
of expenses.................. 5,000,000 5 -- -- -- -- 97,995 --
Exercise of stock options
between $2.00 and $4.50 per
share........................ 44,850 -- -- -- -- -- 140 --
Conversion of 10 1/2%
Series C Convertible
Preferred Stock into $.001
par value common stock....... 2,107,666 2 -- -- -- -- 37,654 --
Issuance of $.001 par value
common stock in connection
with employee benefit plan... 7,742 -- -- -- -- -- 214 --
Compensation expense in
connection with quick vesting
of stock options............. -- -- -- -- -- -- 950 --
Value of beneficial conversion
feature on 9.2% Series A
Junior Cumulative Convertible
Preferred Stock.............. -- -- -- -- -- -- 10,884 --
Value of option on 9.2% Series
B Junior Cumulative
Convertible Preferred
Stock........................ -- -- -- -- -- -- (6,600) --
Amortization of option on 9.2%
Series B Junior Cumulative
Convertible Preferred
Stock........................ -- -- -- -- -- -- 181 --
Accretion of deemed
dividend..................... -- -- -- -- -- -- (11,676) --
Dividends on preferred
stock........................ -- -- -- -- -- -- (19,380) --
Net loss...................... -- -- -- -- -- -- -- (48,396)
---------- --- ---------- ------ ---------- ------- -------- ---------
Balance, December 31, 1998.... 23,208,949 23 -- -- -- -- 149,599 (71,669)
Sale of $.001 par value common
stock, $24.75 per share, net
of expenses.................. 3,450,000 4 -- -- -- -- 78,133 --
Issuance of warrants in
connection with the 14 1/2%
Senior Secured Notes due
2009......................... -- -- -- -- -- -- 31,382 --
Exercise of stock options
between $2.00 and $24.38 per
share........................ 205,002 -- -- -- -- -- 1,642 --
Conversion of 10 1/2%
Series C Convertible
Preferred Stock, including
accrued dividends, into $.001
par value common stock....... 1,409,871 1 -- -- -- -- 25,813 --
Conversion of 8 3/4%
Convertible Subordinated
Notes due 2009, including
interest and related costs... 423,221 1 -- -- -- -- 11,488 --
Issuance of $.001 par value
common stock in connection
with employee benefit plan... 23,998 -- -- -- -- -- 654 --
Compensation in connection
with the issuance of common
stock options................ -- -- -- -- -- -- 752 --
Value of premium on issuance
of 9.2% Series B Junior
Cumulative Convertible
Preferred Stock.............. -- -- -- -- -- -- (3,385) --
Amortization of option on 9.2%
Series B Junior Cumulative
Convertible Preferred
Stock........................ -- -- -- -- -- -- 6,419 --
Accretion of deemed
dividend..................... -- -- -- -- -- -- (3,535) --
Dividends on preferred
stock........................ -- -- -- -- -- -- (30,321) --
Net loss...................... -- -- -- -- -- -- -- (62,822)
---------- --- ---------- ------ ---------- ------- -------- ---------
Balance, December 31, 1999.... 28,721,041 $29 -- $-- -- $ -- $268,641 $(134,491)
---------- --- ---------- ------ ---------- ------- -------- ---------
---------- --- ---------- ------ ---------- ------- -------- ---------
DEFERRED
COMPENSATION
ON
STOCK
OPTIONS
GRANTED TOTAL
------- -----
Sale of $.001 par value common
stock, $20.00 per share, net
of expenses.................. -- 98,000
Exercise of stock options
between $2.00 and $4.50 per
share........................ -- 140
Conversion of 10 1/2%
Series C Convertible
Preferred Stock into $.001
par value common stock....... -- 37,656
Issuance of $.001 par value
common stock in connection
with employee benefit plan... -- 214
Compensation expense in
connection with quick vesting
of stock options............. -- 950
Value of beneficial conversion
feature on 9.2% Series A
Junior Cumulative Convertible
Preferred Stock.............. -- 10,884
Value of option on 9.2% Series
B Junior Cumulative
Convertible Preferred
Stock........................ -- (6,600)
Amortization of option on 9.2%
Series B Junior Cumulative
Convertible Preferred
Stock........................ -- 181
Accretion of deemed
dividend..................... -- (11,676)
Dividends on preferred
stock........................ -- (19,380)
Net loss...................... -- (48,396)
-------- --------
Balance, December 31, 1998.... -- 77,953
Sale of $.001 par value common
stock, $24.75 per share, net
of expenses.................. -- 78,137
Issuance of warrants in
connection with the 14 1/2%
Senior Secured Notes due
2009......................... -- 31,382
Exercise of stock options
between $2.00 and $24.38 per
share........................ -- 1,642
Conversion of 10 1/2%
Series C Convertible
Preferred Stock, including
accrued dividends, into $.001
par value common stock....... -- 25,814
Conversion of 8 3/4%
Convertible Subordinated
Notes due 2009, including
interest and related costs... -- 11,489
Issuance of $.001 par value
common stock in connection
with employee benefit plan... -- 654
Compensation in connection
with the issuance of common
stock options................ -- 752
Value of premium on issuance
of 9.2% Series B Junior
Cumulative Convertible
Preferred Stock.............. -- (3,385)
Amortization of option on 9.2%
Series B Junior Cumulative
Convertible Preferred
Stock........................ -- 6,419
Accretion of deemed
dividend..................... -- (3,535)
Dividends on preferred
stock........................ -- (30,321)
Net loss...................... -- (62,822)
-------- --------
Balance, December 31, 1999.... $ -- $134,179
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
CUMULATIVE FOR THE
PERIOD MAY 17, 1990
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION)
--------------------------------- TO DECEMBER 31,
1997 1998 1999 1999
--------- --------- --------- -------------------
Cash flows from development stage activities:
Net loss.................................. $ (4,737) $ (48,396) $ (62,822) $ (134,491)
Adjustments to reconcile net loss to net
cash provided by (used in) development
stage activities:
Depreciation expense................... 30 49 861 1,164
Unrealized (gain) loss on marketable
securities........................... (624) 138 (3,396) (3,882)
(Gain) loss on disposal of assets...... -- 105 10 115
Special charges........................ -- 23,557 -- 25,557
Accretion of note payable charged as
interest expense..................... 1,868 25,998 56,199 84,065
Sales (purchases) of marketable
securities and restricted
investments, net..................... (168,858) 53,911 (266,422) (381,369)
Compensation expense in connection with
issuance of common stock and stock
options.............................. 448 150 1,206 4,542
Expense incurred in connection with
induced conversion of debt........... -- -- 1,776 1,776
Increase (decrease) in cash and cash
equivalents resulting from changes in
assets and liabilities:
Prepaid expense and other.............. (919) 762 (575) (741)
Due to related party................... -- -- -- 351
Other assets........................... 73 (2,368) (3,457) (6,056)
Accounts payable and accrued
expenses............................. 249 5,062 4,019 9,571
Deferred income taxes.................. -- 2,237 -- 2,237
--------- --------- --------- ----------
Net cash provided by (used in)
development stage activities...... (172,470) 61,205 (272,601) (397,161)
--------- --------- --------- ----------
Cash flows from investing activities:
Purchase of FCC license................... (83,346) (22) -- (83,368)
Payments for satellite construction....... (49,300) (99,646) (167,933) (316,879)
Payments for launch services.............. (6,292) (103,563) (95,793) (205,648)
Other capital expenditures................ (7) (7,301) (45,333) (53,033)
Acquisition of Sky-Highway Radio Corp..... -- -- -- (2,000)
