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<SEC-DOCUMENT>0000950117-01-000648.txt : 20010402
<SEC-HEADER>0000950117-01-000648.hdr.sgml : 20010402
ACCESSION NUMBER: 0000950117-01-000648
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010330
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SIRIUS SATELLITE RADIO INC
CENTRAL INDEX KEY: 0000908937
STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832]
IRS NUMBER: 521700207
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 000-24710
FILM NUMBER: 1587576
BUSINESS ADDRESS:
STREET 1: 1221 AVENUE OF THE AMERICAS
STREET 2: 36TH FLOOR
CITY: NEW YORK
STATE: NY
ZIP: 10020
BUSINESS PHONE: 2128995000
MAIL ADDRESS:
STREET 1: 1221 AVENUE OF THE AMERICAS
STREET 2: 36TH FLOOR
CITY: NEW YORK
STATE: NY
ZIP: 10020
FORMER COMPANY:
FORMER CONFORMED NAME: CD RADIO INC
DATE OF NAME CHANGE: 19940203
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>SIRIUS SATELLITE RADIO INC. 10-K
<TEXT>
<PAGE>
________________________________________________________________________________
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, 2000
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)
-------------------
<TABLE>
<S> <C>
DELAWARE 52-1700207
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OF ORGANIZATION)
</TABLE>
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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED:
------------------- --------------------
<S> <C>
None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.001 per share
Common Stock Purchase Rights
(TITLES OF CLASSES)
-------------------
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, 2001, 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 $670,376,079.
The number of shares of the Registrant's common stock outstanding as of
March 23, 2001 was 53,722,951.
DOCUMENTS INCORPORATED BY REFERENCE
None
________________________________________________________________________________
<PAGE>
SIRIUS SATELLITE RADIO INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION PAGE
- -------- ----------- ----
<S> <C> <C>
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 20
Item 3. Legal Proceedings........................................... 20
Item 4. Submission of Matters to a Vote of Security Holders......... 20
PART II
Item 5. Market for Registrant's Common Equity and Related Stock
Matters................................................... 21
Item 6. Selected Consolidated Financial Data........................ 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Item 7A. Quantitative and Qualitative Disclosures About Market
Risks..................................................... 28
Item 8. Financial Statements and Supplementary Data................. 28
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 28
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 29
Item 11. Executive Compensation...................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 36
Item 13. Certain Relationships and Related Transactions.............. 39
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 40
</TABLE>
1
<PAGE>
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 beliefs, plans, objectives, expectations, assumptions or future events or
performance are not historical facts and may be forward-looking. These
statements are often, but not always, made through the use of words or phrases
such as 'will likely result,' 'are expected to,' 'will continue,' 'is
anticipated,' 'estimated,' 'intends,' 'plans,' 'projection' and 'outlook.' Any
forward-looking statements are qualified in their entirety by reference to the
factors discussed throughout this Annual Report on Form 10-K and in other
reports and documents published by us from time to time, particularly the risk
factors described under 'Business -- Risk Factors' in Part I of this Annual
Report on Form 10-K. Among the significant factors that could cause our actual
results to differ materially from those expressed in the forward-looking
statements are:
the unavailability of radios capable of receiving our service and our
dependence upon third parties to manufacture and distribute them;
the potential risk of delay in implementing our business plan;
the unproven market for our service; and
our need for additional financing.
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. Accordingly, you should not place undue reliance on any of
these forward-looking statements. In addition, any forward-looking statement
speaks only as of the date on which it is made, and we undertake no obligation
to update any forward-looking statement or statements to reflect events or
circumstances after the date on which the statement is made, to reflect the
occurrence of unanticipated events or otherwise. New factors emerge from time to
time, and it is not possible for us to predict which will arise or to assess
with any precision the impact of each factor on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
ITEM 1. BUSINESS
From our three orbiting satellites, we will directly broadcast up to 100
channels of digital quality radio to vehicles, homes and portable users
throughout the continental United States for a monthly subscription fee, which
we anticipate will be $9.95. We will deliver 50 channels of commercial-free
music in virtually every genre, and up to 50 channels of news, sports, talk,
comedy and children's programming. Sirius' broad and deep range of almost every
music format as well as its news, sports and entertainment programming is not
available on conventional radio in any market in the United States. We hold one
of only two licenses issued by the Federal Communications Commission ('FCC') to
operate a national satellite radio system.
Upon commencing commercial operations, we expect our primary source of
revenues will be subscription fees, which we expect will be included in the sale
or lease of certain new vehicles. In addition, we expect to derive revenues from
directly selling or bartering limited advertising on our non-music channels.
We have exclusive agreements with Ford Motor Company, DaimlerChrysler
Corporation and BMW of North America, LLC that contemplate manufacturing and
selling vehicles that include radios 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 makes us the preferred provider of satellite radio in
Freightliner and Sterling heavy trucks. In 2000, Ford, DaimlerChrysler and BMW
sold or leased approximately 7.5 million vehicles in the continental United
States, which was approximately 44% of all new cars and trucks sold or leased in
the continental United States last year.
2
<PAGE>
In addition, in the autosound aftermarket, we expect that radios capable of
receiving our broadcasts will be available for sale at various national and
regional retailers, such as Best Buy, Circuit City, Tweeter Home Entertainment
Group and Good Guys. In 2000, 11 million car radios were sold through consumer
electronics retailers.
We have entered into agreements with numerous consumer electronics
manufacturers, including Alpine Electronics Inc., Clarion Co., Ltd., Delphi
Delco Electronics Systems, Kenwood Corporation, Matsushita Communication
Industrial Corporation of USA, Recoton Corporation, Sony Electronics Inc. and
Visteon Automotive Systems, to develop radios capable of receiving our
broadcasts. As these radios become available in commercial quantities, they will
be sold to automakers for inclusion in new vehicles and consumer electronics
retailers for sale in the autosound aftermarket.
THE SIRIUS SERVICE
Sirius will offer motorists:
a wide choice of finely focused music and non-music formats;
commercial-free music programming; and
nearly seamless signal coverage throughout the continental United States.
Our monthly subscription fee will entitle subscribers to receive all Sirius
channels.
Wide Choice of Programming. We design and originate the programming on each
of our 50 commercial-free music channels and will offer each under the Sirius
brand. Sirius will offer subscribers a far broader range of programming formats
than conventional radio. Each of our 50 music channels has 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 1999, 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 programming such as opera,
blues, chamber music, soundtracks and reggae. Sirius' wide choice of formats is
expected to appeal to the large number of currently underserved radio listeners.
In addition, our ability to offer a broad variety of news, talk and
entertainment programming will provide subscribers with listening options that
are not currently available.
Commercial-Free Music Programming. Sirius' 50 channels of music programming
will be 100% 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 will be broadcast throughout the
continental United States, enabling listeners to be almost always within its
signal range. We expect that our nearly seamless signal will appeal to motorists
who frequently drive out of the range of their preferred AM or FM radio
stations, 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 stations.
We believe there will be significant consumer demand for Sirius. 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 with both AM and FM radio because of lack of variety in
programming, frequent commercial
3
<PAGE>
interruptions and loss of signal strength. Our service has been designed to
address these key disadvantages of conventional radio.
Sirius' target market consists primarily of motorists. The Federal Highway
Administration estimates that there were approximately 208 million registered
private motor vehicles in the United States at the end of 2000. According to
Radio Advertising Bureau, more than 40% of all radio listening is done in cars.
According to Arbitron, a radio industry rating agency, in 2000 motorists
listened to the radio an average of 50 minutes a day, despite the fact that 92%
of cars have a CD or cassette player. In addition, according to Arbitron, in
1999 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.
PROGRAMMING
We intend to program 50 channels of commercial-free music under our brand
'Sirius,' and to offer up to 50 additional channels of other formats, such as
news, sports and talk programming.
Our Music Channels. We design and originate the programming on each of our
50 commercial-free music channels. Each channel is operated as a separate radio
station, with a distinct format and its own hosts. Our current line-up of music
channels consists of:
<TABLE>
<S> <C> <C>
HITS COUNTRY LATIN
Top 40 Alternative Country Latin Hits
Pop Mix Country Hits Latin Love Songs
Soft Rock Country Mix Rock en Espanol
Love Songs Classic Country Mexicana
50's Hits Bluegrass Tejano
60's Hits
70's Hits R&B CLASSICAL
80's Hits R&B Oldies Symphonic
90's Hits Classic Soul Hits Chamber Works
Urban Hits Classical Voices
ROCK Rap
Classic Rock I Soul Ballads VARIETY
Classic Rock II Gospel New Age
Alternative I Kids
Alternative II JAZZ Christian Hits
Hard Rock/Metal Classic Jazz World Music
Album Rock Contemporary Jazz Reggae
Eclectic Rock Smooth Jazz Dance
Rock Specials Blues
STANDARDS Specialty Showcase
Big Band/Swing
Singers & Standards
Broadway's Best
</TABLE>
Music programming will be selected from our music library. We have assembled
an extensive music library consisting of a deep range of recorded music in each
genre. To date, we have acquired approximately two million music titles. 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 music channel. To be accessible to these industries, we have built our
national broadcast studio in New York City.
We expect that well-known music experts and celebrity talent will have a
regular presence, and in some cases will perform, on our service. We believe
these appearances will emphasize our brand and further differentiate us from
conventional radio. To date, we have alliances with artists Grandmaster
4
<PAGE>
Flash, BeBe Winans, Dave Koz, Ray Manzarek, Randy Travis, Leonard Slatkin and
Michael Feinstein to appear and perform on our service. We believe that
performances by prominent artists will be a regular occurrence at our national
broadcast studio. Among the artists that have already performed and recorded at
our national broadcast studio are Sinead O'Connor, Steve Earle, Dolly Parton,
Shaggy, Yo Yo Ma, Emmylou Harris and Travis. We also have agreements with the
John F. Kennedy Center for the Performing Arts and Webster Hall and an
agreement in principle to feature live and recorded music from House of Blues
on a number of our music channels.
In connection with our music programming, we must negotiate and enter into
royalty arrangements with two sets of rights holders: holders of copyrights in
musical works -- songs -- and holders of copyrights in sound
recordings -- tapes, compact discs or audio files. Holders of rights to musical
works, generally songwriters and music publishers, are represented by performing
rights societies such as the American Society of Composers, Authors and
Publishers, Broadcast Music, Inc. and SESAC, Inc. These organizations negotiate
fees with copyright users, collect royalties and distribute them to the rights
holders. 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.
Holders of rights to sound recordings, typically large record companies, are
primarily represented by the Recording Industry Association of America, which
negotiates licenses and collects and distributes royalties. Cable audio service
providers currently pay a royalty rate of 6.5% of gross revenue for the use of
sound recordings 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. Although we believe we can distinguish Sirius
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. During 2000, we commenced the negotiations of these royalty arrangements.
Our News, Sports and Entertainment Channels. In addition to our music
channels, we will offer up to 50 channels of news, sports and talk programming,
which will include limited commercial advertising. We believe 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
produce programming for our non-music channels; we obtain this programming from
various third party content providers.
We have agreements to air the following news, sports and entertainment
channels on Sirius:
<TABLE>
<S> <C> <C>
CNBC Discovery Radio Hispanic Radio Network
Sirius News SCI-FI Channel Radio Mujer
NPR Now A&E Radio Wisdom Radio
World Radio Network Radio Classics Women Talk
Bloomberg News Radio The Scandal Channel Guy Talk
C-SPAN Public Radio International Speedvision Radio
BBC WorldService Sirius Comedy Outdoor Life Radio
BBC Mundo Personal Achievement Sports Byline USA
La Red Hispana NPR Talk Radio Deportivo
African American Talk
</TABLE>
In addition, we will feature reports from The Weather Channel on a number of
our channels. We are also discussing additional news, sports and entertainment
programming with other third parties content providers and this programming will
be added to our service as agreements are completed.
MARKETING AND DISTRIBUTION
We expect radios capable of receiving our broadcasts to be available factory
installed as standard equipment in newly manufactured Ford, Chrysler, Mercedes,
BMW, Jaguar, Mazda, Volvo and other vehicles. We also expect consumer
electronics retailers to market adapters which will allow radios in existing
vehicles to receive our broadcasts. In 2000, approximately 17 million radios
were factory installed in new vehicles and approximately 11 million car radios
were sold through consumer electronics retailers.
5
<PAGE>
We plan to engage in extensive marketing activities to create consumer
awareness of Sirius. This includes an ongoing major advertising campaign
utilizing network, cable and satellite television, radio, print, internet and
billboards. In addition, we expect the introduction of our service will have
high news value, which will result in significant publicity during the launch of
our service.
We expect that certain demographic groups are likely to have a high level of
interest in Sirius, including commuters (over 100 million, including 34 million
with extended commute times), niche music listeners (niche genres not generally
available on radio were responsible for 33% of recorded music sales in 1999),
Hispanic listeners (over 35 million Spanish-speaking Americans), sports
enthusiasts (often underserved by limited regional broadcasts), truck drivers
(over three million), recreational vehicle owners (approximately three million)
and consumers in areas with sparse radio coverage (over 45 million).
ALLIANCES WITH AUTOMAKERS
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 radios capable of receiving our broadcasts. We expect
that the first of these radios will be available in model year 2002 vehicles. We
expect to remain the exclusive factory option in 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 subscribers using new
Ford vehicles equipped to receive our broadcasts ('Ford Enabled Vehicles'). We
also agreed to reimburse Ford for certain advertising expenses and 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 $30.00 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 radios capable of receiving our broadcasts. We
expect to remain the exclusive factory option in all cars and light trucks
manufactured by DaimlerChrysler as well as the preferred provider 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
subscribers using new DaimlerChrysler vehicles equipped to receive our
broadcasts ('DaimlerChrysler Enabled Vehicles'). We also agreed to reimburse
DaimlerChrysler for certain advertising expenses and 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 $60.00 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 June 16, 2000, we entered into an agreement with BMW of North America,
LLC which anticipates BMW marketing and selling vehicles that include radios
capable of receiving our broadcasts. This agreement grants us exclusivity in all
BMW vehicles, including cars and trucks. As part of this agreement, we will
share with BMW a portion of the revenues we will derive from subscribers using
certain BMW vehicles equipped to receive our broadcasts ('BMW Enabled
Vehicles'). In addition, we expect to reimburse BMW for certain advertising
expenses and hardware costs of BMW Enabled Vehicles.
In addition to our alliances with Ford, DaimlerChrysler and BMW, we are in
discussions with several other automakers to include radios capable of receiving
our broadcasts in new cars and trucks. However, under our joint development
agreement with XM Satellite Radio, any new agreements with automakers will be
non-exclusive and will require such automakers to install radios capable of
receiving both Sirius and XM's satellite radio service.
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.
6
<PAGE>
THE SIRIUS SYSTEM
The Sirius 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, 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 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 repeaters.
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 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) use 12.5 MHz of
bandwidth in the 7060-7072.5 MHz band.
The Sirius system consists of three principal components: (1) satellites and
terrestrial repeaters; (2) radios; and (3) our national broadcast studio.
SATELLITES
Space Systems/Loral delivered title to our three operating satellites on
July 31, 2000, September 29, 2000 and December 20, 2000, following the
completion of in-orbit testing of each satellite. We expect our fourth, ground
spare, satellite to be delivered to storage in August 2001.
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. Space Systems/Loral has identified circuit failures in
solar arrays on satellites launched since 1997, including our satellites. The
circuit failures our satellites have experienced do not limit the power of our
broadcast signal, reduce the expected useful life of our satellites or otherwise
affect our operations. If a substantial number of additional circuit failures
were to occur, the estimated useful life of our satellites could be reduced. We
cannot assure you additional circuit failures will not occur or whether the
useful life of our satellites will be reduced.
Each satellite travels in a figure eight pattern extending above and below
the equator, and spends approximately 16 hours per day north of the equator. At
any given time, two of our three satellites operate north of the equator while
the third satellite does not broadcast as it traverses the portion of the orbit
south of the equator. This orbital configuration yields very high signal
elevation angles and thereby mitigates service interruptions that can result
from signal blockage.
Each satellite acts as a 'bent pipe,' relaying our broadcasts directly to
the ground, and does not contain on-board processors. All of our processing
operations occur on the ground where they are accessible for maintenance and
continuing technological upgrade without the need to launch replacement
satellites.
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 adversely affected. In at least 56 urban areas, we plan
to install terrestrial repeaters to rebroadcast our satellite signals,
increasing the availability of service. We estimate that these 56 urban areas
will require a total of approximately 94 terrestrial repeater sites.
As of March 15, 2001, we had substantially completed 71 terrestrial repeater
sites. The remaining 23 terrestrial repeater sites are expected to be completed
during the second quarter of 2001.
Our terrestrial repeater sites are being constructed by third party
contractors under our supervision. Black & Veatch, a construction services firm
based in Kansas City, Missouri, is providing radio frequency design, site
acquisition and site construction services. Globecomm Systems, Inc., a systems
integration and satellite operations company based in Hauppauge, New York, is
designing, developing and manufacturing custom digital broadcast equipment as
well as deploying and commissioning our terrestrial repeater sites. Loral
CyberStar, Inc., a leading satellite service provider,
7
<PAGE>
transmits our broadcasts via one of its satellites from our national
broadcast studio to individual terrestrial repeater sites.
