SIRIUS SATELLITE RADIO INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2002
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
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SIRIUS SATELLITE RADIO INC.
(EXACT NAME OF REGISTRANT IN ITS CHARTER)
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DELAWARE 52-1700207
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OF ORGANIZATION)

1221 AVENUE OF THE AMERICAS, 36TH FLOOR
NEW YORK, NEW YORK 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 584-5100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.001 per share
(TITLE OF CLASS)
-------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [x] No [ ]

On March 26, 2003, 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 $279,033,709.

The number of shares of the Registrant's common stock outstanding as of
March 26, 2003 was 911,666,616.

DOCUMENTS INCORPORATED BY REFERENCE

None.

________________________________________________________________________________

SIRIUS SATELLITE RADIO INC.
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

1

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following cautionary statements identify important factors that could
cause our actual results to differ materially from those projected in
forward-looking statements made in this Annual Report on Form 10-K and in other
reports and documents published by us from time to time. Any statements about
our beliefs, plans, objectives, expectations, assumptions, 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:

our need for substantial additional financing by early 2004,
even following our recently completed recapitalization;

our competitive position; XM Satellite Radio, the other
satellite radio service provider in the United States, began
offering its service before us, has substantially more
subscribers than us and may have certain competitive
advantages;

our dependence upon third parties to manufacture,
distribute, market and sell SIRIUS radios and components for
those radios;

the unproven market for our service; and

the useful life of our satellites, which have experienced
circuit failures on their solar arrays and may not be
covered by insurance. The circuit failures our satellites
have experienced to date are not expected to limit the power
of our broadcast signal, reduce the expected useful life of
our satellites or otherwise affect our operations.

Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us or on our behalf, you should not place undue reliance on
any of these forward-looking statements. 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 directly broadcast more than 100
channels, which we call 'streams', of digital-quality audio throughout the
continental United States for a monthly subscription fee of $12.95. We deliver
60 streams of 100% commercial-free music in virtually every genre, and over 40
streams of news, sports, weather, talk, comedy, public radio and children's
programming. Our broad and deep range of music as well as our 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 (the 'FCC') to operate a national satellite radio
system.

On February 14, 2002, we launched our service in select markets and on
July 1, 2002, we launched our service nationwide. As of December 31, 2002, we
had 29,947 subscribers. Our primary source of revenues is subscription and
activation fees. In addition, we derive revenues from selling limited
advertising on our non-music streams.

We have agreements with Ford Motor Company, DaimlerChrysler Corporation, BMW
of North America, LLC, Nissan North America, Inc. and Volkswagen of America,
Inc. that

2

contemplate the manufacture and sale of vehicles that include SIRIUS radios.
These alliances cover all major brands and affiliates of these automakers,
including Ford, Lincoln, Mercury, Jaguar, Land Rover, Chrysler, Mercedes, BMW,
MINI, Jaguar, Mazda, Dodge, Jeep, Volvo, Nissan, Infiniti, Volkswagen, Audi and
Freightliner and Sterling heavy trucks. Ford, DaimlerChrysler, BMW, Nissan and
Volkswagen are not required to manufacture or sell vehicles that include SIRIUS
radios pursuant to these agreements. In 2002, Ford, DaimlerChrysler, BMW, Nissan
and Volkswagen sold or leased approximately eight million vehicles in the
continental United States, approximately 48% of all new cars and trucks sold or
leased in the continental United States.

In the autosound aftermarket, SIRIUS radios are available for sale at
various national and regional retailers, such as Best Buy, Circuit City,
Ultimate Electronics, Tweeter Home Entertainment Group, Crutchfield and Good
Guys. On December 31, 2002, SIRIUS radios were available at approximately 5,500
retail locations. In 2002, consumer electronics retailers in the United States
sold over ten million car radios, of which approximately two million retailed
for a price in excess of $200.

PROGRAMMING

We program 60 streams of 100% commercial-free music under our brand 'SIRIUS'
and offer over 40 additional streams of other formats, such as news, sports and
entertainment programming. We believe that 60 music streams enable us to
'superserve' our subscribers with a greater range of content than is currently
offered by traditional AM/FM radio.

Our Music Streams. We design and originate the programming on each of our 60
commercial-free music streams. Each stream is operated as an individual radio
station, with a distinct format and its own hosts. Our line-up of music streams
currently consists of:

POP
Top 40 Hits
Adult Contemporary
Love Songs
Easy Listening
The Best of the `50s
The Best of the `60s
The Best of the `70s
The Best of the `80s
Christian Hits

ROCK
Classic Rock
Deeper Classic Rock
Jam Bands
Adult Album Alternative
Modern Rock
Alternative Rock
Classic Alternative
Stadium Rock
Eclectic Rock
Mellow Rock
Underground & Indie
Hard Rock
Blues

COUNTRY
Today's Country Hits
Country Mix
Classic Country
Alternative Country
Bluegrass

HIP HOP
Today's Rap
Int'l Rap/Spoken Word
Turntablism/Freestyle
Old Skool Rap
Rap Hits

R & B
Urban Contemporary
R&B Hots
Soul Ballads
Classic Soul

DANCE
House Music
Non Stop Club Mix
Mainstream Dance
Electronica
Dance Hits
Disco

JAZZ/STANDARDS
Contemporary Jazz
Smooth Jazz
Classic Jazz
Swing
Standards
Broadway's Best

CLASSICAL
Symphonic
Chamber Works
Classical Voices

VARIETY
Latin Pop Mix
Mexicana
Reggae
Folk
Gospel
Kids
New Age
World Music
Live & Features

We have assembled an extensive music library consisting of a deep range of
recorded music in each genre, which is updated with new recordings as they are
released. We have recruited program

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managers, who we call 'stream jockeys', from the recording, broadcasting and
entertainment industries to manage the daily programming for each SIRIUS music
stream.

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. Musical works rights holders,
generally songwriters and music publishers, are represented by performing rights
societies such as ASCAP, or the American Society of Composers, Authors and
Publishers, BMI, or Broadcast Music, Inc., and SESAC, Inc. These organizations
negotiate fees with copyright users, collect royalties and distribute them to
the rights holders.

We have entered into license agreements with ASCAP and SESAC pursuant to
which we pay royalties for our public performances of musical works. We have
begun discussions with BMI regarding a similar license and hope to execute a
reasonable agreement with BMI during 2003. If we are unable to reach an
agreement with BMI, a royalty rate may ultimately be established through
litigation.

Sound recording rights holders, typically large record companies, are
primarily represented by the RIAA, or the Recording Industry Association of
America, which negotiates licenses and collects and distributes royalties. In
March 2003, we entered into an agreement with the RIAA pursuant to which we pay
royalties for our public performances of sound recordings.

Our News, Sports and Entertainment Streams. In addition to our music
streams, we offer over 40 streams of news, sports and entertainment programming,
which includes limited commercial advertising.

We currently air the following news, sports and entertainment streams:

NEWS
CNBC
Bloomberg Radio
ABC News & Talk
CNN Headline News
FOX News Channel
NPR Now
NPR Talk
PRI's Public Radio Channel
The Weather Channel Radio Nat'l
The Weather Channel Radio East
The Weather Channel Radio Central
The Weather Channel Radio West
C-SPAN Radio
BBC World Service News
World Radio Network
BBC Mundo

SPORTS
ESPN Radio
ESPNEWS
Sports Byline USA
Speed Channel Radio
OLN Adventure Radio
Radio Deportivo

ENTERTAINMENT
Radio Disney
SIRIUS Trucking Network
WSM Entertainment
Radio Classics
Court TV Plus
SIRIUS Entertainment
E! Entertainment Radio
A&E Satellite Radio
Discovery Channel Radio
La Red Hispana
Radio Amigo
Radio Mujer
The Word Network
Wisdom Radio
SIRIUS Right
SIRIUS Left
SIRIUS Talk
SIRIUS Comedy
Preview Channel

We also transmit live play-by-play broadcasts of NBA games, including the
2003 NBA playoffs and finals, as part of our standard programming package. Our
streams will change over time based upon feedback from our subscribers.

AGREEMENTS WITH AUTOMAKERS

We have an agreement with DaimlerChrysler Corporation, Mercedes-Benz USA,
Inc. and Freightliner LLC, companies that we collectively refer to as
DaimlerChrysler, which anticipates that DaimlerChrysler will manufacture, market
and sell vehicles that include SIRIUS radios. This agreement covers all cars and
light trucks manufactured by DaimlerChrysler as well as Freightliner and
Sterling heavy trucks. As part of this agreement, we share with DaimlerChrysler
a portion of the revenues we derive from subscribers using new DaimlerChrysler
vehicles equipped to receive our broadcasts ('DaimlerChrysler Enabled
Vehicles'). We reimburse DaimlerChrysler for certain

4

advertising expenses and hardware costs of DaimlerChrysler Enabled Vehicles, and
issued to DaimlerChrysler Corporation a warrant to purchase 4,000,000 shares of
our common stock at an exercise price of $3.00 per share. This warrant is
exercisable based upon the number of DaimlerChrysler Enabled Vehicles that
DaimlerChrysler manufactures, and is fully exercisable after 4,000,000
DaimlerChrysler Enabled Vehicles are manufactured. Our agreement with
DaimlerChrysler extends to May 12, 2007, unless terminated earlier.

DaimlerChrysler is offering SIRIUS radios as both a dealer and
factory-installed feature. SIRIUS radios are currently available at Chrysler,
Dodge and Jeep dealerships across the continental United States on 16 different
2003 model-year vehicles as a dealer-installed option, as a factory-installed
option on the Chrysler 300M, and as standard equipment in the Dodge PT Dream
Cruiser II.