--------- --------- --------- ----------
Net cash used in investing
activities........................ (138,945) (210,532) (309,059) (660,928)
--------- --------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable... -- 70,863 180,399 251,262
Proceeds from issuance of common stock,
net...................................... 70,822 98,064 78,337 261,780
Proceeds from issuance of preferred stock,
net...................................... 120,518 129,550 62,900 312,968
Proceeds from exercise of stock options
and warrants............................. 56 140 1,643 6,583
Proceeds from issuance of promissory note
and units, net........................... 116,335 -- 190,000 306,535
Proceeds from issuance of promissory notes
to related parties....................... -- -- -- 2,965
Repayment of promissory notes............. -- -- -- (2,635)
Loan from officer......................... -- -- -- 440
--------- --------- --------- ----------
Net cash provided by financing
activities........................ 307,731 298,617 513,279 1,139,898
--------- --------- --------- ----------
Net increase (decrease) in cash and cash
equivalents................................. (3,684) 149,290 (68,381) 81,809
Cash and cash equivalents at the beginning of
period...................................... 4,584 900 150,190 --
--------- --------- --------- ----------
Cash and cash equivalents at the end of
period...................................... $ 900 $ 150,190 $ 81,809 $ 81,809
--------- --------- --------- ----------
--------- --------- --------- ----------
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest,
net of capitalized interest.............. $ -- $ 2,383 $ 1,204 $ 3,670
Cash paid during the period for taxes..... $ -- $ 58 $ -- $ 58
Supplemental disclosure of non-cash investing
and financing activities:
Deferred satellite payments, including
accrued interest......................... $ -- $ 31,324 $ 23,816 $ 55,140
Common stock issued in satisfaction of
notes payable and amounts due to related
parties, including accrued interest...... $ -- $ -- $ 10,151 $ 11,558
Exchange of 5% Delayed Convertible
Preferred Stock for 10 1/2% Series C
Convertible Preferred Stock.............. $ 173,687 $ -- $ -- $ 173,687
Exchange of 10 1/2% Series C Convertible
Preferred Stock and accrued dividends for
common stock............................. $ -- $ 37,656 $ 25,814 $ 63,470
Accrual of dividends on preferred stock... $ 2,338 $ 19,380 $ 30,321 $ 52,040
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
1. BUSINESS
Sirius Satellite Radio Inc. ('Sirius Radio'), a Delaware corporation, is
developing a service for broadcasting digital quality music programming via
satellites to subscribers' vehicles. We intend to focus exclusively on providing
a consumer service, and anticipate that the equipment required to receive our
broadcasts will be manufactured by consumer electronics manufacturers. In April
1997, we were the winning bidder in an FCC auction for one of two national
satellite broadcast licenses with a winning bid of $83.3 million. We paid the
bid amount during 1997 and were awarded an FCC license on October 10, 1997.
2. ACCOUNTING POLICIES
Basis of presentation: The consolidated financial statements include the
accounts of Sirius Radio and our wholly owned subsidiary. Intercompany
transactions are eliminated in consolidation. Our principal activities to date
have included developing our technology, obtaining regulatory approval for our
service, commencing the construction of four satellites, constructing our
production and broadcast facility, acquiring content for our programming,
developing our terrestrial repeater network, arranging for the design and
development of receivers, strategic planning, market research, recruiting our
management team and securing financing for capital expenditures and working
capital. Accordingly, our 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.'
Risks and uncertainties: As a development stage enterprise, we have a
limited operating history and our prospects are subject to the risks, expenses
and uncertainties frequently encountered by companies in new and rapidly
evolving markets for satellite products and services. Among the key risks that
may have a direct bearing on our future results of operations are the potential
risk of delay in implementing our business plan; our dependence on Space
Systems/Loral, Inc. ('Loral'), Lucent Technologies, Inc. ('Lucent') and consumer
electronics manufacturers; the unavailability of receivers and antennas; the
risk of launch failure; the unproven market for our proposed service; the
unproven applications of existing technology; and our need for additional
financing.
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, among
other things, various future factors which are difficult to predict and are
beyond our control. Actual amounts could differ from these estimates.
Cash equivalents: We consider all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
Concentration of credit risk: We have invested our 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. We have not experienced any
losses on our investments.
Property and equipment: All costs incurred related to activities necessary
to prepare the Sirius Radio delivery 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 equipment, terrestrial repeater network in process, capitalized interest
(totaling $72,810 at December 31, 1999) 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 at the end of 2000. We anticipate that we will
F-9
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
depreciate the 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 3 to 10
years.
Long-lived assets: We evaluate 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: We record 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: Basic loss per share is based on the weighted average
number of outstanding shares of our Common Stock. Diluted loss per share adjusts
the weighted average for the potential dilution that could occur if common stock
equivalents (convertible preferred stock, convertible debt, warrants and stock
options) were exercised or converted into Common Stock. As of December 31, 1997,
1998 and 1999, approximately 11,345,000, 16,646,000 and 21,127,000 common stock
equivalents were outstanding, respectively, and were excluded from the
calculation of diluted loss per share as they were antidilutive.
Comprehensive income: In 1997, the Financial Accounting Standards Board
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. Currently, we have no
comprehensive income items to report.
Reclassifications: Certain amounts in the prior years' consolidated
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' ('SFAS No. 115'), and unrealized holding gains and losses are
reflected in earnings. Unrealized holding gains were $485 and $3,882 at
December 31, 1998 and 1999, respectively.
F-10
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
4. RESTRICTED INVESTMENTS
Restricted investments consist of fixed income securities and are stated at
amortized cost plus accrued interest income. Restricted investments are defined
as held-to-maturity securities under the provision of SFAS No. 115 and
unrealized holding gains and losses are not reflected in earnings. Unrealized
holding losses were $716 at December 31, 1999. The securities included in
restricted investments are restricted to provide for the first six scheduled
interest payments on our 14 1/2% Senior Secured Notes due 2009. On November 15,
1999, proceeds from matured investments were used to make the first scheduled
interest payment on these notes.