Risk Management and Insurance. We have procured insurance covering 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 our
satellites. 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 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 the in-orbit failure
of one of our satellites, our operations would likely be interrupted or delayed
for at least six months. The in-orbit failure of two
or three satellites would require us to arrange for an additional satellite or
satellites 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.
RADIOS
In many new cars and trucks, consumers will receive Sirius through a new
generation of three-band (AM/FM/SAT) radios, which will come installed by
automakers. In the autosound aftermarket, Sirius subscribers will have the
choice of two different receiving devices for their cars -- an FM modulated
receiver or a three-band radio.
FM Modulated Receivers. FM modulated receivers will enable our service to be
received in all vehicles with FM radios, or approximately 95% of all U.S.
vehicles. Each receiver will be a small device, approximately the size of a
compact disc changer, that will be mounted in the vehicle's trunk.
Three-Band Radios. Three-band radios will be nearly identical in appearance
to existing car stereos and will allow the user to listen to AM, FM or Sirius
with the push of a button. Like existing radios, three-band radios may also
incorporate cassette or CD players.
We have entered into alliances with Alpine Electronics Inc., Audiovox
Corporation, Clarion Co., Ltd., Delphi Delco Electronics Systems, Harman
International Industries Incorporated, Kenwood Corporation, Matsushita
Communication Industrial Corporation of USA, Mitsubishi Electric Automotive
America, Inc., Pioneer Corporation, Recoton Corporation, Sanyo Electric Co.,
Ltd., Sony Electronics Inc. and Visteon Automotive Systems, to develop radios
capable of receiving our broadcasts for installation by automakers and for sale
in the autosound aftermarket and to home and portable users. Matsushita has
completed the construction of a manufacturing facility that will initially be
capable of producing 1,750 radios per day, with an ultimate capacity of
approximately one million radios per year.
We expect to have a limited quantity of radios available for testing during
the second quarter of 2001 as part of a comprehensive quality assurance
program. The technical portion of this program will include end to end testing
and integration of our studio, broadcast, transaction management and customer
service systems. The content portion of this program will refine Sirius'
programming based on feedback obtained from users of these initial radios.
Once our quality assurance program has been completed and we can ensure a
high quality consumer service radios will be made widely available to consumers.
Subscriptions to Sirius resulting from the sale of radios in the autosound
aftermarket are expected to occur as commercial quantities become available for
sale, with a majority of 2001 subscriptions occurring in the fourth quarter. We
expect factory installation of radios in new vehicles to occur on a limited
basis in model year 2002 vehicles, with quantities increasing and additional
vehicle lines added in the 2003 model year.
Unified Standard. On February 16, 2000, we signed an agreement with XM
Satellite Radio, the other holder of an FCC license to provide a satellite-based
digital audio radio service, to develop a
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unified standard for satellite radios to enable consumers to purchase one radio
capable of receiving both our service and XM's service. We expect the unified
standard to detail the technology to be employed by manufacturers of such
dual-mode radios. 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 this joint development 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 was
resolved.
We anticipate that it will take several years to develop radios capable of
receiving both services. At the commercial launch of our service, consumers will
be able to purchase radios capable of receiving only our service or only XM's
service.
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.
NATIONAL BROADCAST STUDIO
Our programming originates from our national broadcast studio 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 satellites and to
perform the tracking, telemetry and control of our satellites.
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
state-of-the-art production facilities and has been designed to broadcast 100
radio stations.
Broadcasting originates at our national broadcast studio and is transmitted
to our satellites for broadcast to our radios. The satellites broadcast to the
continental United States at a power level sufficient to enable receipt directly
by subscribers. Service commands to initiate and suspend subscriber service also
are relayed from the national broadcast studio to our satellites for
retransmission to subscribers' radios.
Tracking, telemetry and control of our satellites is also performed from our
national broadcast studio. These activities include routine stationkeeping, such
as satellite orbital adjustments and monitoring of the satellites.
CUSTOMER CARE, BILLING AND CONDITIONAL ACCESS
We have selected Stream International Inc., a call center operator, to
provide our customer care operations. Employees of Stream International 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, our representatives at the call
center have the ability to escalate technical concerns to either our technical
help desk or to the appropriate equipment manufacturer. We intend to automate
customer care functions where appropriate using interactive voice response
technology, chat, e-mail, and a customer self-care section on our website. We
pay Stream International an hourly rate for each representative assigned to
support us.
We have deployed an integrated customer relationship management and billing
solution to meet the needs of our business, including all customer service,
subscriber management and billing operations. Infintium Technologies Corp., a
leading provider of information technology services, has designed and
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deployed this integrated customer relationship management and billing solution.
Our customer relationship management program enables us to interface
electronically and exchange information with automobile manufacturers,
automobile dealers, consumer electronics retailers and radio manufacturers,
and facilitates and encourages subscriber interaction through the internet and
by other electronic means. Infintium manages our customer relationship
management operations from its Richmond, Virginia data center, and is paid for
billing services on a per subscriber basis.
To reduce theft of our service, each Sirius radio 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
that radio's Sirius capability. Through this feature, we can directly (via
satellite) deactivate radios of subscribers who are delinquent in paying our
subscription fee.
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.
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.
Unlike Sirius, 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. Sirius 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 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 over FM radio, we
do not believe it would enable broadcasters to address the other advantages of
Sirius. 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 radios capable of receiving our
broadcasts.
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 service.
Although some existing satellite operators currently provide music
programming to customers at fixed locations, these operators are incapable of
providing Sirius-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-type service requires fully dedicated satellites;
Sirius-type service requires a custom satellite system design; and
Sirius-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
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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 will not be utilized for satellite radio broadcasting in the
future. Although any of these licensees would face cost and competition
barriers, we cannot assure you that there will not be an increase in the number
of competitors in the satellite radio industry.
TECHNOLOGY AND PATENTS
We have been granted U.S. patents on various features of satellite radio
technology. 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. During 2000, we received a notice of allowance
from the U.S. Patent and Trademark Office for the invention of broadcast
satellite constellations in inclined elliptical geosynchronous orbits. The
claims of this patent cover the satellite constellation used by us and
variations thereof. A similar patent has been granted to us in Japan.
Some of our know-how and technology is not the subject of U.S. patents. To
protect our rights, we require 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,
our 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.
On January 12, 1999, we filed a lawsuit against XM in the U.S. District
Court for the Southern District of New York for patent infringement. On February
16, 2000, we and XM entered into a joint development agreement to design and
develop radios capable of receiving our service and XM's service and we agreed
to withdraw this lawsuit. We and XM Satellite Radio have agreed to cross-license
our respective intellectual property and to resolve disputes over the value of
our contributed property through negotiation or arbitration. 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, as amended. The FCC is the
government agency with primary authority in the United States over satellite
radio communications. We currently must comply with FCC regulations with respect
to:
the licensing of our satellite system;
preventing interference with or to other users of radio frequencies; and
compliance with rules that the FCC has established specifically for U.S.
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 digital audio radio service (the 'FCC Licensing
Rules'). Pursuant to the FCC Licensing Rules, an auction was held among
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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 geostationary orbit.
Our FCC license was effective immediately; however, for a period of 30 days
following the grant of the FCC license, parties that had filed comments or
petitions to deny in connection with our license application were entitled to
petition for reconsideration by the International Bureau or to request review of
the decision by the full FCC. An application for review by the FCC was filed by
Primosphere Limited Partnership, one of the low-bidding applicants in the
auction. This petition requests, among other things, that the FCC adopt
restrictions on foreign ownership, which were not applied in the license issued
to us, and, on the basis of our ownership, overturn our license. On March 12,
2001, Primosphere Limited Partnership filed a petition in the United States
Court of Appeals for the District of Columbia to require the FCC to act on its
application to review our license. Although we believe the FCC will uphold our
license, we cannot predict the ultimate outcome of any proceedings relating to
this petition. If this petition is denied, Primosphere 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.
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 and on
March 9, 2001 the International Bureau of the FCC granted this modification. Our
modification was effective immediately, however, parties that had filed comments
in response to our modification application are entitled to petition for
reconsideration by the International Bureau of the FCC to request review of the
decision by the full FCC for a period of thirty days following the grant of a
modification.
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;
launch and begin operating our first satellite within four years of the
grant of our FCC license; and
begin operating our entire system within six years of the grant of our FCC
license.
The failure to meet these milestones will render our FCC license null and
void. On January 4, 2001, we notified the FCC that we launched all three of our
satellites and were essentially ready to begin commercial operations. 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 term of our FCC license is eight years, commencing from the date we
certify to the FCC that our satellites have been successfully placed into orbit
and have begun regular operations. Prior to expiration of the term, we will be
required to apply for a renewal of our FCC license. Although we anticipate that,
absent significant misconduct on our part, our FCC license will be renewed in
due course to permit operation of our satellites for their useful lives, and
that a license would be granted for any replacement satellites, we cannot assure
you of this renewal or grant.
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
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
repeaters to enhance our service. The FCC has not yet established rules
governing the construction and operation of terrestrial repeaters. 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 adopt
rules that would restrict the deployment of our terrestrial repeaters. 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
filings. These comments seek to protect adjoining wireless services and ensure
that we do not
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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 ('AFTRCC') 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. On October 12 2000, we filed a
coordination agreement with the FCC that we reached with AFTRCC. On January 25,
2001, we and XM filed a proposed rule authorizing terrestrial repeaters for
adoption by the FCC. In the interim, we have constructed and tested a number of
terrestrial repeaters under a temporary experimental license, which will expire
on July 1, 2005. We cannot predict the outcome or the timing of these FCC
proceedings.
Our FCC license is conditioned 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 service and XM's service. We believe
that this agreement, and our efforts with XM Satellite Radio to develop this
unified standard, will satisfy the interoperability condition contained in our
FCC license although we cannot assure you of this.
The FCC has updated certain regulations and has proposed to update other
regulations to govern the operations of new unlicensed devices that may generate
radio energy in the part of the spectrum we use. 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. If the FCC does not
adopt adequate technical standards specifically applicable to these devices and
use of these unlicensed devices becomes commonplace, it may be difficult for us
to enforce our rights to use spectrum without interference from such unlicensed
devices. We believe that the currently proposed FCC rules must be strengthened
to ensure protection of the spectrum allocated for our operations. During 1998,
1999 and 2000, we filed comments and other written submissions to the FCC and
met with FCC staff to express our concerns and protect our right to use our
spectrum without interference from unlicensed devices. The FCC's failure to
adopt adequate standards could have an adverse effect on reception of our
service. We believe that the FCC will set adequate standards to prevent harmful
interference, although we cannot assure you that it will do so.
Our business operations as currently contemplated may require a variety of
permits, licenses and authorizations from governmental authorities other than
the FCC, but we have not identified any permit, license or authorization that we
believe could not be obtained in the ordinary course of business. The
Communications Act prohibits the issuance of a license to a foreign government
or a representative of a foreign government, and contains limitations on the
ownership of common carrier, broadcast and some other radio licenses by non-U.S.
citizens. We are regulated as a private carrier, not a common carrier, by the
FCC and are not a broadcast service. As such, the International Bureau of the
FCC has 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 satellite digital audio radio services, but has not acted on
that petition. We believe that the FCC will not apply the foreign ownership
rules to digital audio radio services but cannot assure you of that result. 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 and FCC regulations to our service in the United States. Changes in law or
regulations relating to communications policy or to matters affecting
specifically our service could adversely affect our ability to retain our FCC
license and obtain or retain other approvals required to provide our service or
the manner in which our service is regulated. Further, actions of the FCC may be
reviewed by U.S. 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 U.S. Patent and Trademark Office for
the registration of the trademark 'Sirius' in connection with our service. We
intend to maintain our trademark and the
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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 15, 2001, we had 180 employees. On December 31, 2001, 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 are represented by a labor
union, and we believe that our relationship with our employees is excellent.
CORPORATE INFORMATION
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 and our
telephone number is (212) 584-5100. Our internet address is siriusradio.com.
Siriusradio.com is an inactive textual reference only, meaning that the
information contained on the website is not part of this Annual Report on
Form 10-K and is not incorporated in this report by reference.
RISK FACTORS
In addition to the other information in this Annual Report on Form 10-K, the
following risk 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
forward-looking statements due to a number of factors, including those set forth
below and elsewhere in this Annual Report on Form 10-K. See 'Special Note
Regarding Forward-Looking Statements'.
RADIOS FOR OUR SERVICE ARE NOT YET AVAILABLE
Integrated circuits for our radios are not yet available. Integrated
circuits which decode, process and output our signals are an essential component
of radios capable of receiving our broadcasts. Samples of these integrated
circuits being developed by Lucent have been shipped to certain radio
manufacturers. Production quantities of these integrated circuits are expected
to be shipped to radio manufacturers in the third quarter of this year, although
the development of these integrated circuits has been delayed in the past, and
could be delayed in the future, by circumstances beyond our control.
We cannot assure you that Lucent will:
deliver fully operable integrated circuits during the third quarter of this
year or in sufficient quantities to meet the demand of radio manufacturers;
or
price these integrated circuits low enough to encourage widespread
distribution of radios capable of receiving our service.
We are dependent upon others to manufacture and distribute our radios.
Following delivery of the integrated circuits for our radios, we expect various
manufacturers to produce radios capable of receiving our broadcasts. However, we
cannot assure you how quickly manufacturing will commence, the quantity of
radios that will be manufactured or how quickly these radios will be
distributed.
WE ARE NOT SURE THERE WILL BE A MARKET FOR SIRIUS
Currently no one offers a commercial satellite radio service such as Sirius
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 service will meet that demand. We cannot assure you that there will
be sufficient demand for Sirius to enable us to achieve significant revenues or
cash flow or
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profitable operations. Sirius 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 radios capable of
receiving our broadcasts;
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 will offer, Sirius, 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, 2000 are as follows:
no revenues;
net losses of approximately $269 million (including a net loss of $135
million during the twelve months ended December 31, 2000); and
net losses applicable to common stockholders of approximately $444 million.
We do not expect any revenues or EBITDA until commercial quantities of
radios become available. We do not expect to generate any revenues from
operations until commercial quantities of radios become available or to generate
earnings before interest, taxes, depreciation and amortization ('EBITDA') until
2003, at the earliest. Our ability to generate revenues and EBITDA and achieve
profitability will depend upon a number of factors, including:
the manufacture and distribution by one or more consumer electronics
manufacturers of radios capable of receiving our broadcasts;
the manufacture and distribution by one or more automobile manufacturers of
vehicles that include radios capable of receiving our broadcasts;
the successful marketing and consumer acceptance of Sirius; and
the timely receipt of all necessary regulatory authorizations.
We cannot assure you that we will accomplish any of the above, that we will
ever commence operations, that we will attain any particular level of revenues,
that we will generate EBITDA 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
will have sufficient funds to operate our business, including the completion of
our terrestrial repeater network, through the middle of 2002 from our working
capital at March 15, 2001. We will require additional funds to support our
planned operations through the remainder of 2002 and thereafter until our
revenues grow substantially. We will require more money than estimated if there
are operating delays, cost overruns or other adverse developments.
The funding required to develop a unified satellite radio standard could be
significant. Under a joint development agreement between ourselves and XM, we
are 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. We cannot predict at this time
the amount of the license fees or contribution that will be payable by XM or us
under this
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joint development agreement or the size of the credits to XM and us from the
use of our or their technology. This joint development agreement may require
us to invest significant additional capital.
SUBSCRIBER TURNOVER COULD ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE
We expect to experience some subscriber turnover, or churn. Since we have
not commenced commercial operations yet, it is impossible to predict the amount
of churn we will experience. In addition, we do not know whether we will be able
to successfully retain customers who purchase or lease a new vehicle that
includes a subscription to our service. Churn or our inability to retain
customers who purchase or lease a new vehicle could adversely affect our
financial performance and results of operations in the future.
SUBSCRIBER ACQUISITION COSTS COULD ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE
We may, and in certain cases have already agreed to, subsidize a portion of
the costs of radios capable of receiving our broadcasts in order to attract
subscribers to our service. We also are planning a large advertising campaign to
introduce our service and to generate subscriptions to our service.
Consequently, our subscriber acquisition costs could be significant. Our
subscriber acquisition costs, both in the aggregate and on a per subscriber
basis, may also increase if we determine that aggressive advertising, promotions
or other marketing efforts are necessary to promote faster subscriber growth,
respond to competition, or are otherwise advisable. These subscriber acquisition
costs could adversely affect our financial performance and results of operations
in the future.
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 and the agreement governing our term loan facility with
Lehman Brothers Commercial Paper Inc. and Lehman Brothers Inc. limit our ability
to incur additional indebtedness. In addition, we expect any future senior
indebtedness to 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:
delay in commercial availability of radios capable of receiving our
broadcasts;
failure of our vendors to perform as anticipated; and
delays in obtaining additional authorizations from the FCC.
