UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1999
Commission file number 0-24710
CD RADIO INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 52-1700207
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 AVENUE OF THE AMERICAS, 36TH FLOOR
NEW YORK, NEW YORK 10020
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(Address of principal executive offices)
(Zip code)
212-584-5100
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
_____ ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $.001 PAR VALUE 23,341,731 SHARES
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(Class) (Outstanding as of August 9, 1999)
CD RADIO INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX
Part I - Financial Information
Page
Consolidated Statements of Operations (unaudited) for the three 1
and six month periods ended June 30, 1999 and 1998 and for the
period May 17, 1990 (date of inception) to June 30, 1999
Consolidated Balance Sheets (unaudited) as of June 30, 1999 2
and December 31, 1998
Consolidated Statements of Cash Flows (unaudited) for the six 3
month periods ended June 30, 1999 and 1998 and for the
period May 17, 1990 (date of inception) to June 30, 1999
Notes to Consolidated Financial Statements (unaudited) 4
Management's Discussion and Analysis of Financial Condition and 6
Results of Operations
Part II - Other Information 15
Signatures 17
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Cumulative for
the period
For the Three Months Ended June 30, For the Six Months Ended June 30, May 17, 1990
---------------------------------------------------------------------- (date of inception)
1999 1998 1999 1998 to June 30, 1999
------------- ------------- ------------- ------------- ------------------
Revenue $ - $ - $ - $ - $ -
Operating expenses:
Engineering, design and
development (7,433,000) (395,000) (14,344,000) (774,000) (20,759,000)
General and administrative (6,454,000) (2,488,000) (11,418,000) (4,442,000) (41,963,000)
Special charges -- (25,682,000) -- (25,682,000) (27,682,000)
------------- ------------- ------------- ------------- -------------
Total operating expenses (13,887,000) (28,565,000) (25,762,000) (30,898,000) (90,404,000)
------------- ------------- ------------- ------------- -------------
Other income (expense):
Interest and investment income 3,536,000 1,585,000 6,400,000 3,903,000 18,052,000
Interest expense (2,250,000) (3,159,000) (3,683,000) (8,982,000) (20,067,000)
------------- ------------- ------------- ------------- -------------
1,286,000 (1,574,000) 2,717,000 (5,079,000) (2,015,000)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes (12,601,000) (30,139,000) (23,045,000) (35,977,000) (92,419,000)
Income taxes:
Federal -- (38,000) -- (38,000) (1,982,000)
State -- -- -- -- (313,000)
------------- ------------- ------------- ------------- -------------
Net loss (12,601,000) (30,177,000) (23,045,000) (36,015,000) (94,714,000)
------------- ------------- ------------- ------------- -------------
Preferred stock dividend (7,522,000) (4,438,000) (14,852,000) (9,219,000) (36,570,000)
Preferred stock deemed dividend (2,278,000) -- (4,534,000) -- (68,184,000)
Accretion of dividends in
connection with the issuance
of warrants on preferred stock (74,000) (2,097,000) (148,000) (6,372,000) (6,649,000)
------------- ------------- ------------- ------------- -------------
Net loss applicable to common
stockholders $ (22,475,000) $ (36,712,000) $ (42,579,000) $ (51,606,000) $(206,117,000)
============= ============= ============= ============= =============
Net loss per share applicable to
common stockholders (basic and
diluted) $ (0.97) $ (2.18) $ (1.83) $ (3.13)
============= ============= ============= =============
Weighted average common shares
outstanding (basic and diluted) 23,265,000 16,826,000 23,245,000 16,493,000
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
1
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1999 1998
---------------- -----------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 235,670,000 $ 204,753,000
Marketable securities, at market 40,555,000 60,870,000
Restricted investments, at amortized cost 79,803,000 --
Prepaid expense and other 935,000 166,000
---------------- -----------------
Total current assets 356,963,000 265,789,000
---------------- -----------------
Property and equipment, at cost:
Satellite construction in process 269,833,000 188,849,000
Launch construction in process 157,058,000 87,492,000
Broadcast studio equipment 9,185,000 87,000
Leasehold improvements 12,623,000 5,081,000
Terrestrial repeater network in process 4,548,000 1,990,000
Other 6,595,000 156,000
---------------- -----------------
459,842,000 283,655,000
Less accumulated depreciation (265,000) (21,000)
---------------- -----------------
459,577,000 283,634,000
---------------- -----------------
Other assets:
FCC license 83,368,000 83,368,000
Debt issue costs, net 19,362,000 9,313,000
Other 1,662,000 1,776,000
---------------- -----------------
Total other assets 104,392,000 94,457,000
---------------- -----------------
Total assets $ 920,932,000 $ 643,880,000
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 15,698,000 $ 5,481,000
Satellite & launch construction payable 41,046,000 8,479,000
Short-term notes payable 95,526,000 70,863,000
---------------- -----------------
Total current liabilities 152,270,000 84,823,000
Long-term notes payable and accrued interest 338,098,000 153,033,000
Deferred satellite payments and accrued interest 46,102,000 31,324,000
Deferred income taxes 2,237,000 2,237,000
---------------- -----------------
Total liabilities 538,707,000 271,417,000
---------------- -----------------
Commitments and contingencies
10 1/2% Series C Convertible Preferred Stock, no par
value: 2,025,000 shares authorized, 1,465,916 and 1,467,416
shares issued and outstanding at June 30, 1999 and
December 31, 1998, respectively (liquidation preferences
of $146,591,600 and $146,741,600), at net carrying
value including accrued dividends 165,627,000 156,755,000
9.2% Series A Junior Cumulative Convertible Preferred Stock,
$.001 par value: 4,300,000 shares authorized, 1,350,000
shares issued and outstanding at June 30, 1999 and December
31, 1998 (liquidation preference of $135,000,000), at net
carrying value including accrued dividends 143,855,000 137,755,000
9.2% Series B Junior Cumulative Convertible Preferred Stock,
$.001 par value: 2,100,000 shares authorized, no shares
issued or outstanding - -
Stockholders' equity:
Preferred stock, $.001 par value; 50,000,000 shares
authorized 8,000,000 shares designated as 5% Delayed
Convertible Preferred Stock; none issued or outstanding - -
Common stock, $.001 par value; 200,000,000 shares
authorized, 23,340,424 and 23,208,949 shares issued
and outstanding at June 30, 1999 and December 31, 1998,
respectively 23,000 23,000
Additional paid-in capital 167,434,000 149,599,000
Deficit accumulated during the development stage (94,714,000) (71,669,000)
---------------- -----------------
Total stockholders' equity 72,743,000 77,953,000
---------------- -----------------
Total liabilities and stockholders' equity $ 920,932,000 $ 643,880,000
================ =================
The accompanying notes are an integral part of these consolidated
financial statements.