We also have an agreement with Ford Motor Company, which anticipates that
Ford will manufacture, market and sell cars and trucks that include SIRIUS
radios. This agreement includes all Ford brands, including Ford, Jaguar, Mazda,
Volvo and Land Rover. As part of this agreement, we share with Ford a portion of
the revenues we derive from subscribers using new Ford vehicles equipped to
receive our broadcasts ('Ford Enabled Vehicles'). We also reimburse Ford for
certain advertising expenses and hardware costs of Ford Enabled Vehicles, and
have issued to Ford a warrant to purchase 4,000,000 shares of our common stock
at an exercise price of $3.00 per share. This warrant is exercisable based upon
certain corporate events and the number of Ford Enabled Vehicles that Ford
manufactures, and is fully exercisable after 1,500,000 Ford Enabled Vehicles are
manufactured. Our agreement with Ford extends to October 7, 2007, unless
terminated earlier.

Ford, Lincoln, Mercury, Jaguar, Volvo and Land Rover have announced plans to
offer SIRIUS radios as a dealer-installed option in select vehicles during the
2003 calendar year.

Our agreement with BMW of North America, LLC, anticipates that BMW and MINI
will market and sell vehicles that include SIRIUS radios. As part of this
agreement, we share with BMW a portion of the revenues we derive from
subscribers using BMW vehicles equipped to receive our broadcasts ('BMW Enabled
Vehicles'). In addition, we reimburse BMW for certain advertising expenses and
hardware costs of BMW Enabled Vehicles. All 2003 BMW 3 Series sedans and coupes,
5 Series sedans, and X5 vehicles equipped with an in-dash stereo that includes a
compact disc player are compatible with SIRIUS radios.

Our agreement with Nissan North America, Inc., anticipates that Nissan and
Infiniti will market and sell vehicles that include SIRIUS radios. As part of
this agreement, we reimburse Nissan for a portion of the engineering costs
associated with the introduction of SIRIUS radios in Nissan and Infiniti
vehicles. SIRIUS radios are available as a dealer-installed option in the 2003
model-year Nissan Pathfinder and Maxima and in the Infiniti FX45, G35 and
G35 coupe. SIRIUS radios are also expected to become available as a
dealer-installed option in the 2003 model-year Infiniti Q45 and M45. XM Radio
has also entered into an agreement with Nissan.

We have an agreement with Volkswagen of America, Inc., which anticipates
that Volkswagen and Audi will market and sell vehicles that include SIRIUS
radios. As part of this agreement, we reimburse Volkswagen for a portion of the
engineering costs associated with the introduction of SIRIUS radios in
Volkswagen and Audi vehicles. Volkswagen and Audi expect to introduce radios
capable of receiving both our service and XM Radio's service when such radios
become available. XM Radio has also entered into an agreement with Volkswagen.

In addition to our agreements with DaimlerChrysler, Ford, BMW, Volkswagen
and Nissan, we are in discussions with other automakers to include SIRIUS radios
in new cars and trucks. Under our joint development agreement with XM Radio, any
new agreements with automakers will be on a non-exclusive basis and will require
that such automakers install radios capable of receiving both SIRIUS and XM
Radio's satellite radio service as soon as such interoperable radios become
available.

5

HERTZ

We have an agreement with Hertz Corporation to make SIRIUS radios available
as an option to its rental car customers. All of the SIRIUS radios installed in
Hertz vehicles are owned by us, and installed and serviced at our expense by a
company designated by Hertz. Our service is offered as a premium feature to
Hertz customers for a daily fee, a portion of which we share with Hertz. Hertz
will initially make available approximately 20,000 SIRIUS radios for renters of
Ford's Taurus, Windstar, Escape, Expedition, Explorer, Mountaineer, Crown
Victoria, and Mercury Sable and Grand Marquis models. Installation of SIRIUS
radios in Hertz vehicles in California and
Florida began in December 2002. In January 2003, Hertz expanded its offering of
SIRIUS radio as an option to its customers in Las Vegas, Phoenix and Denver.

THE SIRIUS SYSTEM

Our satellite radio system is designed to provide clear reception in most
areas despite variations in terrain, buildings and other obstructions. Motorists
can receive our streams 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 FCC has allocated the portion of the S-band located between 2320 MHz and
2345 MHz 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.

Our satellite radio system consists of three principal components:

satellites and terrestrial repeaters;

our national broadcast studio; and

SIRIUS radios.

SATELLITES AND TERRESTRIAL REPEATERS

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. Our fourth, spare
satellite was delivered to ground storage on April 19, 2002.

Our satellites are of the Loral FS-1300 model series. This family of
satellites has a history of reliability with a total of more than 350 years of
in-orbit operation time. Each satellite is designed to have a useful life of
approximately 15 years from time of launch.

Each operating 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 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 high signal
elevation angles, reducing service interruptions that can result from signal
blockage.

We maintain in-orbit insurance policies covering our satellites from global
space insurance underwriters. Our current policies cover in-orbit losses
totaling $110 million per satellite, an amount sufficient to launch our
replacement satellite, but not sufficient to purchase a new spare satellite. We
intend to evaluate the benefits of continuing to purchase in-orbit satellite
insurance in light of the increased costs of such insurance and the probability
of an insurable failure occurring, and may decline to purchase such insurance or
purchase less insurance than we currently maintain. In the event we decline to
purchase in-orbit satellite insurance, a failure of any of our in-orbit
satellites would not be covered by insurance. If we insure our satellites for an
amount less than the cost of replacing the satellites and launching the
replacements, a failure of any of our satellites may only be covered in part by
insurance.

If we are required to launch our spare satellite due to the in-orbit failure
of one of our orbiting satellites, our operations would be interrupted or
impaired for at least six months. If two

6

or more of our satellites fail in orbit, our operations could be suspended for
at least 16 months. In either event, our business would be materially impacted
and we could default on our commitments to our distribution partners, creditors
or others and may have to permanently discontinue operations or seek a purchaser
for our business or assets.

Our 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.

Terrestrial Repeaters. In some areas with high concentrations of tall
buildings, such as urban centers, and in tunnels signals from our satellites may
be blocked and reception of our satellite signal can be adversely affected. In
many of these areas, we have deployed terrestrial repeaters to supplement our
satellite coverage. To date, we have deployed 98 terrestrial repeaters in 61
urban areas. We may deploy additional terrestrial repeaters if we discover that
our existing terrestrial repeaters fail to cover a significant number of
subscribers or potential subscribers.

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
facilities to transmit programming to our orbiting 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 more
than 100 streams.

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 orbiting satellites
is also performed from our national broadcast studio. These activities include
routine satellite orbital maneuvers and monitoring of the satellites.

SIRIUS RADIOS

We have entered into agreements with numerous consumer electronics
manufacturers, including Alpine Electronics Inc., Audiovox Corporation, Clarion
Co., Ltd., Delphi Corporation, Kenwood Corporation, Matsushita Communication
Industrial Corporation of USA, Recoton Corporation and Visteon Automotive
Systems, to develop, manufacture and distribute SIRIUS radios.

In the autosound aftermarket, SIRIUS subscribers have the choice of two
different receiving devices for their cars -- an FM modulated radio or a
three-band radio. In new cars and trucks, consumers receive SIRIUS through
three-band (AM/FM/SAT) radios, which come installed by automakers or their
dealers.

FM Modulated Radios. FM modulated radios enable our service to be received
in all vehicles with FM radios, or approximately 95% of all U.S. vehicles. The
essential electronics for each FM modulated radio is contained in a small unit,
approximately the size of a video cassette, that is customarily mounted in the
vehicle's trunk. FM modulated radios from Audiovox, Clarion, Jensen, Kenwood and
Panasonic are currently available at retailers nationally.

Three-Band Radios. Three-band radios are nearly identical in appearance to
existing car stereos and 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 compact disc players.

In the autosound aftermarket, three-band radios from Kenwood and Clarion are
currently available at retailers nationally. Three-band radios from Delphi,
Alpine and Visteon are also available to DaimlerChrysler, BMW, Ford, Nissan and
Volkswagen for factory or dealer installation. When factory-installed, the cost
of the radio is generally included in the sticker price of the vehicle and may
include a one year prepaid subscription to our service.

7

The essential element of three-band radios and FM modulated radios is a set
of integrated circuits, or a chip set, which permits the device to decode,
decompress and output our broadcasts. New versions of this chip set, with
enhanced features, superior performance or a lower price, are expected to be
introduced periodically.

Unified Standard. On February 16, 2000, we signed an agreement with XM
Radio, the holder of the other FCC license to provide a satellite-based digital
audio radio service, to develop a unified standard for satellite radios to
enable consumers to purchase one radio capable of receiving both SIRIUS and XM
Radio's services. 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 are working with XM Radio 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. We anticipate that it will take several
years to develop radios capable of receiving both services.

As part of this joint development agreement, we and XM Radio have licensed
our intellectual property to one another.

Both companies expect to work with their automakers and radio manufacturers
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 Radio have agreed that future agreements with
retail and automotive distribution partners and content providers will be on a
non-exclusive basis.

RECAPITALIZATION

On March 7, 2003, we completed a series of transactions to restructure our
debt and equity capitalization. As part of these transactions:

we exchanged 545,012,162 shares of our common stock for
approximately 91% of our outstanding debt, resulting in the
cancellation of all of our Lehman term loans, all of our
Loral term loans, approximately $251.2 million in aggregate
principal amount at maturity of our 15% Senior Secured
Discount Notes due 2007, approximately $169.7 million in
aggregate principal amount of our 14 1/2% Senior Secured
Notes due 2009, and approximately $14.7 million in aggregate
principal amount of our 8 3/4% Convertible Subordinated
Notes due 2009;

we exchanged 76,992,865 shares of our common stock and
warrants to purchase 87,577,114 shares of our common stock
for all of our outstanding cumulative convertible preferred
stock;

we sold 24,060,271 shares of our common stock to affiliates
of Apollo Management, L.P. for an aggregate of
$25.0 million in cash;

we sold 24,060,271 shares of our common stock to affiliates
of The Blackstone Group L.P. for an aggregate of
$25.0 million in cash; and

we sold 163,609,837 shares of our common stock to affiliates
of OppenheimerFunds, Inc. for an aggregate of
$150.0 million in cash.