We have previously experienced 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 break even from
operations. Additional financing may not be available on favorable terms or at
all during periods of delay.
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:
do not charge subscription fees;
do not require users to purchase a separate radio; and
often offer local information programming such as local news and traffic
reports.
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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, including XM, 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.
SOME OBSTRUCTIONS WILL ADVERSELY AFFECT SIRIUS RECEPTION
High concentrations of tall buildings, such as those found in large urban
areas, tunnels and other obstructions will block the signals from our
transmitting satellites. We plan to install terrestrial repeaters to rebroadcast
Sirius in at least 56 urban areas to mitigate this problem. However, some areas
with impediments to satellite line-of-sight may still experience 'dead zones.'
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 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
satellites is significantly shorter than 15 years.
The useful lives of our satellites will vary and will depend on a number of
factors, including:
expected gradual degradation of solar panels;
quality of construction;
amount of fuel on board;
durability of component parts;
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.
Space Systems/Loral has identified circuit failures in solar arrays on
satellites launched since 1997, including our satellites. The circuit failures
our satellites have experienced do not limit the power of our broadcast signal,
reduce the expected useful life of our satellites or otherwise affect our
operations. If a substantial number of additional circuit failures were to
occur, the estimated useful life of our satellites could be reduced. We cannot
assure you additional circuit failures will not occur or whether the useful life
of our satellites will be reduced.
If one of our three satellites fails in orbit and we are required to launch
our spare satellite, our operations could be suspended for up to six months. If
two or more of our satellites fail in orbit, our operations could be suspended
for at least 16 months.
INSURANCE MAY NOT COVER ALL RISKS OF OPERATING SATELLITES
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;
damages from business interruption, loss of business and any related
expenditures arising from satellite failures; and
losses for which there are deductibles, exclusions and conditions.
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In addition, upon the expiration of our current policies, we may not be able
to renew our insurance on favorable terms.
WE ARE SUBJECT TO CONTINUING AND DETAILED REGULATION BY THE FCC
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.
Primosphere Limited Partnership, 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 grant of our FCC license on the basis of our ownership. On March
12, 2001, Primosphere filed a petition in the United States Court of Appeals for
the District of Columbia to require the FCC to act on its application to review
our license. If the FCC denies this application, Primosphere may appeal to the
U.S. Court of Appeals. We cannot predict the ultimate outcome of any proceedings
relating to this application.
We will need to renew our FCC license after eight years. The term of our FCC
license is eight years, beginning on the date we certify to the FCC that our
satellites have been successfully placed into orbit and have begun regular
operations. When our FCC license expires, we must apply for a renewal. If the
FCC does not renew our FCC license, we would be forced to cease providing
service. We cannot assure you that we will obtain this renewal.
We need FCC approval to operate our terrestrial repeaters. The FCC has not
yet established rules governing the construction and operation of terrestrial
repeaters 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 repeaters. 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 services 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 with adjoining wireless services. Metricom,
Inc., MCI WorldCom, Inc. and AFTRCC 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. On October 12, 2000, we filed a
coordination agreement with the FCC that we reached with AFTRCC. On January 25,
2001, XM and ourselves filed a proposed rule authorizing terrestrial repeaters
for adoption by the FCC. In the interim, we have constructed a number of
terrestrial repeaters under a temporary experimental license, which will expire
on July 1, 2005. We cannot predict the outcome or the timing of these FCC
proceedings.
New devices may interfere with our service. The FCC has proposed regulations
to allow new devices that may generate radio energy in the part of the spectrum
we use. We believe the current proposed regulations for these devices do not
contain adequate safeguards to prevent interference with services such as
Sirius. 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 to use spectrum without
interference from unlicensed devices. If the FCC fails to adopt adequate
standards, the new devices could adversely affect reception of our service.
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 our
service, 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. In addition, the
manner in which Sirius is 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
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<PAGE>
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
questioned 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
service providers in the future, which could add to our costs or reduce our
revenues. For example, the FCC could require satellite radio service providers
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.
WE RELY ON OUR NATIONAL BROADCAST STUDIO
We rely on our national broadcast studio in New York City for key
operations, including the creation of our 50 music channels and the encryption
and compression of our broadcast signal. Although we plan to establish redundant
systems, these systems will require significant time and expenditures to become
fully operational. If a natural or other disaster significantly damaged our
national broadcast studio, our ability to provide our service would be suspended
and our operating results would be materially and adversely effected.
OUR TECHNOLOGY MAY BECOME OBSOLETE
We 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.
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 commence operations. We do not currently employ
sufficient staff to handle all of our expected sales and marketing efforts.
Although we have hired experienced executives in this area, we must hire
additional employees before we begin commercial operations. 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 signal. Although we 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
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
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<PAGE>
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
portions of the roof at 1221 Avenue of the Americas, New York, New York, to
house our headquarters and national broadcast studio. We use portions of the
roof for satellite transmission equipment and an emergency 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 rent 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 engineering staff. The term of this lease commenced 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 rent 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 legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this Annual Report
on Form 10-K no matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK 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.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ended December 31, 2000
First Quarter........................................... 69 7/16 37
Second Quarter.......................................... 55 5/8 30
Third Quarter........................................... 56 3/8 37
Fourth Quarter.......................................... 54 7/16 21 1/2
Year ended December 31, 1999
First Quarter........................................... 38 5/8 20 1/2
Second Quarter.......................................... 32 19 1/2
Third Quarter........................................... 38 1/2 24 3/4
Fourth Quarter.......................................... 48 1/2 23 1/8
</TABLE>
On March 23, 2001, the closing bid price of our common stock on the Nasdaq
National Market was $13 3/8 per share. On March 23, 2001, there were
approximately 353 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 debt and the instruments
governing our 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 November 2, 1998, we sold
5,000,000 shares of our common stock to Prime 66 Partners, L.P. for an aggregate
purchase price of $100 million. In connection with this sale, we paid an
aggregate of $2 million in fees to investment banking firms. The proceeds from
this sale of our common stock was used for general corporate purposes.
On December 23, 1998, we sold 1,281,269 shares of our 9.2% Series A Junior
Preferred Stock to Apollo Investment Fund IV, L.P. and 68,731 shares of our 9.2%
Series A Junior Preferred Stock to Apollo Overseas Partners IV, L.P. for an
aggregate purchase price of $135 million. In connection with this sale, we paid
an aggregate $5.15 million in fees to investment banking firms. Each share of
our 9.2% Series A Junior Preferred Stock is convertible into shares of our
common stock at a price of $30 per share. The proceeds from this sale of our
9.2% Series A Junior Preferred Stock was used for general corporate purposes.
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 our 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 was 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 was
used for general corporate purposes.
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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 Prime 66 Partners, L.P., Apollo Investment Fund IV, L.P., Apollo
Overseas Partners IV, L.P., 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 convertible preferred stock and our common stock.
We did not sell the shares of convertible preferred stock or common stock by
any form of general solicitation or general advertising, and we determined that
each of Prime 66 Partners, L.P., Apollo Investment Fund IV, L.P., Apollo
Overseas Partners IV, L.P., 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 Prime 66 Partners, L.P., Apollo
Investment Fund IV, L.P., Apollo Overseeas Partners IV, L.P., 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 ask questions concerning the information provided to
them and to obtain any other information concerning us.
As of December 31, 2000, we had acquired $62,914,000 in aggregate principal
amount of our 8 3/4% Convertible Subordinated Notes due 2009 in exchange for
2,557,803 shares of our common stock. These transactions were negotiated by us
directly with existing holders of our 8 3/4% Convertible Subordinated Notes due
2009 and no commission or other remuneration was paid or given directly or
indirectly for soliciting such exchange. The issuance of our common stock in
these transactions was exempt from registration under the Securities Act by
virtue of the exemption contained in Section 3(a)(9) of the Securities Act.
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, 1998, 1999 and 2000
and with respect to the balance sheets at December 31, 1999 and 2000 are derived
from our consolidated financial statements, audited by Arthur Andersen LLP,
independent accountants, included in Item 8 of this report. Our selected
consolidated financial data with respect to the balance sheets at December 31,
1996, 1997 and 1998 and with respect to the statement of operations data for the
years ended December 31, 1996 and 1997, are derived from our audited
consolidated financial statements, which are not included in this report. 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
<TABLE>
<CAPTION>
CUMULATIVE
FOR THE PERIOD
MAY 17, 1990
YEAR ENDED DECEMBER 31, (DATE OF INCEPTION)
--------------------------------------------------- TO DECEMBER 31,
1996 1997 1998 1999 2000 2000
---- ---- ---- ---- ---- -------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues.......... $ -- $ -- $ -- $ -- $ -- $ --
Net loss.................... $(2,831) $(4,737) $(48,396) $(62,822) $(134,744) $(269,235)
Net loss per share (basic
and diluted).............. $ (.29) $ (.41) $ (2.70) $ (2.57) $ (3.46)
Weighted average common
shares outstanding (basic
and diluted).............. 9,642 11,626 17,932 24,470 38,889
</TABLE>
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BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.............. $ 4,584 $ 900 $150,190 $ 81,809 $ 14,397
Restricted investments, at amortized
cost................................. $ -- $ -- $ -- $ 67,454 $ 41,510
Marketable securities, at market....... $ -- $169,482 $115,433 $ 317,810 $ 129,153
Working capital........................ $ 4,442 $170,894 $180,966 $ 303,865 $ 143,981
Total assets........................... $ 5,065 $323,808 $643,880 $1,206,612 $1,323,582
Long-term notes payable................ $ -- $131,387 $153,033 $ 488,690 $ 472,602
Convertible preferred stock............ $ -- $176,025 $294,510 $ 362,417 $ 443,012
Deficit accumulated during development
stage................................ $(18,536) $(23,273) $(71,669) $ (134,491) $ (269,235)
Stockholders' equity(1)................ $ 4,898 $ 15,980 $ 77,953 $ 134,179 $ 290,483
</TABLE>
- ---------
(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 any
forward-looking statements due to a number of factors, including those set forth
under 'Business -- Risk Factors' and elsewhere in this report. See 'Special Note
Regarding Forward-Looking Statements.'
(All dollar amounts referenced below 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;
constructing four satellites;
launching three satellites;
constructing our national broadcast studio;
acquiring content for our programming;
constructing our terrestrial repeater network;
developing radios capable of receiving our broadcasts;
strategic planning;
market research;
recruiting our management; and
securing financing for capital expenditures and working capital.
We will require additional funds for working capital, interest on
borrowings, acquisition of programming, financing costs and operating expenses
until some time after we commence commercial operations. We cannot assure you
that we will ever commence commercial operations, attain any particular level of
revenues or achieve profitability.
Upon commencing commercial operations, we expect our primary source of
revenues to be subscription fees. We anticipate that our subscription fee will
be $9.95 per month, with a one time activation fee per subscriber. We also
expect our subscription to be included in the sale or lease of certain new
vehicles. In addition, we expect to derive revenues from directly selling or
bartering limited advertising on our non-music channels.
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The operating expenses associated with our service will consist primarily of
marketing and sales costs, costs to acquire programming, expenses of maintaining
our satellites and broadcasting systems and general and administrative costs.
Costs to acquire programming include payments to build and maintain an extensive
music library and royalty payments for broadcasting music. As of March 15, 2001,
we had 180 employees. We expect that we will have approximately 250 employees on
December 31, 2001.
We received title to our satellites on July 31, 2000, September 29, 2000 and
December 20, 2000, following the completion of in-orbit testing of each
satellite. We expect our fourth, spare, satellite to be delivered to ground
storage in August 2001.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
We had net losses of $134,744 and $62,822 for the years ended December 31,
2000 and 1999, respectively. Our total operating expenses were $125,634 and
$63,518 for the years ended December 31, 2000 and 1999, respectively.
Engineering design and development costs were $71,000 and $33,134 for the
years ended December 31, 2000 and 1999, respectively. These engineering costs
represented primarily payments to Lucent (38%) and other radio development and
manufacturing partners (33%) in 2000 and payments to Lucent in 1999. The
increase in costs in the 2000 period resulted primarily from the increased
activity in our radio development effort as we prepared to launch our service.
General and administrative expenses increased for the year ended
December 31, 2000 to $54,634 from $30,384 for the year ended December 31, 1999.
General and administrative expenses increased principally due to the growth of
our workforce, expenses in connection with stock and stock options granted to
employees and consultants and in-orbit insurance for our three satellites. The
major components of general and administrative expenses in 2000 were salaries
and employment related costs (39%), marketing costs (14%) and rent and occupancy
costs (13%), while in 1999 the major components were salaries and employment
related costs (32%), marketing costs (14%) and rent and occupancy costs (18%).
The remaining portion of general and administrative expenses (34% in 2000 and
36% in 1999) consisted of other costs such as legal and regulatory, insurance,
consulting, travel, depreciation and supplies, with no such amount exceeding 10%
of the total in either 2000 or 1999.
The increase in interest and investment income to $24,485 for the year ended
December 31, 2000 from $17,502 for the year ended December 31, 1999 was the
result of improved performance of our investments in U.S. government securities
and commercial paper issued by major U.S. corporations with high credit ratings.
The improved performance of these securities was due to higher rates of interest
during 2000.
Interest expense was $33,595 for the year ended December 31, 2000 and
$16,806 for the year ended December 31, 1999, net of capitalized interest of
$63,728 and $56,567, respectively. Gross interest expense increased by $23,950
and capitalized interest increased by $7,161 during 2000. Gross interest expense
and capitalized interest for 2000 increased due to interest accruing on our
14 1/2% Senior Secured Notes due 2009 issued in May 1999 and our 8 3/4%
Convertible Subordinated Notes due 2009 issued in September and October 1999,
which were outstanding throughout 2000 but during only a portion of 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
We had net losses of $62,822 and $48,396 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. These engineering costs
for the year ended December 31, 1999 represented primarily payments to Lucent.
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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 principally due to occupancy of
our national broadcast studio and the growth of our management team and
workforce. The major components of general and administrative expenses in 1999
were salaries and employment related costs (32%), rent and occupancy costs (18%)
and legal and regulatory costs (10%), while in 1998 the major components were
salaries and employment related costs (29%), rent and occupancy costs (20%) and
legal and regulatory costs (17%). The remaining portion of general and
administrative expenses (40% in 1999 and 34% in 1998) consisted of other costs
such as insurance, consulting, travel, depreciation and supplies, with only
marketing (14%) exceeding 10% of the total in 1999 and no amount exceeding 10%
of the total in 1998.
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 1999. The higher average balances of cash, marketable
securities and restricted investments during 1999 were due to the investment
throughout the year of proceeds from financing activities in 1999, including the
issuance of our 14 1/2% Senior Secured Notes due 2009, our 8 3/4% Convertible
Subordinated Notes due 2009, our 9.2% Series B Junior Cumulative Convertible
Preferred Stock and 3,450,000 shares of our common stock.
Interest expense was $16,806 for the year ended December 31, 1999 and
$14,272 for the year ended December 31, 1998, net of capitalized interest of
$56,567 and $16,243, respectively. Gross interest expense increased by $42,858
and capitalized interest increased by $40,324 during 1999. Gross interest
expense and capitalized interest for 1999 increased due to interest accruing on
our 14 1/2% Senior Secured Notes due 2009 issued in May 1999 and our 8 3/4%
Convertible Subordinated Notes due 2009 issued in September and October 1999.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had cash, cash equivalents, marketable securities
and restricted investments totaling $185,060 and working capital of $143,981
compared with cash, cash equivalents, marketable securities and restricted
investments totaling $467,073 and working capital of $303,865 at December 31,
1999.
Funding Requirements. We entered into a satellite contract with Space
Systems/Loral to build and launch the satellites necessary to transmit our
service. The Loral satellite contract requires Space Systems/Loral to:
construct, launch and deliver three satellites in-orbit and checked-out;
construct a fourth satellite for use as a ground spare; and
deliver $15,000 of long-lead time parts for a possible fifth satellite.
We are committed to make aggregate payments of approximately $745,890 under the
Loral satellite contract. As of December 31, 2000, $674,080 of this obligation
had been satisfied. Under the Loral satellite contract, with the exception of a
payment made to Space Systems/Loral in March 1993, payments are made in
installments that commenced in April 1997 and will end in October 2004. Our
future payments due to Space Systems/Loral are as follows: $21,810 in 2001, $0
in 2002, $25,000 in 2003 and $25,000 in 2004.
The amount and timing of our actual cash requirements will depend upon
numerous factors, including timing of construction of our fourth satellite and
completion of our terrestrial repeater network, costs associated with the design
and development of chip sets and radios, the rate of growth of our business
after we commence service, costs of financing and the possibility of
unanticipated costs. We will require additional funds if there are delays, cost
overruns, unanticipated expenses, satellite losses or impairments or shortfalls
in our 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.