5. NOTES PAYABLE
SHORT-TERM
In 1998, we 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 provided us a term loan facility in an aggregate
principal amount of up to $115,000. We used the proceeds of the facility 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 was pledged to the Lenders as collateral. In addition, Loral
Space & Communications Ltd. ('Loral Space') guaranteed the amounts outstanding
under the credit agreement. The terms of the credit agreement required us to
maintain minimum levels of consolidated net worth and placed limitations on
asset disposals. The weighted-average borrowing rate for 1999 was 8.65%. On
February 29, 2000, we repaid these loans and cancelled the related credit
agreement.
LONG-TERM
In November 1997, we received net proceeds of $116,000 from the issuance of
12,910 units consisting of $20 principal amount at maturity of our 15% Senior
Secured Discount Notes due 2007 and a warrant to purchase additional 15% Senior
Secured Discount Notes due 2007 with an aggregate principal amount at maturity
of $3. All of the warrants were exercised in 1997. The aggregate maturity value
of our 15% Senior Secured Discount Notes due 2007 is $297,000. Our 15% Senior
Secured Discount Notes due 2007 mature on December 1, 2007 and the first cash
interest payment is deferred until June 2003. Cash interest of approximately
$19,000 will be due on each June 1 and December 1 of the remaining years of our
15% Senior Secured Discount Notes due 2007. The indenture governing our 15%
Senior Secured Discount Notes due 2007 contains some limitations on our ability
to incur additional indebtedness. As of December 31, 1998 and 1999, we had
accrued interest relating to our 15% Senior Secured Discount Notes due 2007 of
$27,867 and $59,488, respectively. At December 31, 1999, our 15% Senior Secured
Discount Notes due 2007 had a fair value of approximately $141,000. Our 15%
Senior Secured Discount Notes due 2007 are redeemable, at our option, 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. Our 15% Senior
Secured Discount Notes due 2007 are senior obligations and are secured by a
pledge of the stock of Satellite CD Radio, Inc., our subsidiary that holds our
FCC license. We incurred approximately $9,000 of costs in connection with the
issuance of our 15% Senior Secured Discount Notes due 2007. Debt issuance costs
have been deferred and are amortized over the 10-year life of these notes.
Accumulated amortization of debt issuance costs was $952 and $1,834 at December
31, 1998 and 1999, respectively.
In May 1999, we received net proceeds of approximately $190,000 from the
issuance of 200,000 units, each consisting of $1 aggregate principal amount of
our 14 1/2% Senior Secured Notes due 2009 and three warrants, each to purchase
3.65 shares of our Common Stock. The warrants are exercisable
F-11
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
through May 15, 2009 at an exercise price of $28.60 per share. Interest payments
on our 14 1/2% Senior Secured Notes due 2009 began on November 15, 1999 and
future interest payments are payable semi-annually in cash. We invested
approximately $79,300 of the net proceeds of our 14 1/2% Senior Secured Notes
due 2009 in a portfolio of U.S. government securities, which we pledged as
security for the payment in full of interest on our 14 1/2% Senior Secured Notes
due 2009 through May 15, 2002. As of December 31, 1999, we had accrued interest
relating to our 14 1/2% Senior Secured Notes due 2009 of $3,706. At December 31,
1999, our 14 1/2% Senior Secured Notes due 2009 had a fair value of
approximately $220,000. Our 14 1/2% Senior Secured Notes due 2009 are
redeemable, at our option, in whole or in part, at any time on or after May 15,
2004 at a specified redemption price plus accrued interest, if any, to the date
of redemption. In addition, we may redeem up to 35% of the principal amount of
our 14 1/2% Senior Secured Notes due 2009 with the net proceeds of one or more
equity offerings before May 15, 2002. Our 14 1/2% Senior Secured Notes due 2009
are senior secured obligations and are secured by the issued and outstanding
common stock of Satellite CD Radio, Inc. The indenture governing our 14 1/2%
Senior Secured Notes due 2009 contains some limitations on our ability to incur
additional indebtedness. We incurred approximately $10,000 of costs in
connection with the issuance of our 14 1/2% Senior Secured Notes due 2009. Debt
issuance costs have been deferred and amortized over the 10-year life of these
notes. Accumulated amortization of debt issuance costs was $611 as of December
31, 1999.
In September 1999, we issued $125,000 aggregate principal amount of our
8 3/4% Convertible Subordinated Notes due 2009 in an underwritten public
offering resulting in net proceeds of $119,000. In October 1999, we issued an
additional $18,750 aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009 to satisfy the underwriters' over-allotment option,
resulting in net proceeds of $18,000. Our 8 3/4% Convertible Subordinated Notes
due 2009 are convertible, at the option of the holder, unless previously
redeemed, into shares of our Common Stock at any time at a conversion rate of
35.134 shares of Common Stock for each $1 principal amount of our 8 3/4%
Convertible Subordinated Notes due 2009, subject to certain adjustments. We may
redeem our 8 3/4% Convertible Subordinated Notes due 2009, in whole or in part,
at our option on or after September 29, 2002, contingent upon certain
circumstances. In December 1999, we acquired $10,000 of our 8 3/4% Convertible
Subordinated Notes due 2009 in exchange for shares of our Common Stock. At
December 31, 1999, our 8 3/4% Convertible Subordinated Notes due 2009 had a fair
value of approximately $226,038. Interest on our 8 3/4% Convertible Subordinated
Notes due 2009 is payable semi-annually in cash beginning March 29, 2000. As of
December 31, 1999, we had accrued interest related to our 8 3/4% Convertible
Subordinated Notes due 2009 of $3,021. We incurred approximately $6,600 of costs
in connection with the issuance of our 8 3/4% Convertible Subordinated Notes due
2009. Debt issuance costs have been deferred and amortized over the 10-year life
of these notes. Accumulated amortization of debt issuance costs was $168 as of
December 31, 1999.
As required by the terms of the warrants issued in conjunction with the
14 1/2% Senior Secured Notes due 2009, we adjusted the number of shares for
which each warrant may be exercised and the exercise price per share on
September 29, 1999, in connection with our issuance of 3,000,000 shares of our
Common Stock and $125,000 principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009. As of December 31, 1999, each warrant may be
exercised for 3.792 shares of our Common Stock at an exercise price per share of
$27.53.
6. DEFERRED SATELLITE PAYMENTS
Under an amended and restated contract with Loral (the 'Loral Satellite
Contract'), Loral has agreed to defer certain amounts previously due under the
Loral Satellite Contract. The amounts deferred, which approximate fair value,
bear interest at 10% per year and are due in quarterly
F-12
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
installments beginning in June 2002. We have the right to prepay any deferred
payments together with accrued interest, without penalty.