After giving effect to these transactions, at March 7, 2003, we had in
excess of $300.0 million of cash, cash equivalents and marketable securities;
approximately $61.2 million in aggregate principal amount of outstanding debt,
consisting of approximately $29.2 million in aggregate principal amount at
maturity of 15% Senior Secured Discount Notes due 2007, approximately
$30.3 million in aggregate principal amount of 14 1/2% Senior Secured Notes due
2009 and approximately $1.7 million in aggregate principal amount of 8 3/4%
Convertible Subordinated Notes due 2009; and approximately 911,479,700 shares of
common stock outstanding. We recognized a non-cash gain during the first quarter
of 2003 of approximately $257.0 million as a result of these transactions.

8

In connection with the exchange offer relating to our debt, we also amended
the indentures under which our 15% Senior Secured Discount Notes due 2007,
14 1/2% Senior Secured Notes due 2009 and 8 3/4% Convertible Subordinated Notes
due 2009 were issued to eliminate substantially all of the restrictive
covenants. Holders of our debt also waived any existing events of default or
events of default caused by the restructuring.

GOVERNMENT REGULATION

As an operator of a privately owned satellite system, we are regulated by
the FCC under the Communications Act of 1934. The FCC is the government agency
with primary authority in the United States over satellite radio communications.
Any assignment or transfer of control of our FCC license must be approved by the
FCC. We currently must comply with regulation by the FCC principally with
respect to:

the licensing of our satellite system;

preventing interference with or to other users of radio
frequencies; and

compliance with FCC rules established specifically for U.S.
satellites and satellite radio services.

On April 2, 1997, we were one of two winning bidders for an FCC license to
operate a satellite digital audio radio service. Our FCC license expires on
February 14, 2010. Prior to the expiration of the term, we will be required to
apply for a renewal of our FCC license. We anticipate that, absent significant
misconduct on our part, our FCC license will be renewed to permit operation of
our satellites for their useful lives, and that a license would be granted for
any replacement satellites.

One of the losing bidders for an FCC license to provide satellite radio
requested the FCC to review the grant of our license. The FCC denied this
request and the matter was appealed to the United States Court of Appeals for
the District of Columbia Circuit which upheld the FCC's denial in February 2003.

In some areas with high concentrations of tall buildings, such as urban
centers, signals from our satellites may be blocked and reception can be
adversely affected. In many of these areas, we have installed terrestrial
repeaters to supplement our signal coverage. We have constructed 98 terrestrial
repeaters in 61 urban areas throughout the United States. The FCC has not yet
established rules governing terrestrial repeaters. A rulemaking on the subject
was initiated by the FCC on March 3, 1997 and is still pending. Many comments
have been filed as part of this rulemaking, including comments from the National
Association of Broadcasters, major cellular telephone system operators and other
holders of spectrum adjoining ours. The comments cover many topics relating to
the operation of our terrestrial repeaters, but principally seek to protect
adjoining wireless services from interference. We cannot predict the outcome or
timing of these FCC proceedings and the final rules adopted by the FCC may limit
our ability to deploy additional terrestrial repeaters and/or require us to
reduce the power of our existing terrestrial repeaters. In the interim, the FCC
has granted us special temporary authority to operate our terrestrial repeaters
and offer our service. This special temporary authority is being challenged by
one of the holders of spectrum adjoining ours. This authority is effective until
such time as the FCC acts to terminate it and requires us not to cause harmful
interference to other wireless services.

Our FCC license is conditioned on us certifying that our system includes a
receiver design that will permit end users to access XM Radio's system. On
February 16, 2000, we signed an agreement with XM Radio to jointly develop a
unified standard for satellite radios to facilitate the ability of consumers to
purchase one radio capable of receiving both our and XM Radio's services. We
believe that this agreement, and our efforts with XM Radio to develop this
unified standard for satellite radios, satisfies the interoperability condition
contained in our FCC license. We notified the FCC of this agreement on
October 6, 2000 and asked it to concur that our efforts to develop this unified
standard satisfied the conditions to our license. The FCC has not responded to
this request.

9

The FCC has updated certain regulations, and has proposed to update other
regulations, to govern the operations of unlicensed devices that may generate
radio energy in the part of the spectrum used by us. The devices would be
required to comply with FCC rules that prohibit these devices from causing
harmful interference to an authorized radio service such as our service. If the
FCC does not adopt adequate technical standards specifically applicable to these
devices and the 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 the past five years, we filed comments and other written
submissions to the FCC and met with members and staff of the FCC 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 the reception of our service.

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 subscription-based, non-common carrier
by the FCC and are not a broadcast service. As such, we are not bound by the
foreign ownership provisions of the Communications Act. On November 30, 2001, in
response to a petition to apply the foreign ownership rules to satellite digital
audio radio services, the FCC confirmed that these rules do not apply. 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 or the manner in which we operate. 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 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 14, 2003, we had 304 employees. In addition, we rely upon a
number of consultants and other advisors. None of our employees are represented
by a labor union, and we believe that our relationship with our employees is
good.

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 SIRIUS.com. Our annual, quarterly and current
reports, and amendments to those reports, filed or furnished pursuant to
Section 14(a) or 15(d) of the Securities Exchange Act of 1934 may be accessed
free of charge through our website as soon as reasonably practicable after we
have electronically filed such material with, or furnished it to, the SEC.
SIRIUS.com is an inactive textual reference only, meaning that the information
contained on
10

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 forward-looking statements
within the meaning of the federal securities laws. Actual results and the timing
of 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.'

WE WILL STILL NEED ADDITIONAL FINANCING, WHICH MAY NOT BE AVAILABLE.

We have sufficient cash to cover our estimated funding needs into the second
quarter of 2004. We anticipate that we will need further additional funding of
approximately $100 million before we achieve cash flow breakeven, the point at
which our revenues are sufficient to fund expected operating expenses, capital
expenditures, interest and principal payments and taxes. This amount is an
estimate and may change, and we may need additional financing in excess of this
estimate. Our actual funding requirements could vary materially from our current
estimates. We may have to raise more funds than expected to remain in business
and continue to develop and market our satellite radio service.

We may continue to struggle to stay in business. Our financial projections
are based on assumptions which we believe are reasonable but contain significant
uncertainties, including, most importantly, the length of time and level of
costs necessary to obtain the number of subscribers required to sustain our
operations. At December 31, 2002, we had 29,947 subscribers. We estimate that we
will need approximately two million subscribers before we achieve cash flow
breakeven.

We plan to raise future funds by selling debt or equity securities, or both,
publicly and/or privately, and by obtaining loans or other credit lines from
banks or other institutions. We may not be able to raise sufficient funds on
favorable terms or at all. If we fail to obtain necessary financing on a timely
basis, then our business would be materially impacted and we could default on
commitments to our distribution partners, creditors or others, and may have to
discontinue operations or seek a purchaser for our business or assets.

OUR BUSINESS MIGHT FAIL, EVEN AFTER OUR RECENT RESTRUCTURING.

We were a development stage company until early 2002. We began generating
revenues on February 14, 2002, although, to date, these revenues have not been
significant. Our ability to generate significant revenues and ultimately to
become profitable will depend upon several factors, including whether we can
attract and retain a sufficient number of subscribers and advertisers to our
satellite radio service and whether we compete successfully. As of December 31,
2002, we had 29,947 subscribers.

We cannot estimate with any certainty the long-term consumer demand for our
service or the degree to which we will meet that demand. Among other things,
consumer acceptance will depend upon whether we obtain, produce and market high
quality programming consistent with consumers' tastes; the willingness of
consumers to pay subscription fees to obtain our service; the cost and
availability of SIRIUS radios; our marketing and pricing strategy; and the
marketing and pricing strategy of our direct competitor, XM Radio. If demand for
our service does not develop as expected, we may not be able to generate enough
revenues to become profitable or to generate positive cash flow.

OUR EXPENDITURES AND LOSSES HAVE BEEN SIGNIFICANT AND ARE EXPECTED TO GROW.

As of December 31, 2002, we had an accumulated deficit of approximately $927
million. We expect our cumulative net losses and cumulative negative cash flow
to grow as we make payments
11

under our various contracts, incur marketing and subscriber acquisition costs
and make interest payments on our outstanding indebtedness. If we are unable
ultimately to generate sufficient revenues to become profitable and have
positive cash flow we could default on commitments to our distribution
partners, creditors or others, and may have to discontinue operations or seek
a purchaser for our business or assets.

COMPETITION FROM XM RADIO AND TRADITIONAL AND EMERGING AUDIO ENTERTAINMENT
PROVIDERS COULD ADVERSELY AFFECT OUR ABILITY TO GENERATE REVENUES.

We compete with many entertainment providers for both listeners and
advertising revenues, including XM Radio, the other satellite radio provider;
traditional and digital AM/FM radio; internet based audio providers; direct
broadcast satellite television audio services; and cable systems that carry
audio services. XM Radio began commercial operations in September 2001, offers
its service for a monthly charge of $9.99, features over 100 channels, and has
acquired a significant number of subscribers. If consumers perceive that XM
Radio offers a more attractive service or enhanced features, superior equipment
alternatives, or has stronger marketing or distribution channels, it may gain a
long-term competitive advantage over us. As of December 31, 2002, we had a total
of 29,947 subscribers, while XM Radio reported approximately 347,000
subscribers.

Unlike SIRIUS, traditional AM/FM radio has a well established and dominant
market presence for its services and offers free broadcast reception supported
by commercial advertising rather than by a subscription fee. Further, the
incumbent terrestrial broadcasters have announced intentions to enhance their
existing broadcasts with digital quality services utilizing new technology in
the near future. Also, many radio stations offer information programming of a
local nature, such as traffic and weather reports, which we do not offer as
effectively as local radio. To the extent that consumers place a high value on
these features of traditional AM/FM radio, we are at a competitive disadvantage.