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<PAGE>
As of March 15, 2001, we had received a total of approximately $1,103,500 in
equity capital as a result of the following transactions:
the sale of shares of our common stock (net proceeds of approximately
$22,000) prior to the issuance of our FCC license in October 1997;
the sale of 5,400,000 shares of our 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 our 5% Delayed Convertible
Preferred Stock) (all shares of our 10 1/2% Series C Convertible Preferred
Stock have since been converted into shares of our common stock);
the sale of 4,955,488 shares of our common stock (net proceeds of
approximately $71,000) in 1997;
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;
the sale of 1,350,000 shares of our 9.2% Series A Junior Cumulative
Convertible Preferred Stock to the Apollo Investment Fund IV, L.P. and
Apollo Overseas Partners IV, L.P. (collectively, the 'Apollo Investors')
(net proceeds of approximately $129,000) in December 1998;
the sale of 650,000 shares of our 9.2% Series B Junior Cumulative
Convertible Preferred Stock to the Apollo Investors (net proceeds of
approximately $63,000) in November 1999;
the sale of 3,450,000 shares of our common stock in an underwritten public
offering (net proceeds of approximately $78,000) in September and October
1999;
the sale of 2,000,000 shares of our 9.2% Series D Junior Cumulative
Convertible Preferred Stock to affiliates of The Blackstone Group L.P. (net
proceeds of approximately $192,000) in January 2000;
the sale of 2,290,322 shares of our common stock to DaimlerChrysler
Corporation (net proceeds of approximately $100,000) in February 2000; and
the sale of 11,500,000 shares of our common stock in an underwritten public
offering (net proceeds of approximately $229,500) in February 2001.
As of March 15, 2001, we had received a total of approximately $443,000 in
net proceeds from the following public debt offerings:
12,910 units, each consisting of $20 aggregate 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 in an underwritten public offering (net
proceeds of approximately $116,000) in November 1997. 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.
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
4.189 shares of our common stock (as of March 15, 2001) in an underwritten
public offering (net proceeds of approximately $190,000) in May 1999. The
warrants are exercisable through May 15, 2009 at an exercise price of
$24.92 per share (as of March 15, 2001). We invested approximately $79,300
of the net proceeds from this offering in a portfolio of U.S. government
securities, which we pledged as security for payment in full of interest
due on the 14 1/2% Senior Secured Notes due 2009 through May 15, 2002.
$125,000 aggregate principal amount of our 8 3/4% Convertible Subordinated
Notes due 2009 in an underwritten public offering (net proceeds of
approximately $119,000) in September 1999. In October 1999, we issued an
additional $18,750 aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009 to the underwriters of that offering in
connection with their over-allotment option (net proceeds of approximately
$18,000).
26
<PAGE>
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. These notes are secured by a pledge of the stock
of Satellite CD Radio, Inc., our subsidiary that holds our FCC license. As of
December 31, 2000, we had acquired $62,914 principal amount of our 8 3/4%
Convertible Subordinated Notes due 2009 in exchange for shares of our common
stock.
On September 23, 1999, the SEC declared effective a shelf registration
statement pursuant to which we could offer $500,000 aggregate principal amount
of debt securities, preferred stock, common stock and warrants to the public. As
of March 15, 2001, we had issued $470,638 of common stock and convertible
subordinated notes under this registration statement.
Space Systems/Loral has deferred a total of $50,000 of payments under the
Loral satellite contract originally scheduled for payment in 1999. These
deferred amounts bear interest at 10% per year and were originally scheduled to
be paid in quarterly installments beginning in June 2002. However, the agreement
governing these deferred amounts provides that this date, and subsequent payment
dates, will be extended by the number of days that the achievement of any
milestone under the Loral satellite contract is delayed beyond the date set
forth in the Loral satellite contract. Our fourth, spare, satellite was
originally expected to be delivered to ground storage in October 2000 and now is
expected to be delivered to ground storage in August 2001. As a result of this
delay, we do not expect to make any required payments with respect to these
deferred amounts until April 2003, at the earliest. As security for these
deferred payments, we have granted Space Systems/Loral a security interest in
our terrestrial repeater network.
On June 1, 2000, we entered into a term loan agreement with Lehman
Commercial Paper Inc. ('LCPI') and Lehman Brothers Inc. which provided us a term
loan facility in the aggregate principal amount of $150,000. On March 7, 2001,
after satisfaction of the conditions to borrowing, including a demonstration of
our broadcast system, we borrowed $150,000 of term loans under this agreement.
These term loans bear interest at an annual rate equal to the eurodollar rate
plus 4% or a base rate, typically the prime rate, plus 5%. These term loans are
secured by a pledge of the stock of Satellite CD Radio, Inc., our subsidiary
that holds our FCC license, and our contract rights under the Loral satellite
contract relating to our fourth, spare, satellite. The proceeds of these term
loans will be used for working capital, capital expenditures and general
corporate purposes.
The term loans mature in quarterly installments, commencing on March 31,
2003, in an amount equal to the percentage set forth below of the aggregate
principal amount of the loans:
<TABLE>
<CAPTION>
INSTALLMENT DATE PERCENTAGE
- ---------------- ----------
<S> <C>
March 31, 2003.............................................. 0.25
June 30, 2003............................................... 0.25
September 30, 2003.......................................... 0.25
December 31, 2003........................................... 0.25
March 31, 2004.............................................. 2.25
June 30, 2004............................................... 2.25
September 30, 2004.......................................... 2.25
December 31, 2004........................................... 2.25
March 31, 2005.............................................. 22.50
June 30, 2005............................................... 22.50
September 30, 2005.......................................... 22.50
December 31, 2005........................................... 22.50
</TABLE>
We may prepay the term loans in whole or in part from time to time.
Prepayment prior to March 7, 2004, must be accompanied by a specified prepayment
penalty. We must prepay the term loans:
with the net proceeds of certain incurrences of indebtedness;
with the proceeds of asset sales, subject to certain exceptions; and
commencing with the fiscal year ending December 31, 2002, with excess cash.
The term loan facility contains customary covenants and events of default
for a senior secured bank loan. These covenants restrict our ability to issue
additional debt and engage in certain activities.
27
<PAGE>
In connection with this term loan facility, we placed into escrow, for the
benefit of LCPI, 2,100,000 warrants, each to purchase one share of our common
stock at an exercise price of $29.00 per share. Of these warrants, 1,575,000 are
vested and have been released from escrow and the remaining 525,000 will vest
only under certain conditions relating to the performance of our 14 1/2% Senior
Secured Notes due 2009.
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. Dividends on our
9.2% Series A Junior Cumulative Convertible Preferred Stock and 9.2% Series B
Junior Cumulative Convertible Preferred 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 on
which the holders of our common stock have the right to vote. Shares of our 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 certificates 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.
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.
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 our common stock
have the right to vote. Shares of our 9.2% Series D Junior Cumulative
Convertible Preferred Stock:
are callable by us beginning December 23, 2002 at a price of 100% if the
current 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.
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 we
would redeem these securities on April 12, 2000. All of the outstanding warrants
to purchase shares of our 10 1/2% Series C Convertible Preferred Stock were
exercised and all of the outstanding shares of 10 1/2% Series C Convertible
Preferred Stock (including those shares received upon exercise of such warrants)
were converted into shares of our common stock.
As of March 15, 2001, we had sufficient funds to operate our business
through the middle of 2002. We will require additional funds to support our
planned operations through the remainder of 2002 and thereafter until our
revenues grow substantially. We plan to fund our additional capital needs
through the issuance of debt and equity securities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements contained in Item 14 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding our directors and executive officers as of
December 31, 2000 is provided below.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
David Margolese...................... 43 Chairman of the Board and Chief Executive Officer
Robert D. Briskman(1)................ 68 Executive Vice President, Engineering and Director
Joseph S. Capobianco................. 51 Senior Vice President, Content
Dr. Mircho Davidov................... 54 Senior Vice President, Engineering
Patrick L. Donnelly.................. 39 Senior Vice President, General Counsel & Secretary
Lawrence F. Gilberti(2)(3)........... 50 Director
Joseph V. Vittoria(2)(3)............. 66 Director
Ralph V. Whitworth(2)(3)............. 45 Director
</TABLE>
- ---------
(1) Mr. Briskman retired as our Executive Vice President, Engineering, and a
Director on March 15, 2001. His services will continue to be available to us
as a consultant until March 15, 2004.
(2) Member of the Audit Committee.
(3) 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 us, Mr. Margolese proposed and co-founded Cantel Inc., Canada's
national cellular telephone carrier, which was acquired by Rogers Communications
Inc. in 1989, and Canadian Telecom Inc., Canada's national paging company,
serving as that company's president until the company's sale in 1987.
ROBERT D. BRISKMAN is our co-founder and served as Executive Vice President,
Engineering, and as a director since October 1991. Before 1986, during his
22-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.
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.
DR. MIRCHO DAVIDOV has served as Senior Vice President, Engineering, since
April 2000. From 1995 to 2000, he was vice president at Hughes Network Systems,
a provider of satellite and wireless communications equipment, managing various
programs, including the development of hand held terminals for THURAYA, a mobile
satellite communication system. Prior to his employment with Hughes,
Dr. Davidov held a number of technical positions at various companies, including
TCSI Group, CellNet and Oak Industries.
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 & Resorts Worldwide, Inc. in
February 1998. From October 1995 to June 1997, he was assistant general
29
<PAGE>
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 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 a partner in the law firm of Reed Smith LLP and has
provided legal services to us 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 since April 1998. Since March 2000,
Mr. Vittoria has served as Executive Chairman of Travel Services International,
Inc. and from 1997 to February 2000 he was Chairman and Chief Executive Officer
of that company. Since 1997, Mr. Vittoria has served 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. Mr. Vittoria also serves on the
boards of Resort Quest Inc. and Carey International, Inc. He is Chairman of
Transmedia Asia, Inc. and of Puradyn Filter Technologies, Inc. Mr. Vittoria is a
member of the Audit and Compensation Committees of our board of directors.
RALPH V. WHITWORTH has been a director 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 and Chief Executive Officer and the four next highest paid executive
officers at the end of 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------
NUMBER OF
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
NAME AND PRINCIPAL POSITION YEAR $ $ $ # $
- --------------------------- ---- ------- ------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
David Margolese ................ 2000 500,000 500,000(2) -- -- 10,500
Chairman of the Board and 1999 450,000 -- -- 2,500,000 10,000
Chief Executive Officer 1998 400,000 -- -- -- 10,000
Robert D. Briskman ............. 2000 310,000 310,000(2) 398,512(6) 50,000 10,500
Executive Vice President, 1999 280,000 40,000(3) -- 150,000 10,000
Engineering 1998 260,000 25,000(3) -- 57,500 10,000
Joseph S. Capobianco ........... 2000 269,135 275,000(2) -- 50,000 10,500
Senior Vice President, Content 1999 241,667 -- -- 100,000 10,000
1998 218,125 -- -- 25,000 9,200
Dr. Mircho Davidov(4) .......... 2000 216,667 312,500 -- 300,000 --
Senior Vice President, 1999 -- -- -- -- --
Engineering 1998 -- -- -- -- --
Patrick L. Donnelly(5) ......... 2000 310,417 323,000(2) -- 75,000 10,500
Senior Vice President, General 1999 277,500 -- -- 215,000 10,000
Counsel & Secretary 1998 162,500 -- -- 110,000 --
</TABLE>
(footnotes on next page)
30
<PAGE>
(footnotes from previous page)
(1) Represents matching contributions by us under our 401(k) Savings Plan. These
amounts were paid in the form of common stock.
(2) In February 2000, we also paid Mr. Margolese a bonus of $500,000,
Mr. Briskman a bonus of $100,000, Mr. Capobianco a bonus of $150,000 and
Mr. Donnelly a bonus of $290,000. Each of these bonuses was awarded by our
board of directors in recognition of the executive's efforts in securing our
alliances with DaimlerChrysler and BMW.
(3) Amount represents bonus award for obtaining patents.
(4) Dr. Davidov became an executive officer in April 2000.
(5) Mr. Donnelly became an executive officer in May 1998.
(6) Represents amount realized by Mr. Briskman in connection with his exercise
of incentive stock options.
-------------------
The following table sets forth certain information for the fiscal year ended
December 31, 2000, with respect to options granted to individuals named in the
summary compensation table above.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATE OF
STOCK PRICE APPRECIATION
FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------------------------------ --------------------------
PERCENT OF
NUMBER OF SECURITIES TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION
NAME GRANTED EMPLOYEES ($/SHARE) DATE 5%($) 10%($)
---- -------------------- ------------- -------------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
David Margolese.............. -- -- -- -- -- --
Robert D. Briskman........... 50,000 2.5% 21.500 12/18/10 676,062 1,713,273
Joseph S. Capobianco......... 50,000 2.5% 21.500 12/18/10 676,062 1,713,273
Dr. Mircho Davidov........... 250,000 14.8% 31.875 05/15/10 5,011,504 12,700,135
50,000 21.500 12/18/10 676,062 1,713,273
Patrick L. Donnelly.......... 25,000 3.7% 40.875 01/12/10 642,652 1,628,606
50,000 21.500 12/18/10 676,062 1,713,273
</TABLE>
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, 2000. 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 29, 2000 ($29.9375 share).
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END ($)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David Margolese...... 0 0 2,370,000 830,000 16,031,250 --
Robert D. Briskman... 11,678 398,512(1) 256,322 182,000 5,754,758 793,125
Joseph S.
Capobianco......... 0 0 87,000 163,000 1,232,813 1,033,438
Dr. Mircho Davidov... 0 0 -- 300,000 -- 421,875
Patrick L.
Donnelly........... 0 0 100,000 300,000 92,813 885,938
</TABLE>
- ---------
(1) Represents amount realized by Mr. Briskman in connection with his exercise
of incentive stock options.
31
<PAGE>
EMPLOYMENT AGREEMENTS
We are a party to an employment agreement with each of Messrs. Margolese,
Briskman, Capobianco and Donnelly and Dr. Davidov (the 'Employment Agreements').
MR. MARGOLESE
Effective January 1, 1999, we entered into a 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 base salary of $500,000 in 2000
and increases of $50,000 for each year thereafter. We also granted to
Mr. Margolese an option to purchase 1,800,000 shares of common stock at $31.25
per share, all of which are fully vested and exercisable as of January 1, 2001.
In accordance with his estate plan, Mr. Margolese expects to adopt a plan
pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended,
to dispose of a portion of the shares of common stock he beneficially owns over
a number of years in a regular manner.
If Mr. Margolese is terminated without 'Cause' or resigns for 'Good Reason'
(each as defined in his 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 his employment
agreement, Mr. Margolese may not (a) disclose any of our proprietary information
or (b) 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.
Pursuant to this agreement, during 2000, we paid Mr. Briskman a base salary of
$310,000.
Upon Mr. Briskman's retirement on March 15, 2001, we entered into a three
year consulting agreement with him. Mr. Briskman will assist us in obtaining all
remaining licenses required from the FCC, representing us before the FCC in
other matters, supervising the construction and delivery of our fourth, spare,
satellite, developing a unified system for satellite radios and such other
matters as we reasonably request. Under this consulting agreement, we pay
Mr. Briskman a consulting fee and have agreed to provide Mr. Briskman and his
wife medical insurance, on the same terms as provided to our executive officers
from time to time, for the rest of their lives. Pursuant to this agreement,
Mr. Briskman may not disclose any of our proprietary information or 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
consulting arrangement terminates.
MESSRS. CAPOBIANCO AND DONNELLY
On March 28, 2000, we entered into employment agreements with Joseph S.
Capobianco to serve as our Senior Vice President, Content, and Patrick L.
Donnelly, to serve as our Senior Vice President, General Counsel & Secretary.
The agreement with Mr. Capobianco replaced an employment agreement expiring on
April 16, 2000 and the agreement with Mr. Donnelly replaced an employment
agreement expiring on May 18, 2001. Both of these agreements expire on
March 28, 2003.
Pursuant to these agreements, in 2000 we paid 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 our board of
directors. Pursuant to these agreements, if the executive's
32
<PAGE>
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, neither Mr. Capobianco nor 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 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.
DR. DAVIDOV
On April 17, 2000, we entered into an employment agreement with Dr. Mircho
Davidov to serve as our Senior Vice President, Engineering, for three years.
This agreement provides for an annual base salary of $325,000, subject to
increase from time to time by our board of directors. In connection with this
agreement, we granted Dr. Davidov options to purchase 250,000 shares of our
common stock at $31.875 per share. These options become exercisable in
increments of 62,500 shares on each of May 15, 2001, May 15, 2002, May 15, 2003
and May 15, 2004. We also granted Dr. Davidov 40,000 restricted shares of common
stock to replace unvested stock options from his previous employer which
terminated as a result of his becoming employed by us. The restrictions
applicable to 35,000 shares of common stock lapse on May 1, 2001, the
restrictions applicable to 3,500 shares of common stock lapse on May 1, 2002 and
the restrictions applicable to the remaining 1,500 shares of common stock lapse
on May 1, 2003. Any unvested stock options will vest and become exercisable, and
any restrictions applicable to the restricted stock will lapse, upon the
termination of Dr. Davidov's employment for any reason other than 'Cause' (as
defined in the employment agreement) or if Dr. Davidov voluntarily terminates
his employment. If Dr. Davidov's employment is terminated, except by us for
'Cause' or by Dr. Davidov 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.