7. CAPITAL STOCK
COMMON STOCK, PAR VALUE $.001 PER SHARE
On September 29, 1994, we completed our initial public offering by issuing
1,491,940 shares of our Common Stock for net proceeds of $4,800. On August 5,
1997, we sold 1.9 million shares of our Common Stock to Loral Space for net
proceeds of approximately $24,400. In November 1997, we issued 2.8 million
shares of our Common Stock for net proceeds of $42,200 in a public offering. In
December 1997, we issued an additional 250,000 shares of our Common Stock, in
connection with the partial exercise of the option granted to the underwriters
of our November 1997 public offering solely to cover over-allotments, for net
proceeds of $4,200. In November 1998, we issued 5 million shares of our Common
Stock to Prime 66 Partners, L.P. for net proceeds of $98 million. In September
1999, we issued 3 million shares of our Common Stock in an underwritten public
offering for net proceeds of approximately $68,000. In October 1999, we issued
an additional 450,000 shares of our Common Stock, in connection with the
exercise of the option granted to the underwriters of our September 1999 public
offering solely to cover over-allotments, for net proceeds of approximately
$10,000.
As of December 31, 1999, approximately 34 million shares of our Common Stock
were reserved in connection with outstanding shares of convertible preferred
stock, convertible debt, warrants and incentive stock plans.
PREFERRED STOCK
In April 1997, we completed a private placement of our 5% Delayed
Convertible Preferred Stock. We sold a total of 5.4 million shares of our 5%
Delayed Convertible Preferred Stock for an aggregate sales price of $135,000.
The 5% Delayed Convertible Preferred Stock was immediately convertible at a
discount to the fair market value of our Common Stock and, accordingly, in 1997,
we recorded approximately $52,000 as a deemed dividend in determining net loss
attributable to common stockholders.
In November 1997, we exchanged 1,846,799 shares of our 10 1/2% Series C
Convertible Preferred Stock for all outstanding shares of our 5% Delayed
Convertible Preferred Stock. Each share of our 10 1/2% Series C Convertible
Preferred Stock is convertible into a number of shares of our Common Stock
calculated by dividing the $100.00 per share liquidation preference (the 'Series
C Liquidation Preference') by a conversion price of $18.00. This conversion
price is subject to adjustment for certain corporate events. Any holder who
converts our 10 1/2% Series C Convertible Preferred Stock into Common Stock
prior to November 15, 2002 will forfeit the right to any accrued and unpaid
dividends. Dividends on our 10 1/2% Series C Convertible 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 in cash or in Common Stock at our option. Commencing November 15, 1999,
we may redeem our 10 1/2% Series C Convertible Preferred Stock at the Series C
Liquidation Preference plus any accrued and unpaid dividends, provided the price
of our Common Stock is at least $31.50 per share during a specified period. On
March 3, 2000, we notified the holders of our 10 1/2% Series C Convertible
Preferred Stock and the holders of all outstanding warrants to purchase shares
of our 10 1/2% Series C Convertible Preferred Stock that on April 12, 2000 we
would redeem these securities. As of December 31, 1998 and 1999, we accrued
dividends payable relating to the 10 1/2% Series C Convertible Preferred Stock
totaling $18,179 and $30,796, respectively. At December 31, 1999, the 10 1/2%
Series C Convertible Preferred Stock had a fair value of $308,725.
F-13
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
On December 23, 1998, we sold to Apollo Investment Fund IV, L.P., a Delaware
limited partnership, and Apollo Overseas Partners IV, L.P., a Cayman Islands
limited partnership (collectively, the 'Apollo Investors'), 1,350,000 shares of
our 9.2% Series A Junior Cumulative Convertible Preferred Stock, par value $.001
per share, for an aggregate purchase price of approximately $135,000. Each share
of our 9.2% Series A Junior Cumulative Convertible Preferred Stock is
convertible into a number of shares of our Common Stock calculated by dividing
the $100.00 per share liquidation preference (the 'Series A Liquidation
Preference') by a conversion price of $30.00. This conversion price is subject
to adjustment for certain corporate events. Dividends on our 9.2% Series A
Junior Cumulative Convertible Preferred Stock commenced on November 15, 1999 and
are payable annually in cash or in additional shares of our 9.2% Series A Junior
Cumulative Convertible Preferred Stock, at our option. From and after November
15, 2001 and prior to November 15, 2003, we may redeem shares of our 9.2% Series
A Junior Cumulative Convertible Preferred Stock at the Series A Liquidation
Preference, plus any accrued and unpaid dividends, provided the price of our
Common Stock is at least $60.00 per share during a specified period. From and
after November 15, 2003, we may redeem shares of our 9.2% Series A Junior
Cumulative Convertible Preferred Stock at the same redemption price without
reference to the market price of our Common Stock. We are required to redeem all
outstanding shares of our 9.2% Series A Junior Cumulative Convertible Preferred
Stock at a price equal to the Series A Liquidation Preference plus any accrued
and unpaid dividends on November 15, 2011. On the date of issuance, the 9.2%
Series A Junior Cumulative Convertible Preferred Stock was immediately
convertible at a discount to the then fair market value of our Common Stock and,
accordingly, we recorded approximately $11 million as a deemed dividend in net
loss applicable to common stockholders. At December 31, 1999, the fair value of
our 9.2% Series A Junior Cumulative Convertible Preferred Stock approximated
book value and accrued dividends payable relating to this stock totaled $12,821.
The Apollo Investors granted to us, in conjunction with the issuance of our
9.2% Series A Junior Cumulative Convertible Preferred Stock, an option to sell
to the Apollo Investors 650,000 shares of our 9.2% Series B Junior Cumulative
Convertible Preferred Stock, par value $.001 per share, for an aggregate
purchase price of $65,000. We recorded the value of our 9.2% Series B Junior
Cumulative Convertible Preferred Stock at fair value and recorded approximately
$3,101 of deemed dividends related primarily to the amortization of the value of
the option during 1999. We exercised the option to sell our 9.2% Series B Junior
Cumulative Convertible Preferred Stock to the Apollo Investors on December 23,
1999. The terms of our 9.2% Series B Junior Cumulative Convertible Preferred
Stock are similar to those of our 9.2% Series A Junior Cumulative Convertible
Preferred Stock. At December 31, 1999, the fair value of our 9.2% Series B
Junior Cumulative Convertible Preferred Stock approximated book value and
accrued dividends payable relating to this stock totaled $1,301.
WARRANTS
In connection with our initial public offering in 1994, we issued warrants
to purchase 745,970 shares of our Common Stock. Additionally, we issued to the
underwriters, as consideration, warrants to purchase 123,560 shares of our
Common Stock. In September 1996, we received proceeds of $4,589 relating to the
exercise of 864,848 warrants and the remaining 4,682 warrants expired
unexercised. Of the warrants exercised, 764,848 shares of our Common Stock were
issued in exchange for cash at a purchase price of $6.00 per share and 27,083
shares of our Common Stock were issued in a cashless exercise of 100,000
warrants held by the underwriters.