FAILURE OF THIRD PARTIES TO PERFORM COULD ADVERSELY AFFECT OUR BUSINESS.

We need to assure continued proper manufacturing and distribution of SIRIUS
radios and development and provision of programming in connection with our
service. Many of these tasks depend on the efforts of third parties, including:

automakers, which have entered into agreements which
contemplate manufacturing, marketing and selling vehicles
capable of receiving our service, but have limited or no
obligations to do so;

Agere Systems, Inc., which has designed, developed and is
manufacturing our chip set and is designing, developing and
manufacturing the next generation of our chip set;

consumer electronics manufacturers, which are developing,
manufacturing, distributing and marketing SIRIUS radios;

retailers, which are marketing and selling SIRIUS radios and
promoting subscriptions to our service; and

other third party vendors, who have designed or operate
important elements of our system, such as our call center or
subscriber management system.

If one or more of these third parties do not perform in a sufficient manner,
our business will be adversely affected.

HIGHER THAN EXPECTED SUBSCRIBER ACQUISITION COSTS OR SUBSCRIBER TURNOVER COULD
ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE.

We are spending substantial funds on advertising and marketing and in
transactions with automakers, radio manufacturers, retailers and others to
obtain and attract subscribers. If the costs

12

of attracting subscribers or incentivizing other parties are greater than
expected, our financial performance and results of operations will be
adversely affected.

We expect to experience some subscriber turnover, or churn. We cannot
predict the amount of churn we will experience or how successful we will be at
retaining subscribers, including subscribers who purchase or lease vehicles that
include a subscription to our service. High subscriber turnover, or our
inability to attract customers who purchase or lease new vehicles to our
service, would adversely affect our financial performance and results of
operations.

PREMATURE DEGRADATION OR FAILURE OF OUR SATELLITES COULD DAMAGE OUR BUSINESS.

We expect that our satellites will function effectively for approximately 15
years from the time of their launch, and that after this period their
performance in delivering our satellite radio service will deteriorate. However,
the useful life of any particular satellite may vary from this estimate. 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 depend on a number of factors, including:

degradation and durability of solar panels;

quality of construction;

amount of fuel our satellites consume;

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, the manufacturer of our satellites, has identified
circuit failures in solar arrays on satellites launched since 1997, including
our satellites. The circuit failures our satellites have experienced to date are
not expected to limit the power of our broadcast signal, reduce the expected
useful life of our satellites or otherwise affect our operations. However, if a
substantial number of additional circuit failures were to occur, the estimated
useful life of our satellites could 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. In either event, our business would be materially
impacted and we could default on our commitments to our distribution partners,
creditors or others and may have to permanently discontinue operations or seek a
purchaser for our business or assets.

LOSSES FROM SATELLITE DEGRADATION MAY NOT BE COVERED BY INSURANCE.

We maintain in-orbit insurance policies from global space insurance
underwriters. Our current policies cover in-orbit losses totaling $110 million
per satellite, an amount sufficient to launch our replacement satellite, but not
sufficient to purchase a new spare satellite.

We intend to evaluate the benefits of continuing to purchase in-orbit
satellite insurance in light of the increased costs and the probability of an
insurable failure occurring, and may decline to purchase such insurance or
purchase less insurance than we currently maintain. In the event we decline to
purchase in-orbit satellite insurance, a failure of any of our in-orbit
satellites would not be covered by insurance. Further, if we insure our in-orbit
satellites for an amount less than the cost of replacing the satellites and
launching the replacements, a failure of any of our satellites may only be
covered in part by insurance.

13

FAILURE TO COMPLY WITH FCC REQUIREMENTS COULD DAMAGE OUR BUSINESS.

As an owner of one of two FCC licenses to operate a satellite radio service
in the United States, we are subject to FCC rules and regulations, and the terms
of our license, which require us to meet certain conditions such as
interoperability of our system with XM Radio, the other licensed satellite radio
system in the United States; coordination of our satellite radio service with
radio systems operating in the same range of frequencies in neighboring
countries; and coordination of our communications links to our satellites with
other systems that operate in the same frequency band.

Non-compliance by us with these conditions could result in fines, additional
license conditions, license revocation or other detrimental FCC actions. We may
also be subject to interference from adjacent radio frequency users if the FCC
does not adequately protect us against such interference in its rulemaking
process.

The FCC has not yet issued final rules permitting us to operate and deploy
terrestrial repeaters to fill gaps in satellite coverage. We are operating our
repeaters on a non-interference basis pursuant to a grant of special temporary
authority from the FCC, and this authority is currently being challenged by
operators of terrestrial wireless systems who have asserted that our repeaters
may cause interference. The FCC's final terrestrial repeater rules may require
us to reduce the power of our terrestrial repeaters and limit our ability to
deploy additional repeaters. If we are required to significantly reduce the
power of our terrestrial repeaters, this would have an adverse effect on the
quality of our service in certain markets and/or cause us to alter our
terrestrial repeater infrastructure at a substantial cost. If the FCC limits our
ability to deploy additional terrestrial repeaters, our ability to improve any
deficiencies in our service quality that may be identified in the future would
be adversely affected.

THE COMPANY THAT DEVELOPED AND OPERATES OUR SUBSCRIBER MANAGEMENT SYSTEM HAS
FILED A PETITION TO REORGANIZE UNDER CHAPTER 11 OF THE BANKRUPTCY CODE. WE MAY
BEGIN USING A NEW SUBSCRIBER MANAGEMENT SYSTEM IF THE BANKRUPTCY COURT PERMITS
US TO TERMINATE OUR ARRANGEMENT WITH THAT COMPANY.

On November 4, 2002, we notified Sentraliant, Inc., the company that
developed and operates our subscriber management system, that it had breached
the agreement under which it provides that system, and that, unless various
defects and other problems with the system were corrected by January 3, 2003,
the agreement would terminate on that date. We later extended the termination
date to January 17, 2003. Sentraliant has informed us that it believes the
issues we identified have been previously resolved, are enhancements to the
system that had not yet been authorized by us, or are defects that are not
material.

On January 15, 2003, Sentraliant filed a petition under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District
of Virginia. On January 22, 2003, Sentraliant filed a proceeding with the
Bankruptcy Court seeking:

a judgment requiring us to pay approximately $150,000 of
fees we have not yet paid Sentraliant, and

a declaratory judgment that our agreement with Sentraliant
has not terminated and that our subscriber management system
is free of material defects.

The Bankruptcy Court has scheduled a trial on this matter for April 3 and 4,
2003. If the Bankruptcy Court finds that the subscriber management system is
free of material defects, we will be required to continue our arrangement with
Sentraliant. If the Bankruptcy Court finds that the agreement is no longer in
effect or that the subscriber management system contains material defects, the
agreement will be terminated. Termination of our agreement with Sentraliant will
result in a non-cash charge of approximately $15 million related to the
development of our subscriber management system.

We are prepared to implement a new subscriber management system. Our new
system effectively manages our existing customer data, captures new customer
data and interfaces with our
14

conditional access system, although we have not completed development and
testing of all of the system's functions.

OUR NATIONAL BROADCAST STUDIO, TERRESTRIAL REPEATER NETWORK OR OTHER GROUND
FACILITIES COULD BE DAMAGED BY NATURAL CATASTROPHES OR TERRORIST ACTIVITIES.

An earthquake, tornado, flood, terrorists or other catastrophic event could
damage our national broadcast studio or terrestrial repeater network, interrupt
our service and harm our business in the affected area. We do not have
replacement or redundant facilities that can be used to assume the functions of
our terrestrial repeater network or national broadcast studio in the event of a
catastrophic event. Any damage to our terrestrial repeater network would likely
result in degradation of our service for some subscribers and could result in
complete loss of service in affected areas. Damage to our national broadcast
studio would restrict our production of programming and require us to obtain
programming from third parties to continue our service.

CONSUMERS COULD PIRATE OUR SERVICE.

Like all radio transmissions, our signal is subject to interception. Pirates
may be able to obtain or rebroadcast our own satellite radio service without
paying the subscription fee. Although we use encryption technology to mitigate
the risk of signal theft, such technology may not be adequate to prevent theft
of our signal. If signal theft becomes widespread, it could harm our business.

RAPID TECHNOLOGICAL AND INDUSTRY CHANGES COULD MAKE OUR SERVICE OBSOLETE.

The satellite industry and the audio entertainment industry are both
characterized by rapid technological change, frequent new product innovations,
changes in customer requirements and expectations, and evolving industry
standards. If we are unable to keep pace with these changes, our business may be
unsuccessful. Products using new technologies, or emerging industry standards,
could make our technologies obsolete. In addition, we may face unforeseen
problems in operating our system that could harm our business. Because we have
depended on third parties to develop technologies used in key elements of our
system, more advanced technologies that we may wish to use may not be available
to us on reasonable terms or in a timely manner. Further, our competitors may
have access to technologies not available to us, which may enable them to
produce entertainment products of greater interest to consumers, or at a more
competitive cost.

OUR COMMON STOCK MAY BE DELISTED BY NASDAQ.

Our common stock is currently listed on the Nasdaq National Market. We may
fail to comply with the continued listing requirements of Nasdaq, and the
failure to do so may result in the delisting of our common stock. Nasdaq rules
require, among other things, that the minimum bid price of our common stock be
at least $1.00. If the minimum bid price of our common stock closes below $1.00
for more than 30 consecutive trading days and we are unable to cure such defect
within the cure period, Nasdaq may delist our common stock from the Nasdaq
National Market. On March 20, 2003, Nasdaq informed us that the minimum bid
price of our common stock had closed below $1.00 for more than 30 consecutive
trading days and that we had until September 16, 2003 to cure the defect. If our
common stock fails to close above $1.00 for ten consective days prior to
September 16, 2003, we have the right to request a hearing prior to delisting by
Nasdaq. Such delisting will have an adverse impact on liquidity of our common
stock and, as a result, the market price for our common stock may become more
volatile. Such delisting could make it more difficult for us to raise additional
capital.