We have also agreed to provide Dr. Davidov retirement payments in certain
circumstances related to the value of his stock options. If the gross value of
Dr. Davidov's vested stock options (assuming none of these options have been
exercised) does not equal or exceed $10,000,000 on at least one day during the
365 days preceding Dr. Davidov's 57th birthday (December 6, 2003), then, if
Dr. Davidov is an employee of the company on his 57th birthday, we are obligated
to pay him a pension equal to 70% of his base salary on his retirement. In
addition, if the gross value of Dr. Davidov's vested stock options (assuming
none of these options have been exercised) does not equal or exceed $15,000,000
on at least one day during the 365 days preceding Dr. Davidov's 65th birthday
(December 6, 2011),we are obligated to pay him a pension equal to 100% of his
base salary on his retirement.
Under this agreement, Dr. Davidov may not (a) disclose any of our
proprietary information during or after his employment with us or, (b) for a
period of one year following the date of termination (even if he been terminated
without Cause or has resigned 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 our board of directors (the 'Committee') is
comprised solely of directors who are not current or former employees. The
Committee is responsible for overseeing and administering our executive
compensation programs. The Committee also reviews, monitors and approves
executive compensation, establishes compensation guidelines for our officers,
reviews projected personnel needs and administers our long-term stock incentive
plan.
COMPENSATION PHILOSOPHY
Our compensation program for executive officers consists of three key
elements:
a base salary;
an annual bonus; and
33
<PAGE>
grants of stock options.
The Committee believes that this three-part approach best serves the
interests of our stockholders. It enables us to meet the requirements of the
highly competitive environment in which we operate while ensuring that executive
officers are compensated in a way that advances both the short and long-term
interests of our stockholders. Under this approach, compensation for our
executive officers involves a high proportion of pay that is 'at
risk' -- namely, the annual bonus and the value of stock options. The annual
bonus is intended to be based, in significant part, on performance. Stock
options are designed to relate a significant portion of long-term remuneration
directly to any stock price appreciation realized by all of our stockholders.
BASE SALARIES
The base salaries paid to each of our executive officers during 2000 were
paid pursuant to the written employment agreements described above. Changes in
base salaries for our executive officers, other than our Chief Executive
Officer, are based upon recommendations by our Chief Executive Officer, taking
into account such factors as competitive salaries, a subjective assessment of
the nature of the office, the contribution and experience of the officer and the
length of the officer's service. During 2000, Mr. Margolese reviewed all salary
recommendations with the Committee and all such recommendations were subject to
approval or disapproval by the Committee. At the recommendation of
Mr. Margolese, the Committee approved a base salary increase for Mr. Capobianco
in March 2000 from $250,000 to $275,000 and approved a base salary increase in
December 2000 for Mr. Donnelly from $290,000 to $325,000. Mr. Capobianco's and
Mr. Donnelly's base salaries were last increased in June, 1999.
Except as to the compensation reflected in the Employment Agreement we
entered into with Mr. 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.
ANNUAL BONUS
In December 2000, the Committee awarded a cash bonus to Mr. Margolese of
$500,000, a cash bonus to Mr. Briskman of $310,000, a cash bonus to Mr.
Capobianco of $275,000, a cash bonus to Dr. Davidov of $162,500 and a cash bonus
to Mr. Donnelly of $323,000. The Committee awarded these bonuses after reviewing
the progress achieved during 2000 in completing our business plan, including the
successful launch of our satellite constellation, our progress in completing our
terrestrial repeater network and radio development effort and the performance of
our common stock during the year relative to other high-tech companies. During
2001, the Committee expects to adopt a performance-based annual bonus plan for
our executive officers. This bonus plan is expected to include performance
targets based on criteria established by the Committee and an objective formula
or standard for calculating the maximum bonus payable to each participant.
STOCK OPTIONS
We provide long-term incentives through stock options granted to our
executive officers under our long-term stock incentive plan. 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 our 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 January 2000, the Committee awarded Mr. Donnelly 25,000 stock options.
These options have a ten year term and an exercise price of $40.875. In
December 2000, the Committee awarded Mr. Briskman 50,000 stock options,
Mr. Capobianco 50,000 stock options, Mr. Donnelly 50,000 stock options and
Dr. Davidov 50,000 stock options. These options have a ten year term and an
exercise price of $21.50. The number of options granted by the Committee to each
executive officer during 2000 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 attaining our strategic and financial
objectives.
34
<PAGE>
The Committee has authorized executive management to grant stock options to
employees below the executive officer level on an annual basis according to
guidelines intended to be competitive with comparable companies and to reward
individual achievement appropriately. Our executive officers do not receive
annual stock options grants under this program.
COMPENSATION OF OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER
In 1998, the Committee negotiated, and we entered into, a new employment
agreement with Mr. Margolese, our Chairman and Chief Executive Officer,
effective as of January 1, 1999. (Mr. Margolese's prior employment agreement
expired on December 31, 1998.) The specific terms of this agreement are
described in detail above under the caption 'Employment Agreements --
Mr. Margolese'. The Committee engaged an independent compensation consultant to
assist it in the process of determining appropriate compensation for
Mr. Margolese. This consultant identified for the Committee peer companies
within the telecommunications and technologies industries whose CEO compensation
arrangements 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 new agreement includes a base salary of $500,000 in 2000,
with annual increases of $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 consultant. The stock
option grants included within this compensation package reflect the upper end of
the survey data for the peer companies. After due consideration of this data,
Mr. Margolese's performance in achieving our objectives and the level of his
management responsibilities, the Committee concluded that the stock options
granted to Mr. Margolese under this agreement constituted an appropriate
package.
POLICY WITH RESPECT TO INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue 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
Internal Revenue Code, is not subject to the $1 million limit. The Committee
generally intends to grant awards under our long-term stock incentive plan
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 agreement that 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 that 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 bonuses granted and stock option awards made in 2000
were competitive, appropriate and in our stockholders long-term interests.
Compensation Committee
Ralph V. Whitworth, Chairman
Lawrence F. Gilberti
Joseph V. Vittoria
35
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below shows, as of February 28, 2001, 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAMES AND ADDRESS OF BENEFICIALLY
BENEFICIAL OWNER OF COMMON STOCK(1) OWNED PERCENT OF CLASS(2)
---------------------------------- ----- ------------------
<S> <C> <C>
OppenheimerFunds, Inc.(3)................................... 8,262,000 15.4
Two World Trade Center, 34th Floor
New York, New York 10048
Apollo Investment Fund IV, L.P.(4) ......................... 7,704,700 12.5
Apollo Overseas Partners IV, L.P.
Two Manhattanville Road
Purchase, New York 10577
David Margolese(5) ......................................... 6,451,375 11.4
1221 Avenue of the Americas
36th Floor
New York, New York 10020
Blackstone Management Associates III L.L.C.(6) ............. 6,310,847 10.5
345 Park Avenue
New York, New York 10154
Janus Capital Corporation(7) ............................... 5,384,190 10.0
100 Fillmore Street
Denver, Colorado 80206
Prime 66 Partners, L.P.(8) ................................. 4,139,975 7.7
201 Main Street, Suite 3200
Forth Worth, Texas 76102
Everest Capital Master Fund, L.P.(9)(10) ................... 4,143,222 7.4
Everest Capital Limited
The Bank of Butterfield Building
65 Front Street
6th Floor
Hamilton MMJX, Bermuda
</TABLE>
- ---------
(1) This table is based upon information supplied by directors, officers and
principal stockholders. Percentage of ownership is based on 53,718,966
shares of common stock outstanding on February 28, 2001.
(2) Determined as provided by Rule 13d-3 under the Exchange Act. Under this
rule, a person is deemed to be the beneficial owner of securities that can
be acquired by this person within 60 days from the date of determination
upon the exercise of options, and each beneficial owner's percentage
ownership is determined by assuming that options that are held by this
person (but not those held by any other person) and that are exercisable
within 60 days from the date of determination have been exercised.
(3) A March 9, 2001 Schedule 13G filed by OpenheimerFunds, Inc. ('OFI') and
Oppenheimer Global Growth & Income Fund, indicates that Oppenheimer Global
Growth & Income Fund has the sole power to vote or to direct the vote with
respect to 5,500,000 shares of our common stock, OFI has shared power to
dispose or to direct the disposition of 8,262,000 shares of our common
stock and Oppenheimer Global Growth & Income Fund has shared power to
dispose or to direct the disposition of 5,500,000 shares of our common
stock. OFI is an investment adviser under Section 8 of the Investment
Company Act of 1940 and Oppenheimer Global Growth & Income Fund is an
investment company registered under the Investment Company Act of 1940.
(footnotes continued on next page)
36
<PAGE>
(footnotes continued from previous page)
(4) Represents 1,595,707 shares of 9.2% Series A Junior Cumulative Convertible
Preferred Stock and 715,703 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.
(5) Includes 1,375 shares of common stock acquired under our 401(k) Plan,
2,850,000 shares of common stock issuable under stock options that are
exercisable within 60 days and 1,600,000 shares owned by Mr. Margolese.
Under a voting trust agreement entered into by Darlene Friedland, as
grantor, David Margolese, as trustee, and us, Mr. Margolese has the power
to vote in his discretion all shares of common stock owned or acquired in
the future by Darlene Friedland and some of her affiliates (2,000,000
shares as of February 28, 2001) until November 20, 2002. Does not include
350,000 shares issuable under stock options that are not exercisable within
60 days. In accordance with his estate plan, Mr. Margolese expects to adopt
a plan pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934,
as amended, to dispose of a portion of the shares of common stock he
beneficially owns over a number of years in a regular manner.
(6) Represents 2,145,688 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% 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 SEC.
(7) A March 9, 2001 Schedule 13G filed by Janus Capital Corporation ('Janus
Capital'), Janus Enterprise Fund and Thomas H. Bailey indicates that Janus
Capital and Thomas H. Bailey have sole voting power and sole dispositive
power with respect to 5,384,190 shares of our common stock and Janus
Enterprise Fund has sole voting power and sole dispositive power with
respect to 2,885,530 shares of our common stock. Janus Capital is a
registered investment adviser which furnishes investment advice to several
investment companies registered under Section 8 of the Investment Company
Act of 1940 and individual and institutional clients. As a result of its
role as investment adviser or sub-adviser, Janus Capital may be deemed to
be the beneficial owner of the shares of our common stock held by such
individuals and clients. However, Janus Capital does not have the right to
receive any dividends from, or the proceeds from the sale of, the
securities held by such individuals and clients and disclaims any ownership
associated with such rights. Mr. Bailey owns approximately 12.2% of Janus
Capital. In addition to being a stockholder of Janus Capital, Mr. Bailey
serves as President and Chairman of the Board of Janus Capital and filed
the Schedule 13G as a result of such stock ownership and positions which
may be deemed to enable him to exercise control over Janus Capital.
Mr. Bailey has reported that he does not own of record any shares of our
common stock and he has not engaged in any transactions in our common
stock. However, as a result of his position, Mr. Bailey may be deemed to
have the power to exercise or to direct the exercise of such voting and/or
dispositive power that Janus Capital may have with respect to our common
stock held by individual and institutional clients of Janus Capital.
Mr. Bailey has disclaimed beneficial ownership over any shares of our
common stock that he or Janus Capital may be deemed to beneficially own.
Janus Enterprise Fund is an investment company registered under the
Investment Company Act of 1940 and is one of the portfolios to which Janus
Capital provides investment advice.
(8) This information is based upon the Form 4 filed February 10, 2001 by
Prime 66 Partners, L.P. with the SEC.
(9) Represents 1,941,211 shares of common stock and $13,150,000 in aggregate
principal amount of our 8 3/4% Convertible Subordinated Notes due 2009.
This information is based upon the Form 4 dated February 12, 2001 filed by
Everest Capital Limited with the SEC.
(footnotes continued on next page)
37
<PAGE>
(footnotes continued from previous page)
(10) Includes shares of common stock issuable under warrants to purchase
1,740,000 shares of common stock at a purchase price of $50.00 per share.
These warrants are exercisable from June 15, 1998 through and including
June 15, 2005.
The following table shows the number of shares of our common stock
beneficially owned by each director, our Chief Executive Officer and the four
other most highly compensated executive officers as of February 28, 2001. The
table also shows common stock beneficially owned by all of our directors and
executive officers as a group on February 28, 2001.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
NAME OF BENEFICIALLY ACQUIRABLE WITHIN
BENEFICIAL OWNER OWNED(1) PERCENT OF CLASS 60 DAYS
---------------- -------- ---------------- -------
<S> <C> <C> <C>
David Margolese(2)......................... 6,451,375 11.4% 2,850,000
Robert D. Briskman......................... 299,194 * 286,322
Lawrence F. Gilberti....................... 55,000 * 55,000
Joseph V. Vittoria......................... 55,000 * 55,000
Ralph V. Whitworth......................... 30,000 * 30,000
Joseph S. Capobianco....................... 133,021 * 132,000
Dr. Mircho Davidov......................... 40,189 * --
Patrick L. Donnelly........................ 120,453 * 120,000
All directors and executive officers as a
group (8 persons)(3)..................... 7,184,232 12.5 3,528,322
</TABLE>
- ---------
* Less than 1% of our outstanding shares of common stock.
(1) These amounts include shares which the individuals hold and shares 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 our 401(k) Plan as of February 28, 2001 for
the accounts of: Mr. Margolese -- 1,375 shares; Mr. Briskman -- 1,194
shares; Mr. Capobianco -- 1,021 shares; Dr. Davidov -- 189 shares and
Mr. Donnelly -- 453 shares.
(2) Pursuant to a 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 (2,000,000 shares as of February 28, 2001).
(3) Does not include 1,200,000 shares of common stock issuable pursuant to stock
options that are not exercisable within 60 days.
VOTING TRUST AGREEMENT
We are a party to a voting trust agreement dated August 26, 1997 by and
among Darlene Friedland, as grantor, Mr. 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 of the agreement.
The voting trust agreement provides for the establishment of a trust (the
'Trust') into which there were deposited all of the shares of common stock owned
by Mrs. Friedland on August 26, 1997. Any shares of common stock acquired by
Mrs. Friedland, her spouse Robert Friedland, any member of either of their
immediate families or any entity directly or indirectly controlled by
Mrs. Friedland, her spouse or any member of their immediate families (the
'Friedland Affiliates') between August 26, 1997 and the termination of the Trust
must also be deposited into the Trust. The 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 are deposited in the Trust, as described above.
38
<PAGE>
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 these
shares of common stock would have a right to vote, including the election of
directors. For so long as Mr. 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 our other stockholders 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 ours; 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 of our other stockholders.
The voting trust agreement may not be amended without our prior written
consent, acting by unanimous vote of our board of directors, and approval of our
stockholders, acting by the affirmative vote of two-thirds of the total voting
power of our stockholders, 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 partner in the law firm of Reed Smith LLP and
has provided legal services to us since 1992.
Under an agreement dated October 21, 1992, we retained the services of
Batchelder & Partners, Inc. to provide financial consulting services. This
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 into prior to November 30, 1999. In January 1997,
Mr. Whitworth, a director, became a partner in Batchelder. In the fiscal year
ended December 31, 2000, Mr. Whitworth, as a partner in Batchelder, received a
portion of the fees received by Batchelder from us. During 2000, we paid
Batchelder $66,790 in fees. 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.
39
<PAGE>
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
See index to financial statements appearing on page F-1.
(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
None.
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.
40
<PAGE>
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, 2001.
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID MARGOLESE Chairman of the Board and Chief March 30, 2001
......................................... Executive Officer (Principal
(DAVID MARGOLESE) Executive Officer and Principal
Financial Officer)
/s/ EDWARD WEBER, JR. Vice President and Controller March 30, 2001
......................................... (Principal Accounting Officer)
(EDWARD WEBER, JR.)
/s/ LAWRENCE F. GILBERTI Director March 30, 2001
.........................................
(LAWRENCE F. GILBERTI)
/s/ JOSEPH V. VITTORIA Director March 30, 2001
.........................................
(JOSEPH V. VITTORIA)
/s/ RALPH V. WHITWORTH Director March 30, 2001
.........................................