In connection with the November 1997 issuance of our 10 1/2% Series C
Convertible Preferred Stock, we granted our investment advisor and certain
related persons, in lieu of a warrant to purchase shares of 5% Delayed
Convertible Preferred Stock, warrants to purchase an aggregate of 177,178 shares
of our 10 1/2% Series C Convertible Preferred Stock at an initial exercise price
of $68.47 per share. The
F-14
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
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 was exercisable at a
discount to the fair market value of our Common Stock on the date of issuance
and, accordingly, we will record, over the life of the warrant, $1.6 million as
a deemed dividend in connection with the issuance of these warrants to purchase
shares of our 10 1/2% Series C Convertible Preferred Stock. During 1999, we
accreted dividends of $303 related to this warrant. In addition, in 1997 we
granted to an investor warrants to purchase 1.8 million shares of our Common
Stock at $50.00 per share during the period from June 15, 1998 until June 15,
2005, subject to certain conditions. After June 15, 2000, we may redeem all of
these warrants, provided that the price of our Common Stock is at least $75.00
per share during a specified period.
As part of our agreement with Ford Motor Company ('Ford') on June 11, 1999,
we issued to Ford warrants to purchase 4 million shares of our Common Stock at
an exercise price of $30.00 per share. These warrants are exercisable based upon
the number of new Ford vehicles equipped to receive our broadcasts manufactured
by Ford, and are fully exercisable after 4 million new Ford vehicles equipped to
receive our broadcasts are manufactured.
8. EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS
In February 1994, we adopted our 1994 Stock Option Plan (the '1994 Plan')
and our 1994 Directors' Nonqualified Stock Option Plan (the 'Directors' Plan').
In June 1999, we adopted our 1999 Long-Term Stock Incentive Plan (the '1999
Plan'). Generally, stock options are granted at an exercise price equal to or
greater than market value at the date of grant; vest over a four-year period;
and are exercisable for a period of ten years from the date of grant. As of
December 31, 1999, the aggregate number of shares of Common Stock available for
issuance pursuant to the 1994 Plan, the Directors' Plan and the 1999 Plan was
9,928,000.
The following table summarizes the option activity under all option plans
for the years ended December 31, 1997, 1998 and 1999:
1997 1998 1999
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION EXERCISE OPTION EXERCISE OPTION EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
Outstanding at Beginning of
Year........................... 1,492,500 $ 5.74 1,909,500 $ 8.16 2,453,525 $12.87
Granted.......................... 515,000 $14.52 659,500 $28.13 4,569,250 $29.88
Exercised........................ (43,000) $ 1.30 (44,850) $ 3.11 (128,025) $ 9.08
Cancelled........................ (55,000) $ 5.98 (70,625) $18.55 (620,000) $13.45
--------- --------- ---------
Outstanding at End of Year....... 1,909,500 $ 8.16 2,453,525 $12.87 6,274,750 $25.27
--------- --------- ---------
--------- --------- ---------
F-15
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
Exercise prices for stock options outstanding as of December 31, 1999 ranged
from $1.00 to $38.875. The following table provides certain information with
respect to stock options outstanding and exercisable at December 31, 1999:
RANGE OF EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING
PRICES PER SHARE SHARES UNDER OPTION EXERCISE PRICE PER SHARE CONTRACTUAL LIFE IN YEARS
- ---------------- ------------------- ------------------------ -------------------------
OUTSTANDING:
Under $5.00.................. 327,500 $ 3.0324 4.90
$5.00-$14.99................. 651,500 $ 9.7707 3.44
$15.00-$24.99................ 757,100 $22.0903 8.98
$25.00-$34.99................ 4,266,900 $30.6094 9.30
Over $35..................... 71,750 $36.7859 9.10
EXERCISABLE:
Under $5.00.................. 327,500 $ 3.0324
$5.00-$14.99................. 577,000 $ 9.2537
$15.00-$24.99................ 135,749 $15.9461
$25.00-$34.99................ 1,060,000 $30.6783
Over $35..................... 8,250 $36.6383
As of December 31, 1999, 3,492,000 shares of our Common Stock were available
for grant pursuant to the 1994 Plan, the Directors' Plan or the 1999 Plan.
We have adopted the disclosure-only provisions of SFAS No. 123, 'Accounting
for Stock-Based Compensation', as they pertain to financial statement
recognition of compensation expense attributable to stock option grants. If we
had elected to recognize compensation cost for the stock option grants in
accordance with SFAS No. 123, our net loss and net loss per share (basic and
diluted) on a pro-forma basis would have been:
1997 1998 1999
---- ---- ----
Net loss -- as reported................................. $(4,737) $(48,396) $(62,822)
Net loss -- pro-forma................................... $(6,254) $(51,028) $(99,721)
Net loss per share -- as reported....................... $ (0.41) $ (2.70) $ (2.57)
Net loss per share -- pro-forma......................... $ (0.54) $ (2.85) $ (4.08)
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 1999
---- ---- ----
Risk-free interest rate..................................... 6.11% 4.72% 6.70%
Expected life of options -- years........................... 3.11 4.36 4.38
Expected stock price volatility............................. 75% 75% 70%
Expected dividend yield..................................... N/A N/A N/A
401(K) SAVINGS PLAN
We sponsor the Sirius Satellite Radio 401(k) Savings Plan (the '401(k)
Plan') for eligible employees. The 401(k) Plan allows eligible employees to
voluntarily contribute from 1% to 12% of their gross salary subject to certain
defined limits. We may match up to 100% of the voluntary employee contribution
in the form of our Common Stock. Our matching contribution vests at a rate of
33 1/3% each year and is fully vested after three years of employment.
Contribution expense resulting from our matching contribution to the 401(k) Plan
was $104 and $454 for 1998 and 1999, respectively.
F-16
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
9. 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,
-------------------
1998 1999
---- ----
Start-up costs capitalized for tax purposes................. $ 13,066 $ 28,688
Accrual to cash adjustments................................. 6,427 --
Net operating loss carryforwards............................ 6,205 14,829
Other....................................................... (1,581) (1,009)
-------- --------
24,117 42,508
Valuation allowance......................................... (26,354) (44,745)
-------- --------
Net deferred tax liability.................................. $ (2,237) $ (2,237)
-------- --------
-------- --------
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, 1999, we had net operating loss carryforwards of
approximately $36,435 for federal and state income tax purposes, subject to
Internal Revenue Service and state audits, available to offset future taxable
income. The net operating loss carryforwards expire at various dates beginning
in 2008. A significant portion of costs incurred to date has been capitalized
for tax purposes as a result of our status as a start-up enterprise. Total
start-up costs as of December 31, 1999 were $70,266. Once we begin our 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 $28,915
includes $4,190 which, when realized, would not affect financial statement
income but will be recorded directly to stockholders' equity.