IF OUR COMMON STOCK IS DEEMED A 'PENNY STOCK', ITS LIQUIDITY WILL BE ADVERSELY
AFFECTED.

If the market price for our common stock remains below $1.00 per share, our
common stock may be deemed to be a penny stock. If our common stock is
considered a penny stock, it would be subject to rules that impose additional
sales practices on broker-dealers who sell our common

15

stock. For example, broker-dealers must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Also, a disclosure schedule must be delivered to
each purchaser of a penny stock, disclosing sales commissions and current
quotations for the securities. Monthly statements are also required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. Because of these
additional conditions, some brokers may choose not to effect transactions in
penny stocks. This could have an adverse effect on the liquidity of our common
stock.

ITEM 2. PROPERTIES

In March 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. The annual base rent is approximately $4.6 million,
with specified increases and escalations based on operating expenses.

We also lease office space in Princeton, New Jersey; Milford, Michigan; and
Farmington Hills, Michigan. The aggregate annual base rent for these properties
was approximately $163,000 for the year ended December 31, 2002. None of these
leases are material to our business or operations.

ITEM 3. LEGAL PROCEEDINGS

On September 18, 2001, a purported class action lawsuit, entitled Sternbeck
v. Sirius Satellite Radio, Inc., 2:01-CV-295, was filed against us and certain
of our current and former executive officers in the United States District Court
for the District of Vermont. Subsequently, additional purported class action
lawsuits were filed. These actions have been consolidated in a single purported
class action, entitled In re: Sirius Satellite Radio Securities Litigation, No.
01-CV-10863, pending in the United States District Court for the Southern
District of New York. This action has been brought on behalf of all persons who
acquired our common stock on the open market between February 16, 2000 and
April 2, 2001. The complaint alleges violations of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The
complaint alleges, among other things, that the defendants issued materially
false and misleading statements and press releases concerning when our service
would be commercially available, which caused the market price of our common
stock to be artificially inflated. The complaint seeks an unspecified amount of
money damages. We believe that the allegations in the complaint have no merit
and we will vigorously defend against this action.

On June 13, 2002, we filed a motion with the United States District Court
for the Southern District of New York requesting the Court dismiss the complaint
in this action with prejudice pursuant to Federal Rules of Civil Procedure and
the provisions of the Private Securities Litigation Reform Act. This motion is
still pending.

16

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded 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:

On March 26, 2003, the closing bid price of our common stock on the Nasdaq
National Market was $0.67 per share. On March 26, 2003, there were approximately
75,000 beneficial 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.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

Our selected consolidated financial data set forth below with respect to the
consolidated statements of operations for the years ended December 31, 2000,
2001 and 2002, and with respect to the consolidated balance sheets at December
31, 2001 and 2002 are derived from our consolidated financial statements,
audited by Arthur Andersen LLP and Ernst & Young LLP, independent auditors,
included in Item 8 of this report. Our selected consolidated financial data with
respect to the consolidated balance sheets at December 31, 1998, 1999 and 2000
and with respect to the consolidated statement of operations data for the years
ended December 31, 1998 and 1999, 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

17

BALANCE SHEET DATA

- ---------

(1) The calculation of working capital includes current portions
of long-term debt and accrued interest. Certain portions of
long-term debt and accrued interest, which would have been
classified as current absent the restructuring, are
classified as long-term liabilities as of December 31, 2002,
as they were exchanged for shares of our common stock on
March 7, 2003, in connection with our restructuring.

(2) After giving effect to our recapitalization, at March 7,
2003, we had $61,202 in aggregate principal amount of
outstanding debt, consisting of $29,200 in aggregate
principal amount at maturity of 15% Senior Secured Discount
Notes due 2007, $30,258 in aggregate principal amount of
14 1/2% Senior Secured Notes due 2009 and $1,744 in
aggregate principal of 8 3/4% Convertible Subordinated Notes
due 2009. All of our Loral term loans and Lehman term loans
were exchanged for common stock in connection with our
restructuring.

(3) In connection with our recapitalization on March 7, 2003,
all of our outstanding cumulative convertible preferred
stock was exchanged for shares of our common stock and
warrants to purchase shares of our common stock.

(4) 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 forward-looking statements within
the meaning of the federal securities laws. Actual results and the timing of
events could differ materially from those projected in forward-looking
statements due to a number of factors, including those described under
'Business -- Risk Factors' and elsewhere in this Annual Report. See 'Special
Note Regarding Forward-Looking Statements.'

(All dollar amounts referenced in this Item 7 are in thousands, unless
otherwise stated)

OVERVIEW

From our three orbiting satellites, we directly broadcast digital-quality
audio throughout the continental United States for a monthly subscription fee of
$12.95. We deliver 60 streams of 100% commercial-free music in virtually every
genre, and over 40 streams of news, sports, weather, talk, comedy, public radio
and children's programming. We hold one of only two licenses issued by the FCC
to operate a national satellite radio system.

We emerged from the development stage following the launch of our service on
February 14, 2002 in select locations. We launched our service nationally on
July 1, 2002.

As of December 31, 2002, we had 29,947 subscribers. We consider subscribers
to be those who have agreed to pay for our service and have activated their
SIRIUS radio, including those who are currently in promotional periods, and
active SIRIUS radios under our agreement with Hertz. We derive revenue from:

subscription fees, including revenue derived from our agreement with Hertz,

activation fees collected from our customers, and

selling limited advertising on our non-music streams.

18

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

We had total revenue of $805 for the year ended December 31, 2002, including
subscriber revenue of $623, consisting of subscription and non-refundable
activations fees, advertising revenue of $146 and revenue from other sources of
$36 for the year ended December 31, 2002. We did not have any revenue for the
year ended December 31, 2001, as we were in our development stage.

We recorded subscription revenue of $1,016 for the year ended December 31,
2002. These revenues were partially offset by $426 of costs associated with our
mail-in rebate program. We recognize subscription fees as our service is
provided. Mail-in rebates that are paid by us directly to subscribers were
recorded as a reduction to subscription revenue in the period the subscriber
activated service. We concluded the mail-in rebate program in the fourth quarter
of 2002 and have adjusted the related accrual to reflect the actual amounts paid
to subscribers. We expect to derive increased subscription revenue as our
subscriber base increases. Future subscription revenue will be dependent upon,
among other things, discounts and mail-in rebates offered to subscribers and the
identification of additional revenue streams from subscribers.

We recorded revenue from activation fees of $33 for the year ended
December 31, 2002. Activation fees are recognized ratably over the term of the
subscriber relationship, currently assumed to be 3.5 years.

Average monthly revenue per subscriber ('ARPU') for the year ended
December 31, 2002 was approximately $7.47. ARPU, excluding the cost of our
mail-in rebate program, for the year ended December 31, 2002 was approximately
$12.58. ARPU, which is not a measure of financial performance under accounting
principles generally accepted in the United States, is derived from total earned
subscription revenue and activation revenue over the daily weighted average
number of subscribers for the year. Future ARPU will be dependent upon the
amount and timing of subscriber discounts, mail-in rebate programs and the
identification of additional revenue streams from subscribers.

Advertising revenue, net of agency fees of $26, was $146 for the year ended
December 31, 2002. We recognize advertising revenue from sales of spot
announcements to advertisers as the announcements are broadcast.

We had net losses of $422,481 and $235,763 for the years ended December 31,
2002 and 2001, respectively. Operating expenses increased to $313,932 for the
year ended December 31, 2002 from $168,456 for the year ended December 31, 2001.

Satellite and transmission expenses increased to $39,308 for the year ended
December 31, 2002 from $31,056 for the year ended December 31, 2001. Satellite
and transmission expenses consist primarily of personnel costs, in-orbit
satellite insurance expense and costs associated with the operation and
maintenance of our satellite tracking, telemetry and control system, terrestrial
repeater network and national broadcast studio. For the year ended December
31, 2002 satellite and transmission expenses also included a loss of $5,005 on
the disposal of equipment in connection with the optimization of our terrestrial
repeater network. We expect that a significant portion of our satellite and
transmission costs will remain relatively constant, and that increases or
decreases in satellite and transmission costs will be due, in large part, to
increased or decreased costs of insuring our in-orbit satellites.

Programming and content expenses increased to $22,728 for the year ended
December 31, 2002 from $9,836 for the year ended December 31, 2001. Programming
and content expenses include license fees paid to third parties for music and
non-music programming, costs associated with the production of our music and
non-music programming, costs of our on-air talent, royalties for music broadcast
on our service and the costs of programming personnel. The increase in costs
during 2002 was primarily attributable to costs of on-air talent and music and
non-music programming. We anticipate that our programming costs will increase
over time as we continue to develop our channel line-up, share additional
advertising revenue from the increased price of spot advertisements sold to
advertisers and incur additional royalties.

19

Customer service and billing costs increased to $7,862 for the year ended
December 31, 2002 from $6,572 for the year ended December 31, 2001. Customer
service and billing costs include costs associated with the full time operation
of our customer service center and subscriber management system. The increase in
costs during 2002 was primarily attributable to additional customer
representatives at our customer service center. We expect that our customer
service and billing costs will increase as we acquire subscribers. Customer
service and billing costs on a per subscriber basis will be significantly
reduced as our fixed operating costs are spread over a larger subscriber base.

Sales and marketing expenses increased to $108,385 for the year ended
December 31, 2002 from $21,566 for the year ended December 31, 2001. Sales and
marketing expenses include costs related to sales and marketing personnel,
advertising, sponsorships, consumer promotions, brand building activities,
subsidies paid to radio and chip set manufacturers, commission payments to
distributors and retailers and other payments to distributors and retailers to
reimburse them for marketing and promotional activities. Sales and marketing
expenses increased during 2002 due to our marketing and promotional efforts in
connection with the national launch of our service, certain marketing activities
by distributors, retailers and radio manufacturers, development of our brand and
the costs associated with subsidies paid to radio and chip set manufacturers in
advance of acquiring subscribers.