2
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Cumulative for
the period
For the Six Months Ended June 30, May 17, 1990
--------------------------------- (date of inception)
1999 1998 to June 30, 1999
------------- ------------- ------------------
Cash flows from development stage activities:
Net loss $ (23,045,000) $ (36,015,000) $ (94,714,000)
Adjustments to reconcile net loss to net cash
(used in) development stage activities:
Depreciation and amortization 246,000 21,000 1,976,000
Unrealized (gain) loss on marketable securities 181,000 98,000 (52,000)
(Gain) loss on disposal of assets 10,000 310,000 115,000
Special charges -- 23,557,000 25,557,000
Accretion of note payable charged as interest
expense 3,489,000 11,335,000 31,355,000
Sales (purchases) of marketable securities and
restricted investments, net (59,141,000) 103,288,000 (119,778,000)
Compensation expense in connection with
issuance of common stock and stock options 659,000 -- 3,995,000
Increase (decrease) in cash and cash equivalents
resulting from changes in assets and liabilities:
Prepaid expense and other (769,000) (675,000) (935,000)
Due to related party -- -- 351,000
Other assets (2,046,000) (623,000) (6,072,000)
Accounts payable and accrued expenses 6,632,000 2,135,000 12,184,000
Deferred taxes -- -- 2,237,000
------------- ------------- -------------
Net cash provided by (used in) development
stage activities (73,784,000) 103,431,000 (143,781,000)
------------- ------------- -------------
Cash flows from investing activities:
Purchase of FCC license -- -- (83,368,000)
Payments for satellite construction (41,717,000) (14,407,000) (190,663,000)
Payments for launch services (43,362,000) (25,071,000) (153,217,000)
Other capital expenditures (25,649,000) (148,000) (33,349,000)
Acquisition of Sky-Highway Radio Corp. -- -- (2,000,000)
------------- ------------- -------------
Net cash used in investing activities (110,728,000) (39,626,000) (462,597,000)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 24,663,000 -- 95,526,000
Proceeds from issuance of common stock, net 67,000 -- 183,510,000
Proceeds from issuance of preferred stock, net -- -- 250,068,000
Proceeds from exercise of stock options and warrants 699,000 36,000 5,639,000
Proceeds from issuance of promissory note
and units, net 190,000,000 -- 306,535,000
Proceeds from issuance of promissory notes to
related parties -- -- 2,965,000
Repayment of promissory notes -- -- (2,635,000)
Loan from officer -- -- 440,000
------------- ------------- -------------
Net cash provided by financing activities 215,429,000 36,000 842,048,000
------------- ------------- -------------
Net increase in cash and cash equivalents 30,917,000 63,841,000 235,670,000
Cash and cash equivalents at the beginning of period 204,753,000 900,000
------------- ------------- -------------
Cash and cash equivalents at the end of period $ 235,670,000 $ 64,741,000 $ 235,670,000
============= ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
3
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
GENERAL
The accompanying consolidated financial statements do not include all of
the information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In the opinion of management, all adjustments (consisting only of normal,
recurring adjustments) considered necessary to fairly state our consolidated
financial position and consolidated results of operations have been included.
These financial statements should be read in connection with our consolidated
financial statements and the notes thereto for the fiscal year ended December
31, 1998 included in our Annual Report on Form 10-K as filed with the Securities
and Exchange Commission.
NET LOSS PER SHARE
Net loss per common share is based on the weighted average number of
common shares outstanding during such periods. Options and warrants granted by
us have not been included in the calculation of net loss per share because such
items were antidilutive.
The following is a reconciliation of net loss per common share before
preferred stock dividend requirements to net loss per share applicable to common
stockholders:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
-------- -------- --------- ---------
Per common shares (basic and diluted):
Net loss $ (0.55) $ (1.79) $ (0.99) $ (2.18)
Preferred stock dividend requirements (0.42) (0.26) (0.83) (0.56)
Accretion of dividends in connection with
the issuance of warrants on preferred
stock - (0.13) (0.01) (0.39)
-------- -------- --------- ---------
Net loss applicable to common stockholders $ (0.97) $ (2.18) $ (1.83) $ (3.13)
-------- -------- --------- ---------
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 $52,000 and $233,000 at
June 30, 1999 and December 31, 1998, respectively.
RESTRICTED INVESTMENTS
Restricted investments consist of fixed income securities and are stated
at amortized cost plus accrued interest income. Restricted investments are
defined as held-to-maturity securities under the provision of SFAS No. 115 and
unrealized holding gains and losses are not reflected in earnings. Unrealized
holding losses were $234,000 at June 30, 1999. The securities included in
Restricted Investments are restricted to provide for the first six scheduled
interest payments on our 14 1/2% Senior Secured Notes due 2009.
4
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and include interest on
funds borrowed to finance construction. Capitalized interest was $39,635,000 and
$16,243,000 at June 30, 1999 and December 31, 1998, respectively.
SHORT-TERM NOTES PAYABLE
We entered into a credit agreement with Bank of America and other
lenders in July 1998 under which Bank of America and other lenders agreed to
provide us a term loan facility of up to $115 million. This term loan facility
matures on the earlier of February 29, 2000 and ten days prior to the launch of
our second satellite. The proceeds of this facility are being used to fund
progress payments for the purchase of launch services and to pay interest, fees
and other related expenses. The amounts advanced under this facility bear
interest at a variable rate that we select.
DEFERRED SATELLITE PAYMENTS
Under an amended and restated contract (the "Loral Satellite Contract")
with Space Systems/Loral, Inc. ("Loral"), Loral has agreed to defer certain
amounts due under the Loral Satellite Contract. The amounts deferred bear
interest at 10% per year and are due in quarterly installments beginning in June
2002. We have the right to prepay any deferred payments together with accrued
interest, without penalty.
ENGINEERING DESIGN AND DEVELOPMENT COSTS
We have entered into an agreement with Lucent Technologies, Inc.
("Lucent") pursuant to which Lucent has agreed to use commercially reasonable
efforts to deliver integrated circuits ("chip sets"), which will be used in
consumer electronic devices capable of receiving our broadcasts. In addition, we
have entered into agreements with Alpine, Panasonic, Recoton, Visteon and Delco
to design and develop equipment that will be used to receive our broadcasts,
whereby we have agreed to pay certain development costs. We record expenses
under these contracts as the work is performed. Total expenses related to these
contracts were $6,398,000 and $12,448,000 in the three month period and six
month period ended June 30, 1999, respectively.
SPECIAL CHARGES
During the quarter ended June 30, 1998, we decided to enhance our
satellite delivery system to include a third in-orbit satellite and to terminate
certain launch and orbit related contracts. We recorded special charges totaling
approximately $25.7 million related primarily to the termination of such
contracts.