(RALPH V. WHITWORTH)
</TABLE>
41
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 2000, and for the
period May 17, 1990 (date of inception) to December 31,
2000...................................................... F-3
Consolidated Balance Sheets as of December 31, 1999 and
2000...................................................... F-4
Consolidated Statements of Stockholders' Equity for the
period May 17, 1990 (date of inception) to December 31,
2000...................................................... F-5
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2000 and for the
period May 17, 1990 (date of inception) to December 31,
2000...................................................... F-9
Notes to Consolidated Financial Statements.................. F-10
</TABLE>
F-1
<PAGE>
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, 1999 and 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for the three
years in the period ended December 31, 2000 and for the period from May 17, 1990
(date of inception) to December 31, 2000. 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 consolidated 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, 1999 and 2000, and the
results of its operations and its cash flows for the three years in the period
ended December 31, 2000 and for the period from May 17, 1990 (date of inception)
to December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
New York, New York
March 8, 2001
F-2
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CUMULATIVE FOR
THE PERIOD
MAY 17, 1990
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION)
---------------------------------- TO DECEMBER 31,
1998 1999 2000 2000
--------- --------- ---------- -------------------
<S> <C> <C> <C> <C>
Revenue...................................... $ -- $ -- $ -- $ --
Operating expenses:
Engineering design & development......... (2,150) (33,134) (71,000) (110,550)
General and administrative............... (11,247) (30,384) (54,634) (115,562)
Special charges.......................... (25,682) -- -- (27,682)
-------- -------- --------- ---------
Total operating expenses............. (39,079) (63,518) (125,634) (253,794)
-------- -------- --------- ---------
Other income (expense):
Interest and investment income........... 7,250 17,502 24,485 53,639
Interest expense......................... (14,272) (16,806) (33,595) (66,785)
-------- -------- --------- ---------
(7,022) 696 (9,110) (13,146)
-------- -------- --------- ---------
Loss before income taxes..................... (46,101) (62,822) (134,744) (266,940)
Income taxes:
Federal.................................. (1,982) -- -- (1,982)
State.................................... (313) -- -- (313)
-------- -------- --------- ---------
Net loss..................................... (48,396) (62,822) (134,744) (269,235)
-------- -------- --------- ---------
Preferred stock dividends.................... (19,380) (30,321) (39,811) (91,850)
Preferred stock deemed dividends............. (11,676) (3,535) (8,260) (75,446)
Accretion of dividends in connection with the
issuance of warrants on preferred stock.... (6,501) (303) (900) (7,704)
-------- -------- --------- ---------
Net loss applicable to common stockholders... $(85,953) $(96,981) $(183,715) $(444,235)
-------- -------- --------- ---------
-------- -------- --------- ---------
Net loss per share applicable to common
stockholders (basic and diluted)........... $(4.79) $(3.96) $(4.72)
------ ------ ------
------ ------ ------
Weighted average common shares outstanding
(basic and diluted)........................ 17,932 24,470 38,889
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 81,809 $ 14,397
Marketable securities, at market......................... 317,810 129,153
Restricted investments, at amortized cost................ 67,454 41,510
Prepaid expense and other................................ 741 13,288
---------- ----------
Total current assets.................................. 467,814 198,348
---------- ----------
Property and equipment...................................... 624,348 1,016,570
Less: accumulated depreciation.............................. (880) (3,105)
---------- ----------
623,468 1,013,465
Other assets:
FCC license.............................................. 83,368 83,368
Debt issue cost, net..................................... 23,053 20,124
Deposits and other....................................... 8,909 8,277
---------- ----------
Total other assets.................................... 115,330 111,769
---------- ----------
Total assets.......................................... $1,206,612 $1,323,582
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................... $ 30,599 $ 45,057
Satellite construction payable........................... 19,275 9,310
Short-term notes payable................................. 114,075 --
---------- ----------
Total current liabilities............................. 163,949 54,367
Long-term notes payable and accrued interest................ 488,690 472,602
Deferred satellite payments and accrued interest............ 55,140 60,881
Deferred income taxes....................................... 2,237 2,237
---------- ----------
Total liabilities..................................... 710,016 590,087
---------- ----------
Commitments and contingencies:
10 1/2% Series C Convertible Preferred Stock, no par
value: 2,025,000 shares authorized, 1,248,776 and no
shares issued and outstanding at December 31, 1999 and
2000, respectively (liquidation preferences of $124,878
and $0), at net carrying value including accrued
dividends............................................... 149,285 --
9.2% Series A Junior Cumulative Convertible Preferred
Stock, $.001 par value: 4,300,000 shares authorized,
1,461,270 and 1,595,707 shares issued and outstanding at
December 31, 1999 and 2000, respectively (liquidation
preferences of $146,127 and $159,571), at net carrying
value including accrued dividends....................... 148,894 162,380
9.2% Series B Junior Cumulative Convertible Preferred
Stock, $.001 par value: 2,100,000 shares authorized,
655,406 and 715,703 shares issued and outstanding at
December 31, 1999 and 2000, respectively (liquidation
preferences of $65,541 and $71,570), at net carrying
value including accrued dividends....................... 64,238 70,507
9.2% Series D Junior Cumulative Convertible Preferred
Stock, $.001 par value: 10,700,000 shares authorized,
2,145,688 shares issued and outstanding at December 31,
2000 (liquidation preference of $214,569), at net
carrying value including accrued dividends.............. -- 210,125
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, 28,721,041 and 42,107,957 shares issued and
outstanding at December 31, 1999 and 2000,
respectively............................................ 29 42
Additional paid-in capital............................... 268,641 559,676
Deficit accumulated during the development stage......... (134,491) (269,235)
---------- ----------
Total stockholders' equity............................ 134,179 290,483
---------- ----------
Total liabilities and stockholders' equity............ $1,206,612 $1,323,582
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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................ -- -- -- -- -- --
--------- ------- ---------- ----- ---------- -------
Balance, December 31,
1990................... -- -- 2,000,000 169 826,000 225
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................ -- -- -- -- -- --
--------- ------- ---------- ----- ---------- -------
Balance, December 31,
1991................... -- -- 2,000,000 169 1,736,000 680
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) -- -- -- --
Sale of $.001 par value
common stock, $5.00 per
share.................. 315,000 -- -- -- -- --
Net loss................ -- -- -- -- -- --
--------- ------- ---------- ----- ---------- -------
Balance, December 31,
1992................... 6,364,020 6 -- -- -- --
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ 1,029,000 1 -- -- -- --
Compensation expense in
connection with
issuance of stock
options................ -- -- -- -- -- --
Common stock issued in
connection with
conversion of note
payable at $5.00 per
share.................. 60,000 -- -- -- -- --
Common stock issued in
satisfaction of
commissions payable,
$5.00 per share........ 4,000 -- -- -- -- --
Net loss................ -- -- -- -- -- --
--------- ------- ---------- ----- ---------- -------
Balance, December
31, 1993............... 7,457,020 7 -- -- -- --
<CAPTION>
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
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) -- (839)
---------- ------- ------- -------
Balance, December 31,
1990................... -- (839) -- (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) -- (575)
---------- ------- ------- -------
Balance, December 31,
1991................... -- (1,414) -- (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.................. 3,174 -- -- --
Sale of $.001 par value
common stock, $5.00 per
share.................. 1,575 -- -- 1,575
Net loss................ -- (1,551) -- (1,551)
---------- ------- ------- -------
Balance, December 31,
1992................... 4,749 (2,965) -- 1,790
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ 4,882 -- -- 4,883
Compensation expense in
connection with
issuance of stock
options................ 80 -- -- 80
Common stock issued in
connection with
conversion of note
payable at $5.00 per
share.................. 300 -- -- 300
Common stock issued in
satisfaction of
commissions payable,
$5.00 per share........ 20 -- -- 20
Net loss................ -- (6,568) -- (6,568)
---------- ------- ------- -------
Balance, December
31, 1993............... 10,031 (9,533) -- 505
</TABLE>
(continued)
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ 250,000 $-- -- $-- -- $ --
Initial public offering
of Units, consisting of
two shares of $.001 par
value common stock and
one warrant, $10.00 per
Unit, net of expenses.. 1,491,940 2 -- -- -- --
Deferred compensation on
stock options
granted................ -- -- -- -- -- --
Forfeiture of stock
options by officer..... -- -- -- -- -- --
Compensation expense in
connection with
issuance of stock
options................ -- -- -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ---- ---------- ----- ---------- -------
Balance, December 31,
1994................... 9,198,960 9 -- -- -- --
Common stock issued for
services rendered,
between $3.028 and
$3.916 per share....... 107,000 -- -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ---- ---------- ----- ---------- -------
Balance, December 31,
1995................... 9,305,960 9 -- -- -- --
Exercise of stock
warrants at $6.00 per
share.................. 791,931 1 -- -- -- --
Exercise of stock
options
by officers, between
$1.00 and $5.00 per
share.................. 135,000 -- -- -- -- --
Common stock issued for
services rendered,
between $5.76 and
$12.26 per share....... 67,500 -- -- -- -- --
Common stock options
granted for services
rendered, to purchase
60,000 shares at $4.50
per share.............. -- -- -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ---- ---------- ----- ---------- -------
Balance, December 31,
1996................... 10,300,391 10 -- -- -- --
Exercise of stock
options between $1.00
and $2.00 per share.... 43,000 -- -- -- -- --
Value of beneficial
conversion feature on
5% Delayed Convertible
Preferred Stock........ -- -- -- -- -- --
Accretion of deemed
dividend............... -- -- -- -- -- --
Sale of $.001 par value
common stock, $13.12
per share, net of
expenses............... 1,905,488 2 -- -- -- --
Exchange of 5% Delayed
Convertible Preferred
Stock into 10 1/2%
Series C Convertible
Preferred Stock........ -- -- -- -- -- --
Conversion of 5% Delayed
Convertible Preferred
Stock into $.001 par
value common stock..... 749,812 1 -- -- -- --
Public offering of $.001
par value common stock
at $18.00 per share,
net of expenses........ 3,050,000 3 -- -- -- --
Dividends on preferred
stock.................. -- -- -- -- -- --
Issuance of fully vested
in the money stock
options................ -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- ---- ---------- ----- ---------- -------
Balance, December 31,
1997................... 16,048,691 16 -- -- -- --
<CAPTION>
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ $ 1,159 $ -- $-- $ 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.. 4,834 -- -- 4,836
Deferred compensation on
stock options
granted................ 1,730 -- (1,730) --
Forfeiture of stock
options by officer..... (207) -- 207 --
Compensation expense in
connection with
issuance of stock
options................ 113 -- -- 113
Amortization of deferred
compensation........... -- -- 883 883
Net loss................ -- (4,065) -- (4,065)
---------- -------- ------- --------
Balance, December 31,
1994................... 17,660 (13,598) (640) 3,431
Common stock issued for
services rendered,
between $3.028 and
$3.916 per share....... 347 -- -- 347
Amortization of deferred
compensation........... -- -- 320 320
Net loss................ -- (2,107) -- (2,107)
---------- -------- ------- --------
Balance, December 31,
1995................... 18,007 (15,705) (320) 1,991
Exercise of stock
warrants at $6.00 per
share.................. 4,588 -- -- 4,589
Exercise of stock
options
by officers, between
$1.00 and $5.00 per
share.................. 155 -- -- 155
Common stock issued for
services rendered,
between $5.76 and
$12.26 per share....... 554 -- -- 554
Common stock options
granted for services
rendered, to purchase
60,000 shares at $4.50
per share.............. 120 -- -- 120
Amortization of deferred
compensation........... -- -- 320 320
Net loss................ -- (2,831) -- (2,831)
---------- -------- ------- --------
Balance, December 31,
1996................... 23,424 (18,536) -- 4,898
Exercise of stock
options between $1.00
and $2.00 per share.... 56 -- -- 56
Value of beneficial
conversion feature on
5% Delayed Convertible
Preferred Stock........ 51,975 -- -- 51,975
Accretion of deemed
dividend............... (51,975) -- -- (51,975)
Sale of $.001 par value
common stock, $13.12
per share, net of
expenses............... 24,393 -- -- 24,395
Exchange of 5% Delayed
Convertible Preferred
Stock into 10 1/2%
Series C Convertible
Preferred Stock........ (63,450) -- -- (63,450)
Conversion of 5% Delayed
Convertible Preferred
Stock into $.001 par
value common stock..... 10,280 -- -- 10,281
Public offering of $.001
par value common stock
at $18.00 per share,
net of expenses........ 46,424 -- -- 46,427
Dividends on preferred
stock.................. (2,338) -- -- (2,338)
Issuance of fully vested
in the money stock
options................ 448 -- -- 448
Net loss................ -- (4,737) -- (4,737)
---------- -------- ------- --------
Balance, December 31,
1997................... 39,237 (23,273) -- 15,980
</TABLE>
(continued)
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sale of $.001 par value
common stock, $20.00
per share, net of
expenses............... 5,000,000 $ 5 -- $-- -- $ --
Exercise of stock
options between $2.00
and $4.50 per share.... 44,850 -- -- -- -- --
Conversion of 10 1/2%
Series C Convertible
Preferred Stock into
$.001 par value common
stock.................. 2,107,666 2 -- -- -- --
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 7,742 -- -- -- -- --
Compensation expense in
connection with vesting
of stock options....... -- -- -- -- -- --
Value of beneficial
conversion feature on
9.2% Series A Junior
Cumulative Convertible
Preferred Stock........ -- -- -- -- -- --
Value of option on 9.2%
Series B Junior
Cumulative Convertible
Preferred Stock........ -- -- -- -- -- --
Amortization of option
on 9.2% Series B Junior
Cumulative Convertible
Preferred Stock........ -- -- -- -- -- --
Accretion of deemed
dividend............... -- -- -- -- -- --
Dividends on preferred
stock.................. -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- --- ---------- ----- ---------- -------
Balance, December 31,
1998................... 23,208,949 23 -- -- -- --
Sale of $.001 par value
common stock, $24.75
per share, net of
expenses............... 3,450,000 4 -- -- -- --
Issuance of warrants in
connection with 14 1/2%
Senior Secured Notes
due 2009............... -- -- -- -- -- --
Exercise of stock
options between $2.00
and $24.38 per share... 205,002 -- -- -- -- --
Conversion of 10 1/2%
Series C Convertible
Preferred Stock,
including accrued
dividends, into $.001
par value common
stock.................. 1,409,871 1 -- -- -- --
Conversion of 8 3/4%
Convertible
Subordinated Notes due
2009, including
interest and related
costs.................. 423,221 1 -- -- -- --
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 23,998 -- -- -- -- --
Compensation in
connection with the
issuance of stock
options................ -- -- -- -- -- --
Value of premium on
issuance of 9.2% Series
B Junior
Cumulative Convertible
Preferred Stock........ -- -- -- -- -- --
Amortization of option
on 9.2% Series B Junior
Cumulative Convertible
Preferred Stock........ -- -- -- -- -- --
Accretion of deemed
dividend............... -- -- -- -- -- --
Dividends on preferred
stock.................. -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- --- ---------- ----- ---------- -------
Balance, December 31,
1999................... 28,721,041 29 -- -- -- --
<CAPTION>
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
Sale of $.001 par value
common stock, $20.00
per share, net of
expenses............... $ 97,995 $ -- $ -- $ 98,000
Exercise of stock
options between $2.00
and $4.50 per share.... 140 -- -- 140
Conversion of 10 1/2%
Series C Convertible
Preferred Stock into
$.001 par value common
stock.................. 37,654 -- -- 37,656
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 214 -- -- 214
Compensation expense in
connection with vesting
of stock options....... 950 -- -- 950
Value of beneficial
conversion feature on
9.2% Series A Junior
Cumulative Convertible
Preferred Stock........ 10,884 -- -- 10,884
Value of option on 9.2%
Series B Junior
Cumulative Convertible
Preferred Stock........ (6,600) -- -- (6,600)
Amortization of option
on 9.2% Series B Junior
Cumulative Convertible
Preferred Stock........ 181 -- -- 181
Accretion of deemed
dividend............... (11,676) -- -- (11,676)
Dividends on preferred
stock.................. (19,380) -- -- (19,380)
Net loss................ -- (48,396) -- (48,396)
---------- --------- -------- --------
Balance, December 31,
1998................... 149,599 (71,669) -- 77,953
Sale of $.001 par value
common stock, $24.75
per share, net of
expenses............... 78,133 -- -- 78,137
Issuance of warrants in
connection with 14 1/2%
Senior Secured Notes
due 2009............... 31,382 -- -- 31,382
Exercise of stock
options between $2.00
and $24.38 per share... 1,642 -- -- 1,642
Conversion of 10 1/2%
Series C Convertible
Preferred Stock,
including accrued
dividends, into $.001
par value common
stock.................. 25,813 -- -- 25,814
Conversion of 8 3/4%
Convertible
Subordinated Notes due
2009, including
interest and related
costs.................. 11,488 -- -- 11,489
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 654 -- -- 654
Compensation in
connection with the
issuance of stock
options................ 752 -- -- 752
Value of premium on
issuance of 9.2% Series
B Junior
Cumulative Convertible
Preferred Stock........ (3,385) -- -- (3,385)
Amortization of option
on 9.2% Series B Junior
Cumulative Convertible
Preferred Stock........ 6,419 -- -- 6,419
Accretion of deemed
dividend............... (3,535) -- -- (3,535)
Dividends on preferred
stock.................. (30,321) -- -- (30,321)
Net loss................ -- (62,822) -- (62,822)
---------- --------- -------- --------
Balance, December 31,
1999................... 268,641 (134,491) -- 134,179
</TABLE>
(continued)
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Exercise of stock
options between $2.88
and $38.88 per share... 623,326 $ 1 -- $-- -- $--
Exercise of warrants in
connection with 14 1/2%
Senior Secured Notes
due 2009, $26.45 per
share.................. 43,344 -- -- -- -- --
Exercise of warrants to
purchase 10 1/2%
Series C Convertible
Preferred Stock........ -- -- -- -- -- --
Conversion of 10 1/2%
Series C Convertible
Preferred Stock,
including accrued