Subscriber acquisition costs, which are included in sales and marketing
expense, totaled approximately $21,038 for the year ended December 31, 2002.
Subscriber acquisition costs, include incentives for the purchase, installation
and activation of SIRIUS radios, as well as subsidies paid to manufacturers of
SIRIUS radios in order to acquire new subscribers. Certain subscriber
acquisition costs are recorded in advance of acquiring a subscriber. Subscriber
acquisition costs do not include advertising and promotional activities, loyalty
payments to distributors and dealers of SIRIUS radios, revenue sharing payments
to manufacturers of SIRIUS radios and guaranteed payments to automakers. We
retain ownership of the SIRIUS radios used in our agreement with Hertz, as a
result amounts capitalized in connection with this program are not included in
our subscriber acquisition costs.

We expect sales and marketing expenses to increase in the future as we build
brand awareness through national advertising, continue to offer variable
hardware subsidies to manufacturers of SIRIUS radios, commissions to retailers
and other distributors and other incentives to acquire subscribers. In addition,
we expect to incur significant costs related to our agreements with automakers
as they begin production of SIRIUS enabled vehicles. We anticipate that the
costs of certain subsidized components of SIRIUS radios will decrease as
manufacturers experience economies of scale in production and we secure
additional manufacturers of these components.

General and administrative expenses increased to $30,682 for the year ended
December 31, 2002 from $28,536 for the year ended December 31, 2001. General and
administrative expenses include rent and occupancy costs, corporate overhead and
costs of general and administrative personnel. The increase in 2002 was
associated with increased consulting, legal and public relations costs and a
loss of $924 on the disposal of assets associated with terminating a lease on
non-essential office space. This increase was offset by a reduction in rent and
occupancy costs of $4,518 primarily attributable to the termination of a lease
of non-essential office space.

Research and development costs decreased to $30,087 for the year ended
December 31, 2002 from $47,794 for the year ended December 31, 2001. Research
and development includes costs associated with our agreements with Agere to
design and develop chip sets for use in SIRIUS radios. In addition, we have
agreements with Alpine Electronics Inc., Audiovox Corporation, Clarion Co.,
Ltd., Delphi Corporation, Kenwood Corporation, Matsushita Communications
Industrial Corporation USA, Visteon Automotive Systems and others to design,
develop and produce SIRIUS radios and have agreed to pay certain costs
associated with these radios. We record expenses under these agreements as work
is performed. The decrease in 2002 related primarily to the reduction in chip
set development costs as we completed our first generation of chip sets.
Development costs of SIRIUS radios also decreased in 2002 as our manufacturing
partners completed the majority of their radio development work during 2001. The
overall

20

decrease was partially offset by a payment of $8,134 to Panasonic to release us
from our purchase commitment and reduce the factory price of SIRIUS radios. The
amount of our future research and development costs is dependent upon
modifications to our existing technology and enhancements to SIRIUS radios, and
we expect these costs to decrease in future periods.

Depreciation expense increased to $82,747 for the years ended December 31,
2002 from $9,052 for the year ended December 31, 2001. The increase principally
related to the depreciation of our satellite system and terrestrial repeater
network, which began during 2002, our first year of commercial operations.

We recognized a non-cash stock compensation benefit of $7,867 and a non-cash
stock compensation expense of $14,044 for the year ended December 31, 2002 and
2001, respectively. Non-cash stock compensation includes charges and benefits
associated with the grant of certain stock options, the issuance of our common
stock to employees and an employee benefit plan. The non-cash stock compensation
benefit for 2002 and expense for 2001 was principally due to the repricing of
certain employee stock options in April 2001. We may record future non-cash
stock compensation benefits or expenses related to the repriced stock options
based on the market value of our common stock at the end of each reporting
period.

Expenses associated with the restructuring of our debt, consisting primarily
of advisory and legal fees, totaled $8,448 for the year ended December 31, 2002.
In addition, we have incurred costs of $4,259 related to the sale of common
stock in connection with our recapitalization, which have been capitalized and
will be used in determining the net proceeds from the transaction. We have
incurred additional expenses related to the restructuring of our debt during the
first quarter of 2003.

We recognized a gain of $5,313 on the extinguishment of debt during 2001 in
connection with our acquisition of $16,500 in principal amount at maturity of
our 15% Senior Secured Discount Notes due 2007 in exchange for shares of our
common stock.

Interest and investment income decreased to $5,257 for the year ended
December 31, 2002 from $17,066 for the year ended December 31, 2001. This
decrease was attributable to lower returns on our investments in U.S. government
securities and lower average balances of cash, cash equivalents and marketable
securities during 2002.

Interest expense increased to $106,163 for the year ended December 31, 2002
from $89,686 for the year ended December 31, 2001, net of amounts capitalized of
$5,426 and $19,270, respectively. Interest expense for the years ended
December 31, 2002 and 2001 included non-cash costs of $9,650 and $8,259,
respectively, associated with the induced conversion of $29,475 and $34,900,
respectively, in aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009. We expect interest expense to decrease
substantially in the future as a result of our debt restructuring.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 30, 2000

We commenced commercial operations on February 14, 2002 and did not generate
any subscriber or advertising revenue for the years ended December 31, 2001 and
2000.

We had net losses of $235,763 and $134,744 for the years ended December 31,
2001 and 2000, respectively. Operating expenses increased to $168,456 for the
year ended December 31, 2001 from $125,634 for the year ended December 31, 2000.

Satellite and transmission costs increased to $31,056 for the year ended
December 31, 2001 from $12,486 for the year ended December 31, 2000. The
increase in costs in 2001 related primarily to a full year of in-orbit satellite
insurance, additional personnel cost to support the operation of our satellites,
terrestrial repeater network and broadcast studios and increased lease and
maintenance costs associated with our terrestrial repeater network.

Programming and content expenses increased to $9,836 for the year ended
December 31, 2001 from $4,848 for the year ended December 31, 2000. The increase
in costs during 2001 was

21

primarily attributable to increased programming personnel, on-air talent and
license fees for non-music programming as we prepared to launch our service.

Customer service and billing costs increased to $6,572 for the year ended
December 31, 2001 from $1,027 for the year ended December 31, 2000. The increase
in costs during 2001 was primarily attributable to the cost of operating and
maintaining licenses for our subscriber management system and the cost of
additional customer representatives at our customer service center.

Sales and marketing expenses increased to $21,566 for the year ended
December 31, 2001 from $13,992 for the year ended December 31, 2000. Sales and
marketing expenses increased during 2001 due to special events, promotional
activities and sponsorships in preparation for the launch of our service. In
addition, sales and marketing costs during 2001 included costs of our agreements
with retailers and distributors of SIRIUS radios.

General and administrative expenses increased to $28,536 for the year ended
December 31, 2001 from $19,262 for the year ended December 31, 2000. The
increase in 2001 was associated primarily with the hiring of additional
personnel to support our operations and higher rent and occupancy costs
associated with our national broadcast studio.

Research and development costs decreased to $47,794 for the year ended
December 31, 2001 from $64,489 for the year ended December 31, 2000. Research
and development costs decreased during 2001 due to decreased development
activity by our radio and chip set manufacturers, many of which completed a
substantial portion of their efforts in 2000 and early 2001.

Depreciation expense increased to $9,052 for the year ended December 31,
2001 from $2,352 for the year ended December 31, 2000. The increase principally
related to the depreciation of our broadcast studio equipment, leasehold
improvements and furniture in our national broadcast studio.

We recognized a non-cash stock compensation expense of $14,044 and $7,178
for the years ended December 31, 2001 and 2000, respectively. The non-cash stock
compensation expense for 2001 was principally due to the repricing of certain
employee stock options in April 2001.

Interest and investment income decreased to $17,066 for the year ended
December 31, 2001 from $24,485 for the year ended December 31, 2000. This
decrease was primarily attributable to lower returns on our investments in U.S.
government securities and commercial paper issued by major U.S. corporations
during 2001.

Interest expense was $89,686 for the year ended December 31, 2001 and
$33,595 for the year ended December 31, 2000, net of amounts capitalized of
$19,270 and $63,728, respectively. Interest expense for the years ended
December 31, 2001 and 2000 included non-cash costs of $8,259 and $12,432,
respectively, associated with the induced conversion of $34,900 and $52,914,
respectively, in aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009.

CASH FLOWS

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

Net cash used in operating activities was $320,811 for the year ended
December 31, 2002, as compared to $334,754 for the year ended December 31, 2001.
The decrease in cash used in operations was primarily attributable to our
transactions in marketable securities during 2002 and the change in the
classification of our marketable securities in the second quarter of 2002 to
available-for-sale securities from trading securities. Transactions relating to
trading securities are considered operating activities; transactions relating to
available-for-sale securities are considered investing activities. Excluding our
transactions in marketable securities, cash used in operating activities
increased to $244,249 for the year ended December 31, 2002 from $152,439 for the
year ended December 31, 2001. This increase was primarily due to the cost of our
sales and marketing campaign in connection with the launch of our service, the
costs of acquiring subscribers and the cost of producing our music and non-music
programming. In addition, during 2002 we paid for

22

subscriber acquisition costs, advertising media and in-orbit satellite insurance
in advance of incurring the expense associated with these items.

Net cash provided by investing activities for the year ended December 31,
2002 was $199,679, as compared to net cash used in investing activities of
$50,146 for the year ended December 31, 2001. The change from the prior period
was principally due to a change in the classification of our marketable
securities from trading securities to available-for-sale securities during the
second quarter of 2002. Excluding our transactions in restricted investments and
available-for-sale securities, cash used in investing activities decreased to
$41,625 for the year ended December 31, 2002 from $78,696 for the year ended
December 31, 2001. This decrease was a result of less capital expenditures
during the year ended December 31, 2002, as we substantially completed the
construction of our satellite system by December 31, 2001.

Net cash provided by financing activities for the year ended December 31,
2002 was $134,781, as compared to $375,229 for the year ended December 31, 2001.
During 2002, we sold 16,000,000 shares of common stock resulting in net proceeds
of $147,500 and paid fees associated with our recapitalization of $12,707.
During 2001, we completed an equity offering resulting in net proceeds of
$229,300 and had net borrowings under our Lehman term loan facility of $145,000.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Net cash used in operating activities was $334,754 for the year ended
December 31, 2001, as compared to net cash provided by operating activities of
$111,974 for the year ended December 31, 2000. The increase in cash used in
operations was primarily attributable to our transactions in marketable
securities as purchases exceeded sales during 2001 and sales exceeded purchases
during 2000. Excluding our transactions in marketable securities, cash used in
operating activities increased to $152,439 for the year ended December 31, 2001
from $77,724 for the year ended December 31, 2000. The increase was due to the
preparation for, and marketing of, our commercial launch and the increase in
satellite and transmission costs as our satellite system was in operation for a
full year.

Net cash used in investing activities for the year ended December 31, 2001
was $50,146, as compared to $364,627 for the year ended December 31, 2000. The
decrease in net cash used by investing activities was due to a decrease in
capital expenditures as we substantially completed the construction of our
satellites by December 31, 2000.

Net cash provided by financing activities for the year ended December 31,
2001 was $375,229, as compared to $185,241 for the year ended December 31, 2000.
During 2001, we completed an equity offering resulting in net proceeds of
$229,300 and had net borrowings under our Lehman term loan facility of $145,000.
During 2000, we sold DaimlerChrysler Corporaton shares of newly-issued common
stock resulting in net proceeds $100,000, issued our 9.2% Series D Junior
Cumulative Convertible Preferred Stock for net proceeds of $192,450, received
$8,447 from the exercise of stock options and warrants and repaid our Bank of
America note payable in the amount of $115,957.

STOCK-BASED COMPENSATION ACCOUNTING

At December 31, 2002, we had three stock-based employee compensation plans,
which are described in Note 10 located in Item 8 of this report. We have adopted
the disclosure provisions allowed by Statement of Financial Accounting Standards
('SFAS') No. 148, 'Accounting for Stock-Based Compensation -- Transition and
Disclosure -- An Amendment of FASB Statement No. 123.' In addition, we have
elected to continue using the intrinsic value method to measure the compensation
costs of stock-based awards granted to employees in accordance with Accounting
Principles Board Opinion No. 25, 'Accounting for Stock Issued to Employees'; as
a result, we recognize compensation expense for employee stock options granted
at a price less than the market value of our common stock on the date of grant.
The following table illustrates the effect on net loss and net loss per share
had stock-based employee compensation been recorded based on the fair value
method under SFAS No. 123.

23

Option valuation models require highly subjective assumptions, including the
expected stock price volatility, which may be significantly different from those
of traded options. Because changes in subjective assumptions can materially
affect the fair value estimate, it is our opinion that the existing models do
not necessarily provide a reliable single measure of the fair value of our
stock-based awards. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. The pro forma stock-based employee
compensation was estimated using the Black-Scholes option pricing model with the
following weighted average assumptions for each year:

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2002, we had cash, cash equivalents and marketable
securities totaling $173,702 and working capital of $151,289 compared with cash,
cash equivalents, marketable securities and short-term restricted investments
totaling $323,742 and working capital of $275,732 at December 31, 2001.

At March 7, 2003, we had in excess of $300,000 of cash, cash equivalents and
marketable securities, an amount sufficient to cover our estimated funding needs
into the second quarter of 2004. We estimate that we will need additional
funding of approximately $100,000 before we achieve cash flow breakeven, the
point at which our revenues are sufficient to fund expected operating expenses,
capital expenditures, interest and principal payments and taxes.

Our actual funding requirements could vary materially from our current
estimates. We may have to raise more funds than expected to remain in business
and continue to develop and market our satellite radio service.

We may continue to struggle to stay in business. Our financial projections
are based on assumptions which we believe are reasonable but contain significant
uncertainties, including, most importantly, the length of time and level of
costs necessary to obtain the number of subscribers required to sustain our
operations. At December 31, 2002, we had 29,947 subscribers. We estimated that
we will need approximately two million subscribers before we achieve cash flow
breakeven.

We plan to raise future funds by selling debt or equity securities, or both,
publicly and/or privately, and by obtaining loans or other credit lines from
banks or other institutions. We may not be able to raise sufficient funds on
favorable terms or at all. If we fail to obtain necessary financing on a timely
basis, then our business would be materially impacted and we could default on
commitments to our distribution partners, creditors or others, and may have to
discontinue operations or seek a purchaser for our business or assets.

FUNDS RAISED TO DATE

Since inception, we have funded the development of our satellite radio
system and the introduction of SIRIUS through the issuance of debt and equity
securities. As of December 31,

24

2002, we had raised approximately $1,250,800 in equity capital from the sale of
our common stock and convertible preferred stock. In addition, we have received
approximately $638,000 in net proceeds from public debt offerings and private
credit arrangements.

RECAPITALIZATION

On March 7, 2003, we completed a series of transactions to restructure our
debt and equity capitalization. As part of these transactions:

we exchanged 545,012,162 shares of our common stock for approximately 91%
of our outstanding debt, resulting in the cancellation of all of our Lehman
term loans, all of our Loral term loans, $251,230 in aggregate principal
amount at maturity of our 15% Senior Secured Discount Notes due 2007,
$169,742 in aggregate principal amount of our 14 1/2% Senior Secured Notes
due 2009, and $14,717 in aggregate principal amount of our 8 3/4%
Convertible Subordinated Notes due 2009;

we exchanged 76,992,865 shares of our common stock and warrants to purchase
87,577,114 shares of our common stock for all of our outstanding cumulative
convertible preferred stock;

we sold 24,060,271 shares of our common stock to affiliates of Apollo
Management, L.P. for an aggregate of $25,000 in cash;

we sold 24,060,271 shares of our common stock to affiliates of The
Blackstone Group L.P. for an aggregate of $25,000 in cash; and

we sold 163,609,837 shares of our common stock to affiliates of
OppenheimerFunds, Inc. for an aggregate of $150,000 in cash.

After giving effect to these transactions, at March 7, 2003, we had in
excess of $300,000 of cash, cash equivalents and marketable securities; $61,202
in aggregate principal amount of outstanding debt, consisting of $29,200 in
aggregate principal amount at maturity of 15% Senior Secured Discount Notes due
2007, $30,258 in aggregate principal amount of 14 1/2% Senior Secured Notes due
2009 and $1,744 in aggregate principal amount of 8 3/4% Convertible Subordinated
Notes due 2009; and approximately 911,479,700 shares of common stock
outstanding. We recognized a non-cash gain during the first quarter of 2003 of
approximately $257,000 as a result of these transactions.

In connection with the exchange offer relating to our debt, we also amended
the indentures under which our 15% Senior Secured Discount Notes due 2007,
14 1/2% Senior Secured Notes due 2009 and 8 3/4% Convertible Subordinated Notes
due 2009 were issued to eliminate substantially all of the restrictive
covenants. Holders of our debt also waived any existing events of default or
events of default caused by the restructuring.

DEFAULTS ON OUR LONG-TERM DEBT

14 1/2% SENIOR SECURED NOTES DUE 2009

On November 15, 2002, we elected not to pay the interest due on our 14 1/2%
Senior Secured Notes due 2009. This failure to pay interest matured into an
event of default under the indenture relating to our 14 1/2% Senior Secured
Notes due 2009 on December 15, 2002. As of December 31, 2002, $200,000 in
principal amount of our 14 1/2% Senior Secured Notes due 2009 was outstanding
and the aggregate amount of interest due with respect to these notes was
$18,206. In connection with the restructuring of our debt, we issued 148,301,817
shares of our common stock in exchange for $169,742 in aggregate principal
amount of our 14 1/2% Senior Secured Notes due 2009, including accrued interest.
We cured the interest default under this indenture through a cash payment in
March 2003 in respect of the portion of our 14 1/2% Senior Secured Notes due
2009 that remained outstanding after our restructuring.

8 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2009

On September 29, 2002, we elected not to pay the interest due on our 8 3/4%
Convertible Subordinated Notes due 2009. This failure to pay interest matured
into an event of default under

25

the indenture relating to our 8 3/4% Convertible Subordinated Notes due 2009 on
October 30, 2002. As of December 31, 2002, there was $16,461 in principal amount
of our 8 3/4% Convertible Subordinated Notes due 2009 outstanding and the
aggregate amount of interest due with respect to these notes was $1,088. In
connection with the restructuring of our debt, we issued 12,436,656 shares of
our common stock in exchange for $14,717 principal amount of our 8 3/4%
Convertible Subordinated Notes due 2009, including accrued interest. We cured
the interest default under this indenture through a cash payment in March 2003
in respect of the portion of our 8 3/4% Convertible Subordinated Notes due 2009
that remained outstanding after our restructuring.

CONTRACTUAL COMMITMENTS

The following table summarizes our expected contractual commitments:

LONG-TERM DEBT OBLIGATIONS

Long-term debt obligations include principal and interest payments after
giving effect to our debt restructuring. As of March 7, 2003, we had $61,202 in
aggregate principal amount of outstanding debt, consisting of $29,200 in
aggregate principal amount at maturity of 15% Senior Secured Discount Notes due
2007, $30,258 in aggregate principal amount of 14 1/2% Senior Secured Notes due
2009 and $1,744 in aggregate principal amount of 8 3/4% Convertible Subordinated
Notes due 2009 outstanding.