10. SPECIAL CHARGES
During 1998, we decided to enhance our satellite delivery system to include
a third in-orbit satellite and to terminate certain launch and orbit related
contracts. We recorded special charges totaling $25,682 related primarily to the
termination of such contracts.
11. RELATED PARTIES
Since inception, we have relied upon related parties for certain consulting,
legal and management services. We have paid for these services with cash and
with the issuance of shares of our Common Stock. Total cash expenses incurred in
transactions with related parties during the years ended December 31, 1997, 1998
and 1999 and the period from May 17, 1990 (date of inception) to December 31,
1999 were $279, $127, $94 and $2,540, respectively. We have also issued shares
of our Common Stock in lieu of cash in settlement of other related party
liabilities. There were no related party expenses settled with the issuance of
shares of our Common Stock during the years ended December 31, 1997, 1998 and
1999. Related party expenses settled with the issuance of shares of our Common
Stock for the period from May 17, 1990 (date of inception) to December 31, 1999
were $1,311.
During the years ended December 31, 1997, 1998 and 1999 we made payments of
$6,048, $2,000 and $9,379 to a financial advisory firm, of which a related party
is a partner.
12. LEASES AND RENTALS
As of December 31, 1999, minimum rental commitments under operating leases
were $4,298, $4,275, $4,267, $4,267 and $4,379 for the years 2000, 2001, 2002,
2003 and 2004, respectively. For the remaining years, such commitments totaled
$44,811, aggregating total minimum lease payments of $66,297.
F-17
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
Total rent expense for the years ended December 31, 1997, 1998 and 1999 and
the period May 17, 1990 (date of inception) to December 31, 1999 was $278,
$1,985, $4,976 and $8,444, respectively.
13. COMMITMENTS AND CONTINGENCIES
SATELLITE CONSTRUCTION AND LAUNCH SERVICES
To build and launch the satellites necessary for the operations of Sirius
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 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 $745,040 under the Loral Satellite Contract,
which includes $15,000 of long-lead time parts for a fifth satellite and $3,400
for integration analysis of the viability of using a Sea Launch platform as an
alternative launch vehicle for our satellites. As of December 31, 1999,
approximately $434,804 of this commitment has been satisfied. Under the Loral
Satellite Contract, with the exception of a payment made to Loral in March 1993,
payments are made in installments that commenced in April 1997 and will end in
December 2003. Approximately half of these payments are contingent upon Loral
meeting specified milestones in the construction of our satellites. Future
payments are due as follows: $260,236 in 2000, $25,000 in 2002 and $25,000 in
2003.
In the event of a satellite or launch failure, we 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 we 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.
INTEGRATED CIRCUITS
During 1998, we signed an agreement with 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 our broadcasts. We agreed to pay Lucent the costs
of the chip set development work totaling $9,000. On February 1, 1999, we
amended and restated this agreement because the design and development of the
chip sets required more engineering resources than originally estimated. We
estimate that the costs of this development work could total approximately
$35,000.
14. SUBSEQUENT EVENTS
On January 31, 2000, we sold 2 million shares of our 9.2% Series D Junior
Cumulative Convertible Preferred Stock to certain affiliates of The Blackstone
Group, L.P. for net proceeds of approximately $192,000. Each share of our 9.2%
Series D Junior Cumulative Convertible Preferred Stock is convertible into
shares of our Common Stock at a price of $34.00 per share.
On February 1, 2000, we sold 2,290,322 shares of our Common Stock to
DaimlerChrysler Corporation ('DaimlerChrysler') for an aggregate purchase price
of approximately $100,000. As part of our agreement with DaimlerChrysler, we
issued DaimlerChrysler warrants to purchase 4 million shares of our Common Stock
at an exercise price of $60.00 per share. These warrants are exercisable based
upon the number of new DaimlerChrysler vehicles equipped to receive our
broadcasts manufactured by DaimlerChrysler, and are fully exercisable after 4
million new DaimlerChrysler vehicles equipped to receive our broadcasts are
manufactured.
On March 3, 2000, we notified the holders of our 10 1/2% Series C
Convertible Preferred Stock and the holders of the outstanding warrants to
purchase shares of our 10 1/2% Series C Convertible Preferred Stock that on
April 12, 2000 we will redeem these securities. On April 12, 2000, each
outstanding share of our 10 1/2% Series C Convertible Preferred Stock will be
redeemed for $100.00, plus accrued and unpaid dividends, and each outstanding
warrant to purchase one share of our 10 1/2% Series C Convertible Preferred
Stock will be redeemed for $35.34.
F-18
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
3.1.1 -- Certificate of Amendment, dated June 16, 1997, to the
Company's Certificate of Incorporation and the Company's
Amended and Restated Certificate of Incorporation, dated
January 31, 1994 (incorporated by reference to Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999).
3.1.2 -- Certificate of Ownership and Merger merging Sirius
Satellite Radio Inc. into CD Radio Inc. dated November 18,
1999 (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8 (File No.
333-31362)).
3.2 -- Amended and Restated By-Laws (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on
Form S-1 (File No. 33-74782) (the 'S-1 Registration
Statement')).
3.3 -- Certificate of Designations of 5% Delayed Convertible
Preferred Stock (incorporated by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K/A for
the year ended December 31, 1996 (the '1996 Form 10-K')).
3.4 -- Form of Certificate of Designations of Series B Preferred
Stock (incorporated by reference to Exhibit A to Exhibit 1
to the Company's Registration Statement on Form 8-A filed
on October 30, 1997 (the 'Form 8-A')).
3.5.1 -- Form of Certificate of Designations, Preferences and
Relative, Participating, Optional and Other Special Rights
of 10 1/2% Series C Convertible Preferred Stock (the
'Series C Certificate of Designations') (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (File No. 333-34761)).
3.5.2 -- Certificate of Correction to Series C Certificate of
Designations (incorporated by reference to Exhibit 3.5.2
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (the '1997 Form 10-K')).
3.5.3 -- Certificate of Increase of 10 1/2% Series C Convertible
Preferred Stock (incorporated by reference to Exhibit
3.5.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998).
3.6 -- Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of the
Company's 9.2% Series A Junior Cumulative Convertible
Preferred Stock (incorporated by reference to Exhibit 3.6
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).
3.7 -- Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of the
Company's 9.2% Series B Junior Cumulative Convertible
Preferred Stock (incorporated by reference to Exhibit 3.7
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).
3.8 -- Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of the
Company's 9.2% Series D Junior Cumulative Convertible
Preferred Stock (incorporated by reference to Exhibit 99.2
to the Company's Current Report on Form 8-K filed on
December 29, 1999).