RECLASSIFICATIONS
Certain amounts in the prior period's financial statements have been
reclassified to conform to the current period presentation.
5
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), we are hereby providing
cautionary statements identifying important factors that could cause our actual
results to differ materially from those projected in forward-looking statements
(as such term is defined in the Reform Act) made in this report. Any statements
that express, or involve discussions as to, expectations, beliefs, plans,
objectives, assumptions or future events or performance (often, but not always,
through the use of words or phrases such as "will likely result," "are expected
to," "will continue," "is anticipated," "estimated," "intends," "plans,"
"projection" and "outlook") are not historical facts and may be forward-looking
and, accordingly, such statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially from those
expressed in the forward-looking statements. Accordingly, any such statements
are qualified in their entirety by reference to, and are accompanied by, the
factors discussed in our Annual Report on Form 10-K for the year ended December
31, 1998. Among the key factors that have a direct bearing on our future results
of operations are the potential risk of delay in implementing our business plan;
possible increased costs of construction and launch of necessary satellites;
dependence on Space Systems/Loral, Inc., Lucent Technologies, Inc. and
consumer electronics manufacturers; the unavailability of receivers and
antennas; risk of launch failure; unproven market for our proposed service;
unproven applications of existing technology; and our need for additional
financing.
OVERVIEW
CD Radio was organized in May 1990 and is in its development stage. Our
principal activities to date have included technology development, our
terrestrial repeater network development, arranging for design and development
of chip sets and receivers, obtaining regulatory approval for the CD Radio
service, commencement of construction of four satellites, acquisition of content
for our programming, strategic planning, market research, recruitment of our
management team and securing financing for working capital and capital
expenditures. We require additional capital to complete development and commence
commercial operations of CD Radio. We cannot assure you that we will ever
commence operations, that we will attain any particular level of revenues or
that we will achieve profitability.
We have recently announced the following alliances in connection with
the development of CD Radio.
FORD. On June 11, 1999, we entered into an agreement with Ford
Motor Company ("Ford") which anticipates Ford manufacturing, marketing
and selling vehicles that include receivers capable of receiving CD
Radio's broadcasts. This exclusive agreement includes all seven Ford
brands -- Ford, Lincoln, Mercury, Mazda, Jaguar, Aston Martin and Volvo.
ALPINE. On July 13, 1999, we announced an agreement with Alpine
Electronics Inc. pursuant to which Alpine will design and develop CD
Radio receivers for installation by automotive manufacturers and for
sale directly to consumers in the electronics aftermarket.
6
PANASONIC. On July 27, 1999, we announced an agreement pursuant
to which a division of Matsushita, the world's largest consumer
electronics company and the maker of Panasonic products, will design and
develop CD Radio receivers for installation by automotive manufacturers
and for sale to consumers in the electronics aftermarket.
NATIONAL PUBLIC RADIO. On June 8, 1999, we entered into an
agreement with National Public Radio ("NPR") pursuant to which NPR will
provide programming for two of CD Radio's non-music channels as well as
classical and jazz related interviews and features for use on
CD Radio music channels.
JOHN F. KENNEDY CENTER FOR THE PERFORMING ARTS AND NATIONAL
SYMPHONY ORCHESTRA. On June 23, 1999, we announced a strategic alliance
with the John F. Kennedy Center for the Performing Arts and the National
Symphony Orchestra pursuant to which the Kennedy Center and the National
Symphony Orchestra will provide new and archival music, artist
interviews, children's entertainment and other targeted programming for
broadcast on CD Radio.
BRITISH BROADCASTING COMPANY AND PUBLIC RADIO INTERNATIONAL. On
May 10, 1999, we entered into an agreement with the British Broadcasting
Company and Public Radio International ("PRI") pursuant to which CD
Radio will broadcast both the English and Spanish language versions of
the BBC World Service and PRI will create a news, information and
entertainment channel for broadcast on CD Radio.
During the terms of the programming and broadcast agreements described
above, CD Radio will be the exclusive satellite digital audio radio service to
carry programming produced by NPR, PRI, the Kennedy Center and the National
Symphony Orchestra and will be the only satellite digital audio radio service
to carry the Spanish language version of the BBC World Service.
Each of the elements of the CD Radio system - satellites, terrestrial
repeater network, National Broadcast Studio and CD Radio receivers -- is on
schedule to permit us to begin operations at the end of the fourth quarter of
2000.
SATELLITES. Loral is constructing our four satellites. Our first
satellite has been fully assembled and is undergoing testing; the last
major components of our second satellite, the communications panels, are
currently being integrated into the satellite; and our third satellite
is in the process of being assembled. In addition, the major structural
parts for our spare fourth satellite have been manufactured and will be
assembled shortly. We have ordered certain long lead time elements for a
fifth satellite.
Each of our first three satellites will be launched on a Proton
launch vehicle. These launches are currently scheduled for next January,
March and May. Proton launch vehicles have an overall reliability of 92%
based on their last 50 flights.
Loral SkyNet, an affiliate of Loral, is constructing for us
tracking, telemetry and command earth stations in Quito, Ecuador, and
Utive, Panama. These stations are on schedule to be completed and fully
operational in January 2000. All necessary satellite uplink facilities
will be completed and fully operational in the first quarter of 2000.
7
TERRESTRIAL REPEATER NETWORK. We currently expect to deploy
approximately 105 terrestrial repeaters in 46 metropolitan areas.
During 1998, we completed the construction and testing of our
terrestrial repeater network in San Francisco on an experimental basis.
During 1999 and 2000, we expect to execute agreements for site
acquisition, site design and site construction services for the
remainder of our terrestrial repeaters, acquire all necessary sites and
complete construction at all of these sites. In addition, in 1999 we
expect to purchase the digital broadcast equipment necessary to operate
our terrestrial repeater network. Our terrestrial repeater network is
scheduled to be completed, tested and fully operational during the
fourth quarter of 2000.
NATIONAL BROADCAST STUDIO. Construction of our National Broadcast
Studio has been completed and state-of-the-art digital broadcast
equipment is currently being installed. Our National Broadcast Studio is
expected to be fully operational in October 1999.
CD RADIO RECEIVERS. CD Radio receivers are currently being
developed by Alpine, Panasonic, Recoton, Visteon and Delco. We expect
that limited quantities of CD Radio receivers will be available to
purchasers of vehicles manufactured by Ford beginning at the end of the
fourth quarter of 2000, with increasing quantities of such receivers
becoming available in each subsequent quarter of 2001. CD Radio
receivers are expected to be available in the autosound aftermarket
starting in the first quarter of 2001, with increasing quantities of
CD Radio receivers becoming available in each subsequent quarter of
2001.
Based upon this schedule, we do not expect to recognize revenues from
operations until the first quarter of 2001, at the earliest.