OPERATING LEASES

We have entered into operating leases related to our national broadcast
studio, office space, terrestrial repeater sites and equipment.

CHIP SET DEVELOPMENT AND PRODUCTION

We have entered into an agreement with Agere to develop and produce chip
sets for use in SIRIUS radios. This agreement requires Agere to develop future
generation chip sets and to manufacture a minimum quantity of chip sets during
each year of the agreement.

SATELLITE AND TRANSMISSION

We have entered into an agreement with a provider of satellite services to
operate our external satellite telemetry, tracking and control facilities and
provide connectivity to our external facilities.

PROGRAMMING AND CONTENT

We have entered into agreements with licensors of music and non-music
programming and, in certain instances, are obligated to pay license fees, share
advertising revenues or to purchase advertising on properties owned or
controlled by these licensors.

26

SALES AND MARKETING

We have entered into various marketing and sponsorship agreements to promote
our brand and are obligated to make payments to sponsors, retailers, automakers
and radio manufacturers.

CUSTOMER SERVICE AND BILLING

We have entered into agreements with third parties to provide customer
service, billing service and subscriber management. We are required to pay
minimum monthly fees for the services provided under these agreements. We are
currently involved in litigation with the provider of our billing services and
subscriber management, which is described more fully in our risk factors, under
which we are seeking relief from our contractual commitments.

OTHER COMMITMENTS

In addition to the contractual commitments described above, we have also
entered into agreements with automakers, radio manufacturers and others that
include per-radio and per-subscriber required payments and revenue sharing
arrangements. These future costs are dependent upon many factors and are
difficult to anticipate; however, these costs may be substantial. We may enter
into additional programming, marketing and other agreements that contain
provisions similar to our current agreements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, which require
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 revenues and expenses during the periods. Our significant accounting
policies are described in Note 3 located in Item 8 of this report. We have
identified the following policies, which were discussed with the Audit Committee
of our board of directors, as critical to our business and understanding our
results of operations.

SUBSCRIPTION REVENUE RECOGNITION

Revenue from subscribers consists of subscription fees, including revenue
derived from our agreement with Hertz, and non-refundable activation fees. We
recognize subscription fees as our service is provided. Activation fees are
recognized ratably over the term of the subscriber relationship, currently
estimated to be 3.5 years. The estimated term of a subscriber relationship is
based on market research and management's judgment and, if necessary, will be
refined in the future as historical data becomes available. Mail-in rebates that
are paid by us directly to subscribers are recorded as a reduction to
subscription revenue in the period the subscriber activates our service.
Historical data related to our mail-in rebate program is not currently
available, therefore we are required to accrue 100% of all potential rebates to
new subscribers. We adjust the accrual at the end of the mail-in rebate program
to reflect actual amounts paid to subscribers.

SUBSCRIBER ACQUISITION COSTS

Subscriber acquisition costs include incentives for the purchase,
installation and activation of SIRIUS radios, as well as subsidies paid to
manufacturers of SIRIUS radios in order to acquire new subscribers. Certain
subscriber acquisition costs are recorded in advance of acquiring a subscriber.
Subscriber acquisition costs do not include advertising and promotional
activities, loyalty payments to distributors and dealers of SIRIUS radios,
revenue sharing payments to manufacturers of SIRIUS radios and guaranteed
payments to auto manufacturers. We retain ownership of the SIRIUS radios
installed in Hertz vehicles under our agreement with Hertz, as a result, amounts
capitalized in connection with this program are not included in our subscriber
acquisition costs.

27

MARKETABLE SECURITIES

Marketable securities consist of U.S. government agency obligations.
Effective April 1, 2002, marketable securities were classified as
available-for-sale securities because management no longer intends to buy and
sell marketable securities with the objective of generating profits.
Available-for-sale securities are carried at fair market value and unrealized
gains and losses are included as a component of stockholders' equity. In prior
periods, marketable securities were classified as trading securities and
unrealized holding gains and losses were recognized in earnings.

LONG-LIVED ASSETS

We carry our long-lived assets at cost less accumulated depreciation.
However, accounting standards require that we write-down assets if they become
impaired. We review our long-lived 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 of a long-lived asset is
identified, the impairment will be measured as the amount by which the carrying
amount of a long-lived asset exceeds its fair value. To determine fair value we
would employ an expected present value technique, which utilizes multiple cash
flow scenarios that reflect the range of possible outcomes and an appropriate
discount rate.

USEFUL LIFE OF SATELLITE SYSTEM

Our satellite system includes the cost of satellite construction, launch
vehicles, launch insurance, capitalized interest and our spare satellite. We
monitor our satellites for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset is not recoverable.
The expected useful lives of our in-orbit satellites are fifteen years from the
date they were placed into orbit. We are depreciating our three in-orbit
satellites over their respective remaining useful lives beginning February 14,
2002 or, in the case of our spare satellite, from the date it was delivered to
ground storage on April 19, 2002. If placed into orbit, our spare satellite is
expected to operate effectively for fifteen years; however, our spare satellite
may be replaced at the time we launch a new satellite system.

FCC LICENSE

We carry our FCC license at cost. Our FCC license has an indefinite life and
will be evaluated for impairment on an annual basis. We completed the
transitional impairment analysis of our FCC license during the first half of the
year ended December 31, 2002, and concluded that it was not impaired. On
November 1, 2002, we updated our impairment test and determined that there was
no impairment. We use projections regarding estimated future cash flows and
other factors in assessing the fair value of our FCC license. If these estimates
or projections change in the future, we may be required to record an impairment
charge related to our FCC license.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ('FASB') issued SFAS
No. 143, 'Accounting for Asset Retirement Obligations,' which is effective for
fiscal years beginning after June 15, 2002. SFAS No. 143 requires legal
obligations associated with the retirement of long-lived assets to be recognized
at their fair value at the time the obligations are incurred. Upon initial
recognition of a liability, that cost should be capitalized as part of the
related long-lived asset and allocated to expense over the useful life of the
asset. We do not believe that the adoption of SFAS No. 143 will have a material
impact on our financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, 'Accounting for Costs Associated
with Exit or Disposal Activities,' which requires that a liability associated
with an exit or disposal activity be measured at fair value and recognized when
the liability is incurred. The provisions of this statement are effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged. We do not believe the adoption of SFAS No. 146,
will have a material impact on our financial position or results of operations.

28

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 16 herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On April 11, 2002, upon the recommendation of our Audit Committee, our board
of directors dismissed Arthur Andersen LLP ('Andersen') as our independent
auditors and appointed Ernst & Young LLP ('Ernst & Young') to serve as our
independent auditors as of and for the year ended December 31, 2002. The change
in auditors was effective April 11, 2002.

Andersen's reports on our consolidated financial statements for the years
ended December 31, 2001 and December 31, 2000 did not contain an adverse opinion
or disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles.

During the years ended December 31, 2001 and December 31, 2000 and through
April 11, 2002, there were: (i) no disagreements with Andersen on any matter of
accounting principle or practice, financial statement disclosure, or auditing
scope or procedure which, if not resolved to Andersen's satisfaction, would have
caused them to make reference to the subject matter in connection with their
report on our consolidated financial statements for such periods; and
(ii) there were no reportable events as defined in Item 304(a)(1)(v) of
Regulation S-K.

During each of 2000 and 2001 and through the date of their appointment, we
did not consult Ernst & Young with respect to either (i) the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our consolidated
financial statements, or (ii) any matter that was either the subject of a
disagreement, within the meaning of Item 304(a)(1)(iv) of Regulation S-K, or any
'reportable event,' as that term is defined in Item 304(a)(1)(v) of
Regulation S-K.

Since the date of their appointment, there were: (i) no disagreements with
Ernst & Young on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
Ernst & Young's satisfaction, would have caused them to make reference to the
subject matter in connection with their report on our consolidated financial
statements as of and for the year ended December 31, 2002; and (ii) there were
no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

29

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information regarding our directors and executive officers as of
March 28, 2003 is provided below:

- ---------

(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Finance Committee.

JOSEPH P. CLAYTON has served as President and Chief Executive Officer since
November 2001. Mr. Clayton served as Vice Chairman of Global Crossing Ltd., a
global internet and long distance services provider, and President, Global
Crossing North America, from September 1999 until November 2001. On January 28,
2002, Global Crossing Ltd. and certain of its affiliates filed petitions for
relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York. From August 1997
to 1999, Mr. Clayton was President and Chief Executive Officer of Frontier
Corporation, a Rochester-based national provider of local telephone, long
distance, data, conferencing and wireless communications services, which was
acquired by Global Crossing in September 1999. Prior to joining Frontier,
Mr. Clayton was Executive Vice President, Marketing and Sales -- Americas and
Asia, of Thomson S.A., a leading consumer electronics company. Mr. Clayton is a
member of the board of directors of Transcend Services Inc., a trustee of
Bellarmine College and The Rochester Institute of Technology and a member of the
advisory board of the Indiana University School of Business.

GUY D. JOHNSON has served as Executive Vice President, Sales and Marketing,
since January 2002. From 1999 until January 2002, Mr. Johnson was a senior
strategic consultant to Thomson S.A., a leading consumer electronics company.
Prior to 1999, he was Senior Vice President -- Sales and Product
Management -- Americas, for Thomson S.A.

MARY PATRICIA RYAN has served as Executive Vice President, Marketing, since
June 2002. From September 1999 to June 2002, Ms. Ryan was Executive Vice
President, Worldwide Marketing, of IMAX, Ltd., one of the world's leading film
and digital imaging technology companies. From September 1998 to July 1999, she
was Executive Vice President, Marketing, of Lifetime Entertainment Services, a
cable television network, and prior to that she was Executive Vice President,
Marketing and Programming, of U.S. Satellite Broadcasting Company, the satellite
television service that was acquired by DirecTV in 1999.

JOHN J. SCELFO has served as Executive Vice President and Chief Financial
Officer since April