4.1 -- Form of Certificate for shares of Common Stock
(incorporated by reference to Exhibit 4.3 to the S-1
Registration Statement).
4.2 -- Form of Certificate for shares of 10 1/2% Series C
Convertible Preferred Stock (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on
Form S-4 (File No. 333-34761)).
4.3 -- Form of Certificate for shares of 9.2% Series A Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.10.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 (the
'1998 Form 10-K')).
4.4 -- Form of Certificate for shares of 9.2% Series B Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.10.2 to the 1998 Form 10-K).
4.5 -- Form of Certificate for shares of 9.2% Series D Junior
Cumulative Convertible Preferred Stock (filed herewith).
4.6.1 -- Rights Agreement, dated as of October 22, 1997 (the
'Rights Agreement'), between the Company and Continental
Stock Transfer & Trust Company, as rights agent
(incorporated by reference to Exhibit 1 to the Form 8-A).
4.6.2 -- Form of Right Certificate (incorporated by reference to
Exhibit B to Exhibit 1 to the Form 8-A).
4.6.3 -- Amendment to the Rights Agreement dated as of October 13,
1998 (incorporated by reference to Exhibit 99.2 to the
Company's Current Report on Form 8-K dated October 13,
1998).
E-1
EXHIBIT DESCRIPTION
- ------- -----------
4.6.4 -- Amendment to the Rights Agreement dated as of November
13, 1998 (incorporated by reference to Exhibit 99.7 to the
Company's Current Report on Form 8-K dated November 17,
1998).
4.6.5 -- Amended and Restated Amendment to the Rights Agreement
dated as of December 22, 1998 (incorporated by reference
to Exhibit 6 to the Amendment No. 1 to the Form 8-A filed
on January 6, 1999).
4.6.6 -- Amendment to the Rights Agreement dated as of June 11,
1999 (incorporated by reference to Exhibit 4.1.8 to the
Company's Registration Statement on Form S-4 (File No.
333-82303) filed on July 2, 1999 (the '1999 Units
Registration Statement')).
4.6.7 -- Amendment to the Rights Agreement dated as of September
29, 1999 (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on October 13,
1999).
4.6.8 -- Amendment to the Rights Agreement dated as of December
23, 1999 (incorporated by reference to Exhibit 99.4 to the
Company's Current Report on Form 8-K filed on December 29,
1999).
4.6.9 -- Amendment to the Rights Agreement dated as of January 28,
2000 (filed herewith).
4.7 -- Indenture, dated as of November 26, 1997, between the
Company and IBJ Schroder Bank & Trust Company, as trustee,
relating to the Company's 15% Senior Secured Discount
Notes due 2007 (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')).
4.8 -- Form of 15% Senior Secured Discount Note due 2007
(incorporated by reference to Exhibit 4.2 to the 1997
Units Registration Statement).
4.9 -- 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).
4.10 -- Form of Warrant (incorporated by reference to Exhibit 4.4
to the 1997 Units Registration Statement).
4.11 -- Form of Preferred Stock Warrant Agreement, dated as of
April 9, 1997, between the Company and each warrantholder
thereof (incorporated by reference to Exhibit 4.12 to the
1997 Form 10-K).
4.12 -- 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).
4.13 -- Indenture, dated as of May 15, 1999, between the Company
and United States Trust Company of New York, as trustee,
relating to the Company's 14 1/2% Senior Secured Notes due
2009 (incorporated by reference to Exhibit 4.4.2 to the
1999 Units Registration Statement).
4.14 -- Form of 14 1/2% Senior Secured Notes due 2009
(incorporated by reference to Exhibit 4.4.2 to the 1999
Units Registration Statement).
4.15 -- Indenture, dated as of September 29, 1999, between the
Company and United States Trust Company of Texas, N.A.,
relating to the Company's 8 3/4% Convertible Subordinated
Notes due 2009 (incorporated by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K filed on
October 13, 1999).
4.16 -- First Supplemental Indenture, dated as of September 29,
1999, between the Company and United States Trust Company
of Texas, N.A., relating to the Company's 8 3/4%
Convertible Subordinated Notes due 2009 (incorporated by
reference to Exhibit 4.1 to the Company's Current Report
on Form 8-K filed on October 1, 1999).
4.17 -- Form of 8 3/4% Convertible Subordinated Notes due 2009
(incorporated by reference to Article VII of Exhibit 4.01
to the Company's Current Report on Form 8-K filed on
October 11, 1999).
4.18 -- Warrant Agreement, dated as of May 15, 1999, between the
Company and United States Trust Company of New York, as
warrant agent (incorporated by reference to Exhibit 4.4.4
to the 1999 Units Registration Statement).
4.19 -- Amended and Restated Pledge Agreement, dated as of May
15, 1999, among the Company, as pledgor, IBJ Whitehall
Bank & Trust Company, as trustee, United States Trust
Company of New York, as trustee, and IBJ Whitehall Bank &
Trust Company, as collateral agent (incorporated by
reference to Exhibit 4.4.5 to the 1999 Units Registration
Statement).
4.20 -- Collateral Pledge and Security Agreement, dated as of May
15, 1999, between the Company, as pledgor, and United
States Trust Company of New York, as trustee (incorporated
by reference to Exhibit 4.4.6 to the 1999 Units
Registration Statement).
E-2
EXHIBIT DESCRIPTION
- ------- -----------
4.21 -- Intercreditor Agreement, dated May 15, 1999, by and
between IBJ Whitehall Bank & Trust Company, as trustee,
and United States Trust Company of New York, as trustee
(incorporated by reference to Exhibit 4.4.7 to the 1999
Units Registration Statement).
4.22 -- Common Stock Purchase Warrant granted by the Company to
Ford Motor Company, dated June 11, 1999 (incorporated by
reference to Exhibit 4.4.2 to the 1999 Units Registration
Statement).
4.23 -- Common Stock Purchase Warrant granted by the Company to
DaimlerChrysler Corporation, dated January 28, 2000 (filed
herewith).
9.1 -- Voting Trust Agreement, dated as of August 26, 1997, by
and among Darlene Friedland, as Grantor, David Margolese,
as Trustee, and the Company (incorporated by reference to
Exhibit (c) to the Company's Issuer Tender Offer Statement
on Form 13E-4 filed on October 16, 1997).
10.1 -- Lease Agreement, dated as of March 31, 1998, between
Rock-McGraw, Inc. and the Company (incorporated by
reference to Exhibit 10.1.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
'D'10.2 -- Amended and Restated Contract, dated as of June 30, 1998,
between the Company and Space Systems/Loral, Inc.
(incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q/A for the quarter
ended June 30, 1998).