Upon commencing commercial operations, we expect our primary source of
revenues to be monthly subscription fees. We currently anticipate that our
subscription fee will be $9.95 per month to receive CD Radio broadcasts, with a
one time, modest activation fee per subscriber. In addition, we expect to derive
revenues from directly selling or bartering advertising on our non-music
channels. We do not intend to manufacture the receivers necessary to receive CD
Radio and thus we will not receive any revenues from their sale. Although we
hold patents covering some of the technology which will be used in these
receivers, we expect to license our technology to manufacturers at no charge.
We expect that the operating expenses associated with commercial
operations will consist primarily of marketing, sales, programming, maintenance
of our satellite and broadcasting system and general and administrative costs.
Costs to acquire programming are expected to include payments to build and
maintain an extensive music library and royalty payments for broadcasting music
(calculated based on a percentage of revenues). Marketing, sales, general and
administrative costs are expected to consist primarily of advertising costs,
salaries of employees, rent and other administrative expenses. As of August 6,
1999, we had 65 employees and 15 part-time consultants. We expect to have
approximately 150 employees by the time we commence commercial operations.
In addition to funding initial operating losses, we require funds for
working capital, interest and financing costs on borrowings and capital
expenditures in the near term.
8
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
We recorded net losses of $12,601,000 and $30,177,000 for the three
months ended June 30, 1999 and 1998, respectively. Our total operating expenses
were $13,887,000 and $28,565,000 for the three months ended June 30, 1999 and
1998, respectively. In the 1998 quarter, we decided to enhance our satellite
delivery system to include a third in-orbit satellite and to terminate certain
launch and orbit related contracts. We recorded special charges totaling
approximately $25.7 million related primarily to the termination of such
contracts. Excluding these special charges, we recorded a net loss of $4,495,000
and operating expenses of $2,883,000 for the three months ended June 30, 1998.
Engineering design and development costs were $7,433,000 and $395,000
for the three months ended June 30, 1999 and 1998, respectively. Engineering
costs increased in the 1999 quarter primarily due to payments to Lucent in
connection with the chip set development effort and payments to consumer
electronic manufacturers in connection with receiver development efforts.
General and administrative expenses increased for the three months ended
June 30, 1999 to $6,454,000 from $2,488,000 for the three months ended June 30,
1998. General and administrative expenses increased due to the occupancy of our
new offices and national broadcast studio and the growth of our management team
and the workforce necessary to develop and commence the broadcast of CD Radio.
The major components of general and administrative expenses in the 1999 quarter
were salaries and employment related costs (32%), rent and occupancy costs (21%)
and legal and regulatory fees (13%), while in the 1998 quarter the major
components were salaries and employment related costs (30%), rent and occupancy
costs (24%), and legal and regulatory fees (16%). The remaining portion of
general and administrative expenses (34% in the 1999 quarter and 30% in the 1998
quarter) consisted of other costs such as insurance, market research,
consulting, travel, depreciation and supplies, with no such amount exceeding 10%
of the total in the 1999 quarter and only consulting (12%) exceeding 10% of the
total in the 1998 quarter.
The increase in interest and investment income to $3,536,000 for the
three months ended June 30, 1999, from $1,585,000 in the three months ended June
30, 1998, was the result of higher average balances of cash, marketable
securities and restricted investments during the 1999 quarter. The higher
average balances of cash, marketable securities and restricted investments
during the quarter were due to the proceeds from the issuance of notes in the
second quarter of 1999 and stock sales during the fourth quarter of 1998
exceeding the amount of expenditures for satellite and launch vehicle
construction, other capital expenditures and operating expenses.
Interest expense, net of capitalized interest, was $2,250,000 for the
three months ended June 30, 1999 and was $3,159,000 in the three months ended
June 30, 1998. This decrease in net interest expense was due to capitalized
interest increasing by an amount ($10,476,000) greater than the corresponding
increase in interest expense ($9,567,000).
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
We recorded net losses of $23,045,000 and $36,015,000 for the six months
ended June 30, 1999 and 1998, respectively. Our total operating expenses were
$25,762,000 and $30,898,000 for the six months ended June 30, 1999 and 1998,
respectively. Excluding the special charges totaling $25.7 million recorded in
the 1998 second quarter, we recorded a net loss of $10,333,000 and operating
expenses of $5,216,000 for the six months ended June 30, 1998.
9
Engineering design and development costs were $14,344,000 and $774,000
for the six months ended June 30, 1999 and 1998, respectively. Engineering costs
increased in the 1999 period primarily due to payments to Lucent in connection
with the chip set development effort and payments to consumer electronic
manufacturers in connection with receiver development efforts.
General and administrative expenses increased for the six months ended
June 30, 1999 to $11,418,000 from $4,442,000 for the six months ended June 30,
1998. General and administrative expenses increased due to the occupancy of our
new offices and national broadcast studio and the growth of our management team
and the workforce necessary to develop and commence the broadcast of CD Radio.
The major components of general and administrative expenses in the 1999 period
were salaries and employment related costs (30%), rent and occupancy costs (25%)
and legal and regulatory fees (14%), while in the 1998 period the major
components were salaries and employment related costs (27%), rent and occupancy
costs (16%), and legal and regulatory fees (15%). The remaining portion of
general and administrative expenses (31% in the 1999 period and 42% in the 1998
period) consisted of other costs such as insurance, market research, consulting,
travel, depreciation and supplies, with no such amount exceeding 10% of the
total in the 1999 period and only consulting (16%) exceeding 10% of the total in
the 1998 period.
The increase of interest income to $6,400,000 for the six months ended
June 30, 1999, from $3,903,000 in the six months ended June 30, 1998, was the
result of higher average balances of cash, marketable securities and restricted
investments during the 1999 period. The higher average balances of cash,
marketable securities and restricted investments during the period were due to
the proceeds from the issuance of notes in the second quarter of 1999 and stock
sales during the fourth quarter of 1998 exceeding the amount of expenditures for
satellite and launch vehicle construction, other capital expenditures and
operating expenses.
Interest expense, net of capitalized interest, decreased to $3,683,000
for the six months ended June 30, 1999, from $8,982,000 in the 1998 period. This
decrease in net interest expense was due to capitalized interest increasing by
an amount ($20,326,000) greater than the corresponding increase in interest
expense ($15,027,000).
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, we had a total of cash, cash equivalents, marketable
securities and restricted investments of $356,028,000 and working capital of
$204,693,000 compared with cash, cash equivalents and marketable securities of
approximately $265,623,000 and working capital of $180,966,000 at December 31,
1998. The increases in the respective balances are due primarily to the proceeds
from the issuance of units consisting of our 14 1/2% Senior Secured Notes due
2009 and related warrants during the 1999 second quarter (see - Sources of
Funding) exceeding capital expenditures and operating expenses for the first six
months of 1999. As part of the issuance of the notes in the 1999 second quarter,
we were required to place approximately $79 million of government securities in
a restricted account to be used only to pay the interest on these notes during
their first three years.
10
FUNDING REQUIREMENTS
We require near term funding to continue building our system. We can
fund our planned operations and the construction of our system into the first
quarter of 2000 from our existing working capital. We estimate that we will
require approximately $1,170 million to develop and commence operations by the
end of the fourth quarter of 2000. This amount reflects additional engineering
design and development costs for CD Radio receivers; increased capital
requirements for our terrestrial repeater network; increases in premiums in the
market for satellite launch and in-orbit insurance; costs for engineering
analysis on potential alternative satellite launch platforms; and other
increased operating costs. Of the total amount required, we have raised, have
access to or have identified sources for approximately $1 billion (which
includes $115 million of debt that must be repaid by the earlier of February 29,
2000 and ten days prior to the launch of our second satellite), leaving
anticipated additional cash needs of approximately $170 million to fund our
operations through the end of the fourth quarter of 2000. If Bank of America is
unable to arrange a new credit facility for us, we will need to raise an
additional $221 million to fund our operations through the end of the fourth
quarter of 2000. We anticipate additional cash requirements of approximately
$150 million to fund our operating costs during the first full year of
operations. This amount reflects additional engineering design and development
costs for CD Radio receivers; increases in the amount of chip set subsidies for
CD Radio receivers; increases in premiums in the market for satellite launch and
in-orbit insurance; and other increased operating costs. We expect to finance
the remainder of our funding requirements through the future issuance of debt or
equity securities, or a combination of debt and equity securities.
To build and launch the satellites necessary for the operations of CD
Radio, we entered into the Loral Satellite Contract with Loral. The Loral
Satellite Contract provides for Loral to construct, launch and deliver three
satellites, in-orbit and checked-out, to construct for us a fourth satellite
for use as a ground spare and to become our launch service provider. We are
committed to make aggregate payments of approximately $718 million under the
Loral Satellite Contract. We have also entered into an amendment to the Loral
Satellite Contract pursuant to which we will purchase $15 million of certain
long-lead time parts for a fifth satellite. As of June 30, 1999, $303 million of
this obligation had been satisfied. Under the Loral Satellite Contract, with the
exception of a payment made to Loral in March 1993, payments are made in
installments that commenced in April 1997 and will end in December 2003.
Approximately half of these payments are contingent upon Loral meeting
specified milestones in the construction of our satellites.
If there is a satellite launch failure, we will be required to pay Loral
the deferred amount for the affected satellite no later than 120 days after the
date of the failure. If we elect to put one of our first three satellites into
ground storage, rather than having it shipped to the launch site, the deferred
amount for that satellite will become due within 60 days of this election.
We will also require funds for working capital, interest on borrowings,
acquisition of programming, financing costs and operating expenses until some
time after the commencement of our commercial operations. We expect our interest
expense will increase significantly when compared to our 1998 interest expense
as a result of the issuance of our 14 1/2% Senior Secured Notes due 2009 in the
1999 second quarter; 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 from the issuance of our 14 1/2% Senior Secured Notes due 2009 was used
to purchase a portfolio of U.S. government securities in an amount sufficient to
pay the first six payments of interest on our 14 1/2% Senior Secured Notes due
2009.
We cannot be sure that we will be able to obtain additional financing on
favorable terms, or at all, or that we will be able to do so in a timely
fashion. The agreements and instruments governing our existing indebtedness
contain, and documents governing any indebtedness incurred in the future are
expected to contain, provisions limiting our ability to incur additional
indebtedness. If additional financing were not available on a timely basis, we
would be required to delay satellite and/or launch vehicle construction to
conserve cash and to fund continued operations, which would cause delays in the
commencement of operations and increase costs.
11
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. Additional funds would be required 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. As of June 30, 1999, we had received a total of $441 million in net
equity capital. Of this amount, $192 million of our equity capital was received
in 1997 as a result of the issuance of 5,400,000 shares of 5% Delayed Preferred
Stock, resulting in net proceeds of $121 million, and 4,955,488 shares of common
stock, resulting in net proceeds of $71 million. A total of 1,905,488 shares of
our common stock were sold to Loral Space & Communications, Ltd. in August 1997
and 3,050,000 shares of common stock were sold to the public in November 1997.
In November 1997, we exchanged 1,846,799 shares of our newly issued 10 1/2%
Series C Cumulative Convertible Preferred Stock (the "Series C Preferred Stock")
for all of the outstanding shares of 5% Delayed Preferred Stock. On November 2,
1998, we sold 5,000,000 shares of common stock to Prime 66 Partners, L.P.,
resulting in net proceeds of $98 million and on December 23, 1998, we sold
1,350,000 shares of our 9.2% Series A Junior Cumulative Convertible Preferred
Stock to Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.
(the "Apollo Investors"), resulting in net proceeds of $129 million. Also on
December 23, 1998, the Apollo Investors granted us an option to sell them
650,000 shares of our 9.2% Series B Junior Cumulative Convertible Preferred
Stock for estimated net proceeds of $63 million. As long as there has been no
material adverse change to our business, management or financial condition, and
subject to satisfying customary conditions, we may exercise our option to
require the Apollo Investors to purchase our 9.2% Series B Junior Cumulative
Convertible Preferred Stock at any time before September 30, 1999.
In May 1999, we received net proceeds of approximately $190 million from
the issuance of 200,000 units, each consisting of $1,000 aggregate principal
amount of 14 1/2% Senior Secured Notes due 2009 and three warrants, each to
purchase 3.65 shares of our common stock. We invested approximately $79.3
million of these net proceeds in a portfolio of U.S. government securities,
which we pledged as security for the payment in full of interest on the notes
through May 15, 2002. In November 1997, we received net proceeds of $116 million
from the issuance of 12,910 units, each consisting of $20,000 aggregate
principal amount at maturity of 15% Senior Discount Notes due 2007 and a warrant
to purchase additional 15% Senior Discount Notes due 2007 with an aggregate
principal amount at maturity of $3,000. All warrants were exercised in 1997. The
aggregate value at maturity of the 15% Senior Discount Notes due 2007 is $297
million. The 15% Senior Discount Notes mature on November 15, 2007 and the first
cash interest payment is due in June 2003. The indentures governing the 15%
Senior Discount Notes due 2007 and the 14 1/2% Senior Secured Notes due 2009
contain limitations on our ability to incur additional indebtedness. The 15%
Senior Discount Notes due 2007 and the 14 1/2% Senior Secured Notes due 2009 are
secured by pledges of the stock of Satellite CD Radio Inc., our subsidiary that
holds our FCC license.
On July 28, 1998, we entered into a credit agreement with a group of
financial institutions, including Bank of America as agent and a lender, under
which the lenders agreed to provide us a term loan facility in an aggregate
principal amount of up to $115 million (the "Tranche A Loans"). The proceeds of
the Tranche A Loans are being used to fund a portion of the progress payments
required to be made by us under the Loral Satellite Contract for the purchase of
launch services and to pay interest, fees and other expenses related to this
facility. The Tranche A Loans are due on the earlier of February 29, 2000 and
ten days prior to the launch of our second satellite. As of June 30, 1999, we
had borrowed $95.5 million under this facility, substantially all of which was
used to make progress payments under the Loral Satellite Contract.
12
In connection with this facility, Loral agreed with Bank of America that
at maturity of the Tranche A Loans (including maturity as a result of an
acceleration), upon the occurrence of our bankruptcy or upon the occurrence of
an event of default by Loral under its agreement with Bank of America, Loral
will repurchase from the lenders the Tranche A Loans at a price equal to the
principal amount of the Tranche A Loans plus accrued and unpaid interest. In
exchange for providing this credit support, Loral receives a fee from us equal
to 1.25% per annum of the outstanding amount of the Tranche A Loans from time to
time.
We have also entered into an agreement with Bank of America under which
Bank of America has agreed to attempt to arrange a syndicate of lenders to
provide a second term loan facility for us in the aggregate principal amount of
$225 million. It is anticipated that a portion of the proceeds of these loans
would be used to repay the Tranche A Loans and for other general corporate
purposes. Bank of America has not committed to provide this second term loan
facility. The closing of this second term loan facility is expected to be
conditioned on the satisfaction of specific significant conditions and there is
no assurance that these loans will be arranged or that the proposed terms of
such loans will be acceptable to us. If we are unable to close this facility, we
will seek to repay the Tranche A Loans from the proceeds of the sale of debt
securities, equity securities, or a combination of debt and equity securities.
Shares of our 9.2% Series A Junior Cumulative Convertible Preferred
Stock and our 9.2% Series B Junior Cumulative Convertible Preferred Stock
(collectively, the "Junior Preferred Stock") are convertible into shares of our
common stock at a price of $30 per share. The Junior Preferred Stock is callable
by us beginning November 15, 2001 if the current market price, as defined in the
Certificate of Designation of the Junior Preferred Stock, of our common stock
exceeds $60 per share for a period of 20 consecutive trading days, and in all
events will be callable beginning November 15, 2003 at a price of 100% and must
be redeemed by us on November 15, 2011. Dividends on the Junior Preferred Stock
are payable in-kind or in cash annually, at our option. Holders of the Junior
Preferred Stock have the right to vote, on an as-converted basis, on matters
upon which the holders of our common stock have the right to vote.
Loral has agreed to defer a total of $50 million of the payments under
the Loral Satellite Contract originally scheduled for payment in 1999. These
deferred amounts bear interest at 10% per annum, which interest will accrue
until December 2001, at which time such interest will become payable quarterly
in cash. The principal amounts of the deferred payments under the Loral
Satellite Contract are required to be paid in six installments between June 2002
and December 2003. As collateral security for these deferred payments, we have
agreed to grant Loral a security interest in our terrestrial repeater network.
OTHER MATTERS- THE YEAR 2000 ISSUE
The Year 2000 Issue will test the capability of business processes to
function correctly. The Year 2000 Issue is the result of computer programs being
written using two digits (rather than four) to define a year, which could result
in miscalculations or system failures resulting from recognition of a date
occurring after December 31, 1999 as falling in the year 1900 (or another year
in the 1900s) rather than the year 2000 or thereafter. We have undertaken an
effort to identify and mitigate The Year 2000 Issue in our information systems,
product, suppliers and facilities. Our approach to the Year 2000 Issue can be
separated into four phases: (1) define/measure-identify and inventory possible
sources of Year 2000 Issues; (2) analyze-determine the nature and extent of Year
2000 Issues and develop project plans to address those issues; (3)
improve-execute project plans and perform a majority of the testing; and (4)
control-complete testing, continue monitoring readiness and complete necessary
contingency plans. The first three phases of the program have been completed for
a substantial majority of our mission-critical activities. Management plans to
have nearly all significant information systems and facilities through the
control phase of the program by late-1999.
13
We have also communicated with our significant vendors and suppliers to
determine the extent to which we are vulnerable to the failure of these parties
to remedy Year 2000 Issues. We can give no assurance that failure to address the
Year 2000 Issues by third parties on whom our systems and business processes
rely would not have a material adverse effect on our operations or financial
condition.
The total Year 2000 Issue remediation expenditures are expected to be
approximately $100,000, of which 50% was spent by June 30, 1999. Substantially
all of the remainder is expected to be spent in 1999. The activities involved in
the Year 2000 effort necessarily involve estimates and projections of activities
and resources that will be required in the future. These estimates and
projections could change as work progresses.
14
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On May 18, 1999, we sold 200,000 units (the "1999 Units"),
each unit consisting of $1,000 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, for an aggregate purchase price of $200 million. The warrants which are
part of the 1999 Units may be exercised on the earliest to occur of (i) the
effective date of a change of control in CD Radio and (ii) May 18, 2000.
The 1999 Units were offered and sold only to qualified
institutional buyers in compliance with Rule 144A under the Securities Act and
to a limited number of institutional "accredited investors" in a private sale
exempt from the registration requirements of the Securities Act. We did not sell
the 1999 Units by any form of general solicitation or general advertising. In
connection with the sale of the 1999 Units, we paid an aggregate $8 million in
initial purchaser discounts and fees to investment banking firms. The proceeds
from the sale of the 1999 Units will be used for general corporate purposes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders held on June 22, 1999,
the persons whose names are set forth below were elected as directors. The
relevant voting information for each person is set forth opposite such person's
name:
VOTES CAST
----------
FOR WITHHELD
--- ---------
David Margolese........................... 25,122,482 45,970
Robert D. Briskman........................ 25,122,832 45,620
Lawrence F. Gilberti...................... 25,122,342 46,110
Joseph V. Vittoria........................ 25,122,272 46,180
Ralph V. Whitworth........................ 25,121,472 46,980
In addition to the election of directors, the following matters were acted upon:
(a) The appointment of Arthur Andersen LLP as our independent auditors
for the fiscal year ending December 31, 1999 was ratified by a vote of
25,152,092 shares in favor, 6,564 shares against, and 9,796 shares abstained.
(b) The ratification of the CD Radio 1999 Long-Term Stock Incentive Plan
was approved by a vote of 17,607,630 shares in favor, 1,168,394 shares against,
22,167 shares abstained, and 6,370,261 broker nonvotes.
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Exhibit Index attached hereto.
(b) Reports on Form 8-K:
On April 9, 1999, we filed a Current Report on Form 8-K to report that
on April 6, 1999, we dismissed our independent auditors, PricewaterhouseCoopers
LLP, and engaged Arthur Andersen LLP as our independent auditors. On April 16,
1999, we filed a Current Report on Form 8-K to report that representatives of
General Motors Corporation ("GM") had informed us that GM expected shortly to
conclude an agreement with XM Satellite Radio Inc. ("XM") to manufacture and
sell vehicles capable of receiving XM's satellite radio broadcasts. On April 30,
1999, we filed a Current Report on Form 8-K to report that we had launched an
offering of $200 million of securities, in the form of units consisting of
Senior Secured Notes with attached warrants to purchase shares of our common
stock. On May 25, 1999, we filed a Current Report on Form 8-K to report that on
May 18, 1999, GM resumed substantive discussions with us regarding a possible
agreement to manufacture and sell vehicles capable of receiving CD Radio
broadcasts. On June 15, 1999, we filed a Current Report on Form 8-K to report
that we had executed an agreement with Ford Motor Company to manufacture, market
and sell vehicles that include receivers capable of receiving CD Radio
broadcasts.
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CD RADIO INC.
By: /s/ John T. McClain
___________________________________
John T. McClain
Vice President and Controller
(Chief Accounting Officer)
August 12, 1999
17
Exhibit Index
EXHIBIT DESCRIPTION
------- -----------
3.1 Certificate of Amendment, dated June 16, 1997, to the CD Radio
Inc. (the "Company") Certificate of Incorporation and the
Company's Amended and Restated Certificate of Incorporation,
dated January 31, 1994 (filed herewith).
3.2 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-1
(File No. 33-74782) (the "S-1 Registration Statement")).
3.3 Certificate of Designations of 5% Delayed Convertible Preferred
Stock (incorporated by reference to Exhibit 10.24 to the
Company's Form 10-K/A for the year ended December 31, 1996 (the
"1996 Form 10-K")).
3.4 Form of Certificate of Designations of Series B Preferred Stock
(incorporated by reference to Exhibit A to Exhibit 1 to the
Company's Registration Statement on Form 8-A, filed with the
Commission on October 30, 1997 (the "Form 8-A")).
3.5.1 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) (the "S-4 Registration Statement")).
3.5.2 Certificate of Correction of the 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 Form 10-Q for the period ended March 31, 1998).
3.6 Form of Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of 9.2% Series
A Junior Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 99.2 to the Company's Current Report on
Form 8-K filed with the Commission on November 17, 1998).
3.7 Form of Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of 9.2% Series
B Junior Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 99.3 to the Company's Current Report on
Form 8-K filed with the Commission on November 17, 1998).
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
S-4 Registration Statement).
4.3.1 Rights Agreement, dated as of October 22, 1997, between the
Company and Continental Stock Transfer & Trust Company, as
Rights Agent (incorporated by reference to Exhibit 1 to the Form
8-A).
18
EXHIBIT DESCRIPTION
------- -----------
4.3.2 Form of Right Certificate (incorporated by reference to Exhibit
B to Exhibit 1 to the Form 8-A).
4.3.3 Amendment to Rights Agreement, dated as of October 22, 1997,
between the Company and Continental Stock Transfer & Trust
Company, as Rights Agent, dated as of October 13, 1998
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K dated October 8, 1998).
4.3.4 Amendment to Rights Agreement, dated as of October 22, 1997,
between the Company and Continental Stock Transfer & Trust
Company, as Rights Agent, dated as of November 13, 1998
(incorporated by reference to Exhibit 99.7 to the Company's
Current Report on Form 8-K dated November 17, 1998).
4.3.5 Amended and Restated Amendment to Rights Agreement, dated as of
October 22, 1997, between the Company and Continental Stock
Transfer & Trust Company, as Rights Agent, dated as of December
22, 1998 (incorporated by reference to Exhibit 6 to the
Amendment No. 1 to the Form 8-A, filed with the Commission on
January 6, 1999).
4.3.6 Amendment to the Rights Agreement, dated as of October 22, 1997,
between the Company and Continental Stock Transfer & Trust
Company, as Rights Agent, dated as of June 11, 1999
(incorporated by reference to Exhibit 4.1.8 to the Company's
Registration Statement on Form S-4 (File No. 333-82303) (the
"1999 Form S-4").
4.4 Indenture, dated as of November 26, 1997, between the Company
and IBJ Schroder Bank & Trust Company, as Trustee (incorporated
by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-3 (File No. 333-34769) (the "1997 Units
Registration Statement")).
4.5 Form of Note (incorporated by reference to Exhibit 4.2 to the
1997 Units Registration Statement).
4.6.1 Warrant Agreement, dated as of November 26, 1997, between the
Company and IBJ Schroder Bank & Trust Company, as Warrant Agent
(incorporated by reference to Exhibit 4.3 to the 1997 Units
Registration Statement).
4.6.2 Form of Warrant (incorporated by reference to Exhibit 4.4 to the
1997 Units Registration Statement).
4.7 Form of Preferred Stock Warrant Agreement, dated as of April 9,
1997, between the Company and each Warrantholder thereof
(incorporated by reference to Exhibit 4.12 to the 1997 Form
10-K).
4.8 Form of Common Stock Purchase Warrant granted by the Company to
Everest Capital Master Fund, L.P. and to The Ravich Revocable
Trust of 1989 (incorporated by reference to Exhibit 4.11 to the
1997 Form 10-K).
4.9.1 Form of Certificate for shares of 9.2% Series A Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.10.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (the "1998 Form
10-K")).
19
EXHIBIT DESCRIPTION
------- -----------
4.9.2 Form of Certificate for shares of 9.2% Series B Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.10.2 to the 1998 Form 10-K).
4.10 Notes Registration Rights Agreement, dated as of May 13, 1999,
among the Company and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc., Bear,
Stearns & Co. Inc., NationsBanc Montgomery Securities LLC, U.S.
Bancorp Libra (incorporated by reference to Exhibit 4.4.1 to the
1999 Form S-4).
4.11 Indenture, dated as of May 15, 1999, between the Company and
United States Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 4.4.2 to the 1999 Form
S-4).
4.12 Form of the Company's 14 1/2% Senior Secured Notes due 2009
(included in Exhibit 4.4.3 to the 1999 Form S-4).
4.13 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 Form
S-4).
4.14 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
Form S-4).
4.15 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 Form S-4).
4.16 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 Form S-4).
4.17 Common Stock Purchase Warrant granted by the Company to Ford
Motor Company, dated June 11, 1999 (incorporated by reference to
Exhibit 4.5.1 to the 1999 Form S-4).
9.1 Voting Trust Agreement, dated as of August 26, 1997, by and
among Darlene Friedland, as Grantor, David Margolese, as
Trustee, and the Company (incorporated by reference to Exhibit
(c) to the Company's Issuer Tender Offer Statement on Form
13E-4, filed with the Commission on October 16, 1997).
10.1 Lease Agreement, dated as of March 31, 1998, between
Rock-McGraw, Inc. and the Company (incorporated by reference to
Exhibit 10.1.2 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998).
10.2.1 Engagement Letter Agreement, dated November 18, 1992, between
the Company and Batchelder & Partners, Inc. (incorporated by
reference to Exhibit 10.4 to the S-1 Registration Statement).
20
EXHIBIT DESCRIPTION
------- -----------
10.2.2 Engagement Termination Letter Agreement, dated December 4, 1997,
between the Company and Batchelder & Partners, Inc.
(incorporated by reference to Exhibit 10.2.2 to the 1997 Form
10-K).
*10.3.1 Proprietary Information and Non-Competition Agreement, dated
February 9, 1993, for Robert D. Briskman (incorporated by
reference to Exhibit 10.8.1 to the S-1 Registration Statement).
*10.3.2 Amendment No. 1 to Proprietary Information and Non-Competition
Agreement between the Company and Robert D. Briskman
(incorporated by reference to Exhibit 10.8.2 to the S-1
Registration Statement).
'D'10.4.1 Amended and Restated Contract, dated as of June 30, 1998,
between the Company and Space Systems/Loral, Inc. (incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q/A for the period ended June 30, 1998).
10.5.1 Assignment of Technology Agreement, dated April 15, 1993,
between Robert D. Briskman and the Company (incorporated by
reference to Exhibit 10.10 to the S-1 Registration Statement).
*10.5.2 Stock Option Agreement, dated as of October 15, 1997, between
the Company and Robert D. Briskman (incorporated by reference to
Exhibit 10.6.2 to the 1997 Form 10-K).
*10.5.3 Amended and Restated Option Agreement between the Company and
Robert D. Briskman (incorporated by reference to Exhibit 10.13
to the S-1 Registration Statement).
*10.6 Employment Agreement, dated as of January 1, 1999, between the
Company and David Margolese (incorporated by reference to
Exhibit 10.6 to the 1998 Form 10-K).
*10.7.1 Employment and Non-Competition Agreement between the Company and
Robert D. Briskman (incorporated by reference to Exhibit 10.19.1
to the S-1 Registration Statement).
*10.7.2 First Amendment to Employment Agreement between the Company and
Robert D. Briskman (incorporated by reference to Exhibit 10.19.2
to the S-1 Registration Statement).
*10.7.3 Second Amendment to Employment Agreement between the Company and
Robert D. Briskman (incorporated by reference to Exhibit 10.12.3
to the 1996 Form 10-K).
*10.8 Employment and Non-Competition Agreement, dated as of July 10,
1997, between the Company and Andrew J. Greenebaum (incorporated
by reference to Exhibit 10.10 to the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1997).
*10.9 Employment and Non-Competition Agreement, dated as of April 16,
1997, between the Company and Joseph S. Capobianco (incorporated
by reference to Exhibit 10.17 to the Company's Quarterly Report
on Form 10-Q/A for the period ended March 31, 1997).
21
EXHIBIT DESCRIPTION
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*10.10.1 Employment and Non-Competition Agreement, dated as of April 28,
1997, between the Company and Keno V. Thomas (incorporated by
reference to Exhibit 10.18 to the Company's Quarterly Report on
Form 10-Q/A for the period ended March 31, 1997).
*10.10.2 Separation Agreement, dated as of July 6, 1998, between the
Company and Keno V. Thomas (incorporated by reference to Exhibit
10.11.2 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1998).
*10.11 Employment and Non-Competition Agreement, dated as of May 18,
1998, between the Company and Patrick L. Donnelly (incorporated
by reference to Exhibit 10.12 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1998).
10.12 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).
*10.13 1994 Stock Option Plan (incorporated by reference to Exhibit
10.21 to the S-1 Registration Statement).
*10.14 Amended and Restated 1994 Directors' Nonqualified Stock Option
Plan (incorporated by reference to Exhibit 10.22 to the Annual
Report on Form 10-K for the year ended December 31, 1995).
10.15.1 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).
10.15.2 Form of Option Agreement, dated as of December 29, 1997, between
the Company and each Optionee (incorporated by reference to
Exhibit 10.16.2 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998).
10.16 Settlement Agreement, dated as of April 1, 1994, among the
Company, M.A. Rothblatt, B.A. Rothblatt and Marcor, Inc.
(incorporated by reference to Exhibit 10.27 to the S-1
Registration Statement).
10.17.1 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).
10.17.2 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).
10.17.3 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).
10.18 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).
22
EXHIBIT DESCRIPTION
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10.19 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 period ended June 30, 1998).
10.20 Credit Agreement, dated as of June 30, 1998 (the "Credit
Agreement"), among the Company, the financial institutions from
time to time parties thereto and Bank of America National Trust
and Savings Association, as Administrative Agent (incorporated
by reference to Exhibit 10.22 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1998).
10.21 First Amendment, dated as of May 4, 1999, to the Credit
Agreement (filed herewith).
10.22 Pledge Agreement, dated as of June 30, 1998, made by the Company
in favor of Bank of America National Trust and Savings
Association, as Administrative Agent (incorporated by reference
to Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998).
10.23 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).
10.24.1 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).
10.24.2 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).
'D'10.25 Radio License Agreement, dated January 21, 1998 between the
Company and Bloomberg Communications Inc. (incorporated by
reference to Exhibit 10.28 to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1998).
'D'10.26 Amended and Restated Agreement, dated as of February 1, 1999,
between Lucent Technologies Inc. and the Company (incorporated
by reference to Exhibit 99.1 to the Company's Current Report on
Form 8-K filed with the Commission on February 4, 1999).
*10.27 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)).
10.28 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).
23
EXHIBIT DESCRIPTION
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10.29 Stock Purchase Agreement, dated as of November 13, 1998, 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).
10.30 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).
10.31 Tag-Along Agreement, dated as of November 13, 1998, by and among
Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV,
L.P., the Company and David Margolese (incorporated by reference
to Exhibit 99.6 to the Company's Current Report on Form 8-K
dated November 17, 1998).
10.32* CD Radio 1999 Long-Term Stock Incentive Plan (incorporated by
reference to Appendix I of the Company's definitive Schedule 14A
filed with the Commission on May 26, 1999).
'D'10.33 Agreement, dated as of June 11, 1999, between the Company and
Ford Motor Company (filed herewith, except for Exhibit A thereto,
which is included as Exhibit 4.17 hereto).
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 Orders or
Applications for Confidential treatment filed by the Company with the
Securities and Exchange Commission.
24
STATEMENT OF DIFFERENCES
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The dagger symbol shall be expressed as................................ 'D'
The section symbol shall be expressed as............................... 'SS'