dividends, into $.001
par value common
stock.................. 8,266,488 8 -- -- -- --
Conversion of 8 3/4%
Convertible
Subordinated Notes due
2009, including
interest and related
costs.................. 2,134,582 2 -- -- -- --
Sale of $.001 par value
common stock, $43.66
per share, net of
expenses............... 2,290,322 2 -- -- -- --
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 28,854 -- -- -- -- --
Compensation in
connection with the
issuance of common
stock and stock
options................ -- -- -- -- -- --
Accretion of deemed
dividend............... -- -- -- -- -- --
Dividends on preferred
stock.................. -- -- -- -- -- --
Net loss................ -- -- -- -- -- --
---------- --- --- ---- --- ----
Balance, December 31,
2000................... 42,107,957 $42 -- $-- -- $--
---------- --- --- ---- --- ----
---------- --- --- ---- --- ----
<CAPTION>
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
Exercise of stock
options between $2.88
and $38.88 per share... $ 7,819 $ -- -$- $ 7,820
Exercise of warrants in
connection with 14 1/2%
Senior Secured Notes
due 2009, $26.45 per
share.................. 627 -- -- 627
Exercise of warrants to
purchase 10 1/2%
Series C Convertible
Preferred Stock........ (4,443) -- -- (4,443)
Conversion of 10 1/2%
Series C Convertible
Preferred Stock,
including accrued
dividends, into $.001
par value common
stock.................. 164,361 -- -- 164,369
Conversion of 8 3/4%
Convertible
Subordinated Notes due
2009, including
interest and related
costs.................. 63,265 -- -- 63,267
Sale of $.001 par value
common stock, $43.66
per share, net of
expenses............... 99,958 -- -- 99,960
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 1,205 -- -- 1,205
Compensation in
connection with the
issuance of common
stock and stock
options................ 6,314 -- -- 6,314
Accretion of deemed
dividend............... (8,260) -- -- (8,260)
Dividends on preferred
stock.................. (39,811) -- -- (39,811)
Net loss................ -- (134,744) -- (134,744)
---------- --------- ---- ---------
Balance, December 31,
2000................... $ 559,676 $(269,235) -$- $ 290,483
---------- --------- ---- ---------
---------- --------- ---- ---------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-8
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE FOR THE
PERIOD MAY 17, 1990
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION)
--------------------------------- TO DECEMBER 31,
1998 1999 2000 2000
--------- --------- --------- --------------------
<S> <C> <C> <C> <C>
Cash flows from development stage activities:
Net loss.................................. $ (48,396) $ (62,822) $(134,744) $ (269,235)
Adjustments to reconcile net loss to net
cash provided by (used in) development
stage activities:
Depreciation expense................... 49 861 2,352 3,516
Unrealized (gain) loss on marketable
securities........................... 138 (3,396) 1,606 (2,276)
Loss on disposal of assets............. 105 10 249 364
Special charges........................ 23,557 -- -- 25,557
Accretion of note payable charged as
interest expense..................... 25,998 56,199 76,739 160,804
Compensation expense in connection
with issuance of common stock and
stock options........................ 150 1,206 7,176 11,718
Expense incurred in connection with
conversion of debt................... -- 1,776 12,655 14,431
Increase (decrease) in cash and cash
equivalents resulting from changes in
assets and liabilities:
Prepaid expense and other.............. 762 (575) (12,547) (13,288)
Due to related party................... -- -- -- 351
Other assets........................... (2,368) (3,457) 1,065 (4,991)
Accounts payable and accrued expenses.. 5,062 4,019 (23,025) (13,454)
Deferred taxes......................... 2,237 -- -- 2,237
--------- --------- --------- ----------
Net cash provided by (used in)
development stage activities...... 7,294 (6,179) (68,474) (84,266)
--------- --------- --------- ----------
Cash flows from investing activities:
Sales (purchases) of marketable securities
and restricted investments, net.......... 53,911 (266,422) 212,380 (168,989)
Purchase of FCC license................... (22) -- -- (83,368)
Purchases of property and equipment....... (210,510) (309,059) (398,442) (974,002)
Acquisition of Sky-Highway Radio Corp..... -- -- -- (2,000)
--------- --------- --------- ----------
Net cash used in investing
activities........................ (156,621) (575,481) (186,062) (1,228,359)
--------- --------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable... 70,863 180,399 1,883 253,145
Proceeds from issuance of common stock,
net...................................... 98,064 78,337 100,301 362,081
Proceeds from issuance of preferred stock,
net...................................... 129,550 62,900 192,450 505,418
Proceeds from exercise of stock options
and warrants............................. 140 1,643 8,447 15,030
Proceeds from issuance of promissory note
and units, net........................... -- 190,000 -- 306,535
Proceeds from issuance of promissory notes
to related parties....................... -- -- -- 2,965
Repayment of promissory notes............. -- -- -- (2,635)
Repayment of notes payable................ -- -- (115,957) (115,957)
Loan from officer......................... -- -- -- 440
--------- --------- --------- ----------
Net cash provided by financing
activities........................ 298,617 513,279 187,124 1,327,022
--------- --------- --------- ----------
Net increase (decrease) in cash and cash
equivalents................................. 149,290 (68,381) (67,412) 14,397
Cash and cash equivalents at the beginning of
period...................................... 900 150,190 81,809 --
--------- --------- --------- ----------
Cash and cash equivalents at the end of
period...................................... $ 150,190 $ 81,809 $ 14,397 $ 14,397
--------- --------- --------- ----------
--------- --------- --------- ----------
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest................................. $ 2,383 $ 22,825 $ 38,405 $ 63,696
Cash paid during the period for taxes..... $ 58 $ -- $ -- $ 58
Supplemental disclosure of non-cash investing
and financing activities:
Capitalized interest...................... $ 16,243 $ 56,567 $ 63,728 $ 136,538
Deferred satellite payments, including
accrued interest......................... $ 31,324 $ 23,816 $ 5,741 $ 60,881
Common stock issued in satisfaction of
notes payable and amounts due to related
parties, including accrued interest...... $ -- $ 10,151 $ 63,267 $ 74,825
Exchange of 5% Delayed Convertible
Preferred Stock for 10 1/2%
Series C Convertible Preferred Stock..... $ -- $ -- $ -- $ 173,687
Exchange of 10 1/2% Series C Convertible
Preferred Stock and accrued dividends
for common stock......................... $ 37,656 $ 25,814 $ 164,369 $ 227,839
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
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., a Delaware corporation, is developing a service
for broadcasting digital quality music programming via satellites to
subscribers' vehicles. We intend to focus 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
Satellite Radio Inc. 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,
constructing four satellites, launching three satellites, constructing our
national broadcast studio, acquiring content for our programming, constructing
our terrestrial repeater network, arranging for the development of radios
capable of receiving our service, strategic planning, market research,
recruiting our management team and securing financing for capital expenditures
and working capital. We have not yet recognized any revenues, 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, our future operations are subject to the
risks and uncertainties frequently encountered by companies in new and rapidly
evolving markets for satellite products and services. Among the significant
risks that have a direct bearing on our results of operations are the
unavailability of radios capable of receiving our service and our dependence
upon third parties to manufacture and distribute them; the potential risk of
delay in implementing our business plan; unproven market for our proposed
service; 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 AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and investments with
original maturities of three months or less.
MARKETABLE SECURITIES AND RESTRICTED INVESTMENTS
Marketable securities are classified as trading securities and are stated at
market value. Marketable securities consist of obligations of U.S. government
agencies and commercial paper issued by major U.S.
F-10
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
corporations with high credit ratings. Unrealized holding gains of $3,882 and
$2,275 were reflected in earnings at December 31, 1999 and 2000, respectively.
Restricted investments consist of fixed income securities and are stated at
amortized cost plus accrued interest income. Restricted investments are
classified as held-to-maturity securities and unrealized holding gains and
losses are not reflected in earnings. Unrealized holding losses were $716 and
$16 at December 31, 1999 and 2000, respectively. The securities included in
restricted investments are restricted to provide for interest payments through
May 15, 2002 on our 14 1/2% Senior Secured Notes due 2009.
PROPERTY AND EQUIPMENT
All costs incurred to prepare our system for use are capitalized, including
interest on funds borrowed to finance construction. To date, such costs consist
of satellite construction and launch, broadcast studio equipment, terrestrial
repeater network in process and capitalized interest. Charges to operations for
depreciation of these items will begin upon commencement of commercial
broadcasting. We anticipate that we will depreciate our satellites over 15
years. Depreciation of technical and other equipment is computed on the
straight-line method based on estimated useful lives ranging from 3 to 10 years.
We review our long-lived assets and identifiable intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset is not recoverable. 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 material
impairment losses have been recognized to date.
FCC LICENSE
Our FCC license is recorded at cost and will be amortized using the
straight-line method over a period of 40 years. Amortization of our FCC license
will begin upon the commencement of commercial broadcasting.
FAIR VALUE
The carrying amount of cash and cash equivalents, marketable securities and
restricted investments approximate fair value because of the short maturity of
these investments. The fair value of our redeemable convertible preferred stock
is estimated based on the market value of our common stock as of December 31,
2000 (see Note 7). The fair value of our long-term notes payable is estimated
using quoted market prices. The following table summarizes the book and fair
values of these notes at December 31, 1999 and 2000:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 2000
----------------------- -----------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
15% Senior Secured Discount Notes due 2007........ $184,513 $160,342 $218,405 $135,103
14 1/2% Senior Secured Notes due 2009............. 170,427 180,000 173,361 140,000
8 3/4% Convertible Subordinated Notes due 2009.... 133,750 217,183 80,836 98,717
</TABLE>
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years as differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end,
F-11
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
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 the 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, when appropriate, 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 redeemable convertible preferred 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 our common stock. As of December 31, 1998, 1999 and
2000, approximately 16,646,000, 21,127,000 and 28,458,000 common stock
equivalents were outstanding, respectively, and were excluded from the
calculation of diluted loss per share because they were antidilutive.
DEFERRED DEBT ISSUANCE COSTS
Costs associated with the issuance of debt are deferred and amortized to
interest expense over the terms of the respective notes using the effective
interest rate method.
STOCK-BASED AWARDS
We use the intrinsic-value method of accounting for stock-based awards
granted to employees as prescribed in Accounting Principles Board Opinion No.
25, 'Accounting for Stock Issued to Employees.' Accordingly, we measure the
compensation cost for stock-based awards granted to employees as the excess of
the market value of our common stock at the date of grant over the amount which
must be paid to acquire our common stock. We have elected the disclosure-only
provision of SFAS No. 123, 'Accounting for Stock-Based Compensation,' and have
provided pro-forma disclosures on net loss and net loss per share in the notes
to the financial statements. Stock-based awards granted to non-employees are
accounted for at their fair value in accordance with SFAS No. 123.
COMPREHENSIVE INCOME
In 1997, the Financial Accounting Standards Board ('FASB') issued SFAS
No. 130, 'Reporting Comprehensive Income,' that requires additional reporting
with respect to certain changes in assets and liabilities that previously were
included in stockholders' equity. During the periods presented, we had no
comprehensive income items to report.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, 'Accounting for Derivative
Instruments and Hedging Activities.' SFAS No. 133 requires companies to record
derivatives on the balance sheet as
F-12
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
assets or liabilities measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows. In May
1999, the FASB issued SFAS No. 137, 'Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement
No. 133,' which deferred the effective date of SFAS No. 133 by one year. As a
result, SFAS No. 133 became effective for all fiscal quarters beginning after
June 15, 2000. The FASB amended SFAS No. 133 with SFAS No. 138, 'Accounting for
Certain Derivative Instruments and Certain Hedge Activities -- an Amendment of
FASB Statement No. 133,' for certain derivative instruments and certain hedging
activities. The adoption of SFAS No. 133 did not have a material impact on the
financial statements.
RECLASSIFICATIONS
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 2000
---- ----
<S> <C> <C>
Satellite-1........................................... $ -- $ 258,379
Satellite-2........................................... -- 269,454
Satellite-3........................................... -- 273,373
Leasehold improvements................................ 15,285 20,257
Broadcast studio equipment............................ 15,731 18,854
Satellite telemetry, tracking and control equipment... 10,346 15,484
Customer care, billing and conditional access......... 1,645 10,616
Furniture, fixtures and equipment..................... 5,496 9,747
Construction in process............................... 575,845 140,406
-------- ----------
624,348 1,016,570
Less: accumulated depreciation........................ (880) (3,105)
-------- ----------
Property and equipment, net....................... $623,468 $1,013,465
-------- ----------
-------- ----------
</TABLE>
Construction in process consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 2000
---- ----
<S> <C> <C>
Construction of satellites.............................. $375,294 $115,141
Construction of launch vehicles......................... 199,385 --
Construction of terrestrial repeater network............ 1,166 25,265
-------- --------
Construction in process............................. $575,845 $140,406
-------- --------
-------- --------
</TABLE>
Our satellites were successfully launched on June 30, 2000, September 5,
2000 and November 30, 2000. We received title to our satellites on July 31,
2000, September 29, 2000 and December 22, 2000, following the completion of
in-orbit testing of each satellite. We expect our fourth, spare, satellite to be
delivered to ground storage in August 2001.
F-13
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
4. 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 the other lenders provided us a
$115,000 term loan facility. The proceeds of the facility were used to fund
progress payments for the purchase of launch services and to pay interest, fees
and other related expenses. On February 29, 2000, we repaid these loans and
cancelled the related credit agreement.
5. LONG-TERM NOTES PAYABLE
Long-term notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
MATURITY 1999 2000
-------- ---- ----
<S> <C> <C> <C>
15% Senior Secured Discount Notes due 2007............ 12/01/07 $184,513 $218,405
14 1/2% Senior Secured Notes due 2009................. 5/15/09 170,427 173,361
8 3/4% Convertible Subordinated Notes due 2009........ 9/29/09 133,750 80,836
-------- --------
Long-term notes payable........................... $488,690 $472,602
-------- --------
-------- --------
</TABLE>
15% SENIOR SECURED DISCOUNT NOTES DUE 2007
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
our 15% Senior Secured Discount Notes due 2007 and a warrant to purchase
additional 15% Senior Secured Discount Notes due 2007 in an aggregate principal
amount at maturity of $3. Our 15% Senior Secured Discount Notes due 2007 will
not require cash interest payments prior to December 1, 2002, and will accrete
to a principal amount at stated maturity of $297,000 by that date. As of
December 31, 1999 and 2000, we had accreted interest relating to our 15% Senior
Secured Discount Notes due 2007 of $59,488 and $93,381, respectively. Cash
interest will be payable semi-annually on each June 1 and December 1 of the
remaining years of our 15% Senior Secured Discount Notes due 2007. 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. The indenture governing our 15% Senior Secured Discount Notes due
2007 contains limitations on our ability to incur additional indebtedness.
14 1/2% SENIOR SECURED NOTES DUE 2009
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 through May 15,
2009 at an exercise price of $28.60 per share. Cash interest is payable
semi-annually on each May 15 and November 15 of the remaining years of our
14 1/2% Senior Secured Notes due 2009. We invested $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. 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. Our 14 1/2% Senior Secured
Notes due 2009 are senior obligations and are secured by a pledge of the stock
of Satellite CD Radio, Inc., our subsidiary that holds our FCC license. The
indenture governing our 14 1/2% Senior Secured Notes due 2009 contains
limitations on our ability to incur additional indebtedness.
As required by the terms of the warrants issued in conjunction with our
14 1/2% Senior Secured Notes due 2009, we may adjust the number of shares for
which each warrant may be exercised and the
F-14
<PAGE>
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 per share for issuances of convertible debt, convertible
preferred stock, common stock and warrants. As of December 31, 2000, these
warrants may be exercised to purchase 3.947 shares of our common stock at an
exercise price per share of $26.45.
8 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2009
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 per $1 principal amount, 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. As of December 31, 2000, we had acquired $62,914 of
our 8 3/4% Convertible Subordinated Notes due 2009 in exchange for shares of our
common stock. Cash interest is payable semi-annually on each March 29 and
September 29 of the remaining years of our 8 3/4% Convertible Subordinated Notes
due 2009.
LEHMAN TERM LOAN FACILITY
In June 2000, we entered into an agreement with Lehman Commercial Paper Inc.
('LCPI') and Lehman Brothers Inc. pursuant to which LCPI agreed to provide a
term loan facility (the 'Lehman Term Loan Facility') for us in the aggregate
principal amount of $150,000. The loans under the Lehman Term Loan Facility will
be made available to us upon the demonstration of our broadcast system and upon
satisfaction of certain customary conditions.