*10.3 -- Employment Agreement, dated as of January 1, 1999,
between the Company and David Margolese (incorporated by
reference to Exhibit 10.6 to the 1998 Form 10-K).
*10.4 -- Employment Agreement, dated as of December 31, 1999,
between the Company and Robert D. Briskman (filed
herewith).
*10.5 -- Employment Agreement, dated as of March 28, 2000, between
the Company and Joseph S. Capobianco (filed herewith).
*10.6 -- Employment Agreement, dated as of March 28, 2000, between
the Company and Patrick L. Donnelly (filed herewith).
*10.7 -- Employment Agreement, dated as of March 28, 2000, between
the Company and Ira H. Bahr (filed herewith).
10.8 -- Registration Agreement, dated January 2, 1994, between
the Company and M.A. Rothblatt and B.A. Rothblatt
(incorporated by reference to Exhibit 10.20 to the S-1
Registration Statement).
*10.9 -- 1994 Stock Option Plan (incorporated by reference to
Exhibit 10.21 to the S-1 Registration Statement).
*10.10 -- Amended and Restated 1994 Directors' Nonqualified Stock
Option Plan (incorporated by reference to Exhibit 10.22 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
*10.11 -- CD Radio Inc. 401(k) Savings Plan (incorporated by
reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-8 (File No. 333-65473)).
*10.12 -- Sirius Satellite Radio 1999 Long-Term Stock Incentive
Plan (incorporated by reference to Exhibit 4.4 of the
Company's Registration Statement on Form S-8 (File No.
333-31362)).
10.13.1 -- Option Agreement, dated as of October 21, 1992, between
the Company and Batchelder & Partners, Inc. (incorporated
by reference to Exhibit 10.24 to the S-1 Registration
Statement).
10.13.2 -- Form of Option Agreement, dated as of December 29, 1997,
between the Company and each Optionee (incorporated by
reference to Exhibit 10.16.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
10.14.1 -- Preferred Stock Investment Agreement, dated October 23,
1996, between the Company and certain investors
(incorporated by reference to Exhibit 10.24 to the 1996
Form 10-K).
10.14.2 -- First Amendment to Preferred Stock Investment Agreement,
dated March 7, 1997, between the Company and certain
investors (incorporated by reference to Exhibit 10.24.1 to
the 1996 Form 10-K).
10.14.3 -- Second Amendment to Preferred Stock Investment Agreement,
dated March 14, 1997, between the Company and certain
investors (incorporated by reference to Exhibit 10.24.2 to
the 1996 Form 10-K).
10.15 -- Letter, dated May 29, 1998, terminating Launch Services
Agreement dated July 22, 1997 between the Company and
Arianespace S.A.; Arianespace Customer Loan Agreements
dated July 22, 1997 for Launches #1 and #2 between the
Company and Arianespace Finance S.A.; and the Multiparty
Agreements dated July 22, 1997 for Launches #1 and #2
among the Company, Arianespace S.A. and Arianespace
Finance S.A. (incorporated by reference to Exhibit 10.21
to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
E-3
EXHIBIT DESCRIPTION
- ------- -----------
10.16 -- Summary Term Sheet/Commitment, dated June 15, 1997, among
the Company and Everest Capital International, Ltd.,
Everest Capital Fund, L.P. and The Ravich Revocable Trust
of 1989 (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K filed on July 8,
1997).
10.17.1 -- Engagement Letter Agreement, dated June 14, 1997, between
the Company and Libra Investments, Inc. (incorporated by
reference to Exhibit 10.26.1 to the 1997 Form 10-K).
10.17.2 -- Engagement Letter Agreement, dated August 6, 1997,
between the Company and Libra Investments, Inc.
(incorporated by reference to Exhibit 10.26.2 to the 1997
Form 10-K).
10.18 -- Radio License Agreement, dated January 21, 1998, between
the Company and Bloomberg Communications Inc.
(incorporated by reference to Exhibit 10.28 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998).
'D'10.19 -- Amended and Restated Agreement, dated as of February 1,
1999, between Lucent Technologies Inc. and the Company
(incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K filed on February 4,
1999).
10.20 -- Stock Purchase Agreement, dated as of August 5, 1997,
between the Company, David Margolese and Loral Space &
Communications Ltd. (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K filed on
August 19, 1997).
10.21 -- Stock Purchase Agreement, dated as of October 8, 1998,
between the Company and Prime 66 Partners, L.P.
(incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated October 8,
1998).
10.22.1 -- Stock Purchase Agreement, dated as of November 13, 1998
(the 'Apollo Stock Purchase Agreement'), by and among the
Company, Apollo Investment Fund IV, L.P. and Apollo
Overseas Partners IV, L.P. (incorporated by reference to
Exhibit 99.1 to the Company's Current Report on Form 8-K
dated November 17, 1998).
10.22.2 -- Amendment No. 1, dated as of December 23, 1998, to the
Apollo Stock Purchase Agreement (incorporated by reference
to Exhibit 10.28.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).
10.22.3 -- Second Amendment, dated as of December 23, 1999, to the
Apollo Stock Purchase Agreement (incorporated by reference
to Exhibit 99.3 to the Company's Current Report on
Form 8-K filed on December 29, 1999).
10.23 -- Stock Purchase Agreement, dated as of December 23, 1999
(the 'Blackstone Stock Purchase Agreement'), by and
between the Company and Blackstone Capital Partners III
Merchant Banking Fund L.P. (incorporated by reference to
Exhibit 99.1 to the Company's Current Report on Form 8-K
filed on December 29, 1999).
10.24 -- Stock Purchase Agreement, dated as of January 28, 2000,
among the Company, Mercedes-Benz USA, Inc., Freightliner
Corporation and DaimlerChrysler Corporation (filed
herewith).
10.25 -- Voting Agreement, dated as of November 13, 1998, by and
among Apollo Investment Fund IV, L.P., Apollo Overseas
Partners IV, L.P. and David Margolese (incorporated by
reference to Exhibit 99.5 to the Company's Current Report
on Form 8-K dated November 17, 1998).
10.26 -- Tag-Along Agreement, dated as of November 13, 1998, by
and among Apollo Investment Fund IV, L.P., Apollo Overseas
Partners IV, L.P., the Company and David Margolese
(incorporated by reference to Exhibit 99.6 to the
Company's Current Report on Form 8-K dated November 17,
1998).
'D'10.27 -- Agreement, dated as of June 11, 1999, between the Company
and Ford Motor Company (incorporated by reference to
Exhibit 10.33 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999).
21.1 -- List of Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule (filed herewith).
- ---------
* This document has been identified as a management contract or compensatory
plan or arrangement.
'D' Portions of these exhibits have been omitted pursuant to Applications for
Confidential treatment filed by the Company with the Securities and Exchange
Commission.
E-4
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as................................... 'D'