In connection with the Lehman Term Loan Facility, we have placed into
escrow, for the benefit of LCPI, 2,100,000 warrants, each to purchase one share
of our common stock at an exercise price of $29.00 per share. 525,000 of these
warrants are vested, 1,050,000 of these warrants will vest upon the making of
the loans under the Lehman Term Loan Facility and the remaining 525,000 will
vest only under certain conditions relating to the performance of our publicly
issued senior notes.
6. DEFERRED SATELLITE PAYMENTS
Under an amended and restated contract (the 'Loral Satellite Contract') with
Space Systems/Loral, Inc. ('Loral'), Loral agreed to defer certain amounts due
under the Loral Satellite Contract. The amounts deferred, which approximate fair
value, bear interest at 10% per year and were originally due in quarterly
installments beginning in June 2002; however, the agreement governing these
deferred amounts provides that this date, and subsequent payment dates, will be
extended by the number of days that the achievement of any milestone under the
Loral Satellite Contract is delayed beyond the date set forth in the Loral
Satellite Contract. Our fourth, spare, satellite is expected to be delivered to
ground storage in August 2001 and was originally expected to be delivered to
ground storage in October 2000. As a result of Loral's delay in delivering this
satellite, we do not expect to make any required payments with respect to these
deferred amounts until April 2003, at the earliest. We do, however, have the
right to prepay any deferred amounts together with accrued interest, without
penalty. As collateral security for these deferred amounts, we have granted
Loral a security interest in our terrestrial repeater network.
F-15
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
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 approximately $4,800.
On August 5, 1997, we sold 1,905,488 shares of our common stock to Loral Space &
Communications Ltd. for net proceeds of approximately $24,400. In November 1997,
we issued 2,800,000 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
5,000,000 shares of our common stock to Prime 66 Partners, L.P. for net proceeds
of $98,000. In September 1999, we issued 3,000,000 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. In February 2000, we sold 2,290,322 shares of our
common stock to DaimlerChrysler Corporation for an aggregate purchase price of
approximately $100,000.
As of December 31, 2000, approximately 43,000,000 shares of our common stock
were reserved for issuance in connection with outstanding shares of convertible
preferred stock, convertible debt, warrants and stock options.
PREFERRED STOCK
In April 1997, we completed a private placement of our 5% Delayed
Convertible Preferred Stock. We sold a total of 5,400,000 shares of our 5%
Delayed Convertible Preferred Stock for an aggregate price of $135,000. The 5%
Delayed Convertible Preferred Stock was immediately convertible at a discount to
the then fair market value of our common stock and, accordingly, 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 was convertible into a number of shares of our common stock
calculated by dividing the $100.00 per share liquidation preference by a
conversion price of $18.00. 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 our 10 1/2% Series C Convertible Preferred Stock that we
would redeem these securities on April 12, 2000. As of April 12, 2000, all of
the outstanding warrants to purchase shares of our 10 1/2% Series C Convertible
Preferred Stock were exercised and all of the outstanding shares of 10 1/2%
Series C Convertible Preferred Stock (including those shares received upon the
exercise of such warrants) had been converted into shares of our common stock.
On December 23, 1998, we completed a transaction with 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'),
pursuant to which we sold to 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 $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 are payable annually in cash or 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
our 9.2% Series A Junior Cumulative Convertible Preferred Stock at the Series A
F-16
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
Liquidation Preference, plus any unpaid dividends, provided the price of our
common stock is at least $60.00 per share for a period of twenty consecutive
trading days immediately preceding the date of the notice of redemption. From
and after November 15, 2003, our right to redeem our 9.2% Series A Junior
Cumulative Convertible Preferred Stock is not restricted by 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 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
$11,000 as a deemed dividend in net loss applicable to common stockholders. At
December 31, 2000, the estimated 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 $26,421.
The Apollo Investors granted to us, in conjunction with the 9.2% Series A
Junior Cumulative Convertible Preferred Stock transaction, 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
this option during 1999. We exercised the option to sell our 9.2% Series B
Junior Cumulative Convertible Preferred Stock to the Apollo Investors on
October 13, 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, 2000, the estimated 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 $7,400.
On January 31, 2000, we completed a transaction with certain affiliates of
The Blackstone Group, L.P. ('Blackstone') pursuant to which we sold to
Blackstone 2,000,000 shares of our 9.2% Series D Junior Cumulative Convertible
Preferred Stock, par value $.001 per share, for an aggregate purchase price of
$200,000. Each share of our 9.2% Series D 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
D Liquidation Preference') by a conversion price of $34.00. This conversion
price is subject to adjustment for certain corporate events. Dividends on our
9.2% Series D Junior Cumulative Convertible Preferred Stock are payable annually
in cash or additional shares of our 9.2% Series D Junior Cumulative Convertible
Preferred Stock, at our option. From and after December 23, 2002 and prior to
December 23, 2004, we may redeem our 9.2% Series D Junior Cumulative Convertible
Preferred Stock at the Series D Liquidation Preference, plus any unpaid
dividends, provided the price of our common stock is at least $68.00 per share
for a period of twenty consecutive trading days immediately preceding the date
of the notice of redemption. From and after December 23, 2004, our right to
redeem our 9.2% Series D Junior Cumulative Convertible Preferred Stock is not
restricted by the market price of our common stock. We are required to redeem
all outstanding shares of our 9.2% Series D Junior Cumulative Convertible
Preferred Stock at a price equal to the Series D Liquidation Preference plus any
unpaid dividends on November 15, 2011. At December 31, 2000, the estimated fair
value of our 9.2% Series D Junior Cumulative Convertible Preferred Stock was
$188,931 and accrued dividends payable relating to this stock totaled $17,057.
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
F-17
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
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 our 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 warrants were convertible at a discount to the then
fair market value of our common stock and accordingly, we will record, over the
life of the warrant, $1,600 as a deemed dividend in connection with the issuance
of warrants on our 10 1/2% Series C Convertible Preferred Stock. During 2000, we
accreted dividends of $900 related to this warrant. As of April 12, 2000, all of
the outstanding warrants to purchase shares of our 10 1/2% Series C Convertible
Preferred Stock had been exercised.
We granted to an investor warrants to purchase 1,800,000 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 4,000,000 warrants, each to purchase one share 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
Ford manufactures, and are fully exercisable after 4,000,000 new Ford vehicles
equipped to receive our broadcasts are manufactured.
As part of our agreement with DaimlerChrysler Corporation, Mercedes-Benz
USA, Inc. and Freightliner Corporation (collectively, 'DaimlerChrysler') on
January 28, 2000, we issued to DaimlerChrysler Corporation 4,000,000 warrants,
each to purchase one share 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 DaimlerChrysler
manufactures, and are fully exercisable after 4,000,000 new DaimlerChrysler
vehicles equipped to receive our broadcasts are manufactured.
8. 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'). Our stock option plans provide for grants of options as incentives and
rewards to encourage employees, officers, consultants and directors in our long
term success. Generally, options granted under the plans vest over a four year
period and are exercisable for a period of ten years from the date of grant.
Compensation expense for options granted to non-employees, included in general
and administrative expenses, totaled $260 and $835 for the years ended
December 31, 1999 and 2000. As of December 31, 2000, the aggregate number of
shares of common stock available for issuance and the common stock available for
grant pursuant to the 1994 Plan, the Directors' Plan and the 1999 Plan were
12,766,000 and 4,363,000, respectively.
F-18
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
The following table summarizes the option activity under all option plans
for the years ended December 31, 1998, 1999 and 2000:
<TABLE>
<CAPTION>
1998 1999 2000
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION EXERCISE OPTION EXERCISE OPTION EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of
Year........................... 1,909,500 $ 8.16 2,453,525 $12.87 6,497,773 $24.56
Granted.......................... 659,500 $28.13 4,569,250 $29.88 2,165,178 $37.70
Exercised........................ (44,850) $ 3.11 (205,002) $ 8.02 (615,576) $12.35
Cancelled........................ (70,625) $18.55 (320,000) $21.38 (497,400) $30.02
--------- --------- ---------
Outstanding at End of Year....... 2,453,525 $12.87 6,497,773 $24.56 7,549,975 $28.97
--------- --------- ---------
--------- --------- ---------
</TABLE>
Exercise prices for stock options outstanding as of December 31, 2000 ranged
from $1.00 to $63.25. The following table provides certain information with
respect to stock options outstanding and exercisable at December 31, 2000:
<TABLE>
<CAPTION>
RANGE OF EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING
PRICES PER SHARE SHARES UNDER OPTION EXERCISE PRICE PER SHARE CONTRACTUAL LIFE IN YEARS
- ---------------- ------------------- ------------------------ -------------------------
<S> <C> <C> <C>
OUTSTANDING:
Under $5.00.................. 487,500 $ 3.47 3.8
$5.00 - $14.99............... 600,322 $ 9.79 2.2
$15.00 - $24.99.............. 748,163 $22.32 9.1
$25.00 - $34.99.............. 4,261,200 $30.72 8.4
Over $35..................... 1,452,790 $43.72 9.3
EXERCISABLE:
Under $5.00.................. 447,500 $ 3.78
$5.00 - $14.99............... 594,322 $ 9.76
$15.00 - $24.99.............. 54,400 $23.24
$25.00 - $34.99.............. 2,124,660 $30.81
Over $35..................... 53,000 $37.59
</TABLE>
If we had elected to recognize compensation cost based on the fair value of
stock-based awards 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:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net loss applicable to common stockholders -- as reported.............. $(85,953) $(96,981) $(183,715)
Net loss applicable to common stockholders -- pro-forma................ $(51,028) $(99,587) $(170,637)
Net loss per share applicable to common stockholders -- as reported.... $ (4.79) $ (3.96) $ (4.72)
Net loss per share applicable to common stockholders -- pro-forma...... $ (2.85) $ (4.07) $ (4.39)
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate..................................... 4.72% 6.70% 4.89%
Expected life of options -- years........................... 4.36 4.38 4.38
Expected stock price volatility............................. 75% 70% 72%
Expected dividend yield..................................... N/A N/A N/A
</TABLE>
F-19
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
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 pretax 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, $454, $864 and $1,422 for 1998, 1999, 2000 and for the period May 17,
1990 (date of inception) to December 31, 2000, respectively.
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 2000
---- ----
<S> <C> <C>
Start-up costs capitalized for tax purposes............. $ 29,198 $ 65,586
Net operating loss carryforwards........................ 12,262 23,433
Capitalized interest expense............................ 6,095 10,841
Other................................................... (376) 1,198
-------- --------
47,179 101,058
Valuation allowance..................................... (49,416) (103,295)
-------- --------
Net deferred tax liability.............................. $ (2,237) $ (2,237)
-------- --------
-------- --------
</TABLE>
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, 2000, we had net operating loss carryforwards of
approximately $57,576 for federal and state income tax purposes 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 development
stage enterprise. Total start-up costs as of December 31, 2000 were $160,689.
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 $65,586 includes approximately $7,400 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 our common stock. Total cash expenses incurred in
transactions with related parties during the years ended December 31, 1998, 1999
and 2000 and the period from May 17, 1990 (date of inception) to December 31,
2000 were $127, $94, $24 and $2,564, respectively. We have also issued common
stock in lieu of cash in settlement of other related party liabilities. There
were no related party expenses settled with the issuance of common stock during
the years ended December 31, 1998, 1999 and 2000. Related party expenses settled
with
F-20
<PAGE>
SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
the issuance of common stock for the period from May 17, 1990 (date of
inception) to December 31, 2000 were $1,311.
During the years ended December 31, 1998, 1999 and 2000 we made payments of
$2,000, $9,379 and $67 to a financial advisory firm, of which a related party is
a partner.
12. LEASES AND RENTALS
Total rent expense for the years ended December 31, 1998, 1999 and 2000 and
the period May 17, 1990 (date of inception) to December 31, 2000 was $1,985,
$4,976, $6,712 and $15,156, respectively. Future minimum lease payments under
non-cancelable operating leases totaled $100,719 as of December 31, 2000 and are
payable as follows:
<TABLE>
<S> <C>
2001....................................................... $ 7,450
2002....................................................... 7,452
2003....................................................... 7,454
2004....................................................... 7,702
2005....................................................... 7,631
Thereafter................................................. 63,030
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
SATELLITE CONSTRUCTION AND LAUNCH SERVICES
To build and launch the satellites necessary to provide our service, 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
deliver $15,000 of long-lead time parts for a fifth satellite. We are committed
to make aggregate payments of $745,890 under the Loral Satellite Contract. As of
December 31, 2000, $674,080 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 October 2004. Future contractual payments are due as follows: $21,810 in
2001, $0 in 2002, $25,000 in 2003 and $25,000 in 2004.
INTEGRATED CIRCUITS
During 1998, we signed an agreement with Lucent Technologies, Inc.
('Lucent') pursuant to which Lucent agreed to use commercially reasonable
efforts to deliver commercial quantities of integrated circuits ('chip sets'),
which will be used in radios 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 $50,000.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly results of operations are summarized as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 2000:
Revenue..................................... $ -- $ -- $ -- $ --
Operating loss.............................. (26,776) (28,868) (31,819) (38,171)
Net loss applicable to common
stockholders.............................. (43,761) (44,982) (40,883) (54,089)
Net loss per share applicable to common
stockholders.............................. $ (1.35) $ (1.11) $ (0.97) $ (1.28)
Year Ended December 31, 1999:
Revenue..................................... $ -- $ -- $ -- $ --
Operating loss.............................. (11,875) (13,887) (12,932) (24.824)
Net loss applicable to common
stockholders.............................. (20,104) (22,475) (23,221) (31,181)
Net loss per share applicable to common
stockholders.............................. $ (0.87) $ (0.97) $ (0.96) $ (1.15)
</TABLE>
15. SUBSEQUENT EVENTS
On February 23, 2001, we sold 11,500,000 shares of our common stock in an
underwritten public offering for net proceeds of approximately $229,500.
On March 8, 2001, we borrowed $150,000 under the Lehman Term Loan Facility.
F-21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
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 (incorporated by
reference to Exhibit 4.5 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 (the '1999
Form 10-K')).
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).
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
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 (incorporated by reference to
Exhibit 4.6.9 to the 1999 Form 10-K).
4.6.10 -- Amendment to the Rights Agreement dated as of August 7,
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 Note
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 Note 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 Note 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).
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
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).
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 -- Term Loan Agreement, dated as of June 1, 2000, among the
Company, Lehman Brothers Inc., as arranger, Lehman
Commercial Paper Inc., as syndication and administrative
agent (incorporated by reference to Exhibit 4.22 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000).
4.23 -- Term Loan Agreement, dated as of February 23, 2001, among
the Company and Lehman Brothers Inc. (incorporated by
reference to Exhibit 1.01 to Company's Current Report on
Form 8-K filed on February 28, 2001).
4.24 -- Warrant Agreement, dated as of June 1, 2000, between the
Company and United States Trust Company of New York, as
warrant agent and escrow agent (incorporated by reference
to Exhibit 4.23 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000).
4.25 -- 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).
4.26 -- Common Stock Purchase Warrant granted by the Company to
DaimlerChrysler Corporation, dated January 28, 2000
(incorporated by reference to Exhibit 4.23 to the 1999
Form 10-K).
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).
10.1.1 -- 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).
10.1.2 -- Supplemental Indenture, dated as of March 22, 2000,
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 March 31, 2000).
'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 March 28, 2000, between
the Company and Joseph S. Capobianco (incorporated by
reference to Exhibit 10.5 to the 1999 Form 10-K).
*10.5 -- Employment Agreement, dated as of March 28, 2000, between
the Company and Patrick L. Donnelly (incorporated by
reference to Exhibit 10.6 to the 1999 Form 10-K).
*10.6 -- Employment Agreement, dated as of April 17, 2000, between
the Company and Dr. Mircho Davidov (incorporated by
reference to Exhibit 10.8 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000).
*10.7 -- 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).
*10.8 -- 1994 Stock Option Plan (incorporated by reference to
Exhibit 10.21 to the S-1 Registration Statement).
*10.9 -- 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).
*10.10 -- 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)).
*10.11 -- 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)).
10.12 -- 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).
</TABLE>
E-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.13 -- 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).
10.14 -- 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).
10.15.1 -- 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).
10.15.2 -- 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).
10.16 -- 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'10.17 -- 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).
10.18 -- 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).
10.19.1 -- 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).
10.19.2 -- 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).
10.19.3 -- 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).
10.20 -- 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).
10.21 -- Stock Purchase Agreement, dated as of January 28, 2000,
among the Company, Mercedes-Benz USA, Inc., Freightliner
Corporation and DaimlerChrysler Corporation (incorporated
by reference to Exhibit 10.24 to the 1999 Form 10-K).
10.22 -- 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'10.23 -- 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).
'D'10.24 -- Joint Development Agreement, dated as of February 16,
2000, between the Company and XM Satellite Radio Inc.
(incorporated by reference to Exhibit 10.28 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000).
21.1 -- List of Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
</TABLE>
- ---------
* 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'
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>EXHIBIT 21.1
<TEXT>
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Satellite CD Radio, Inc.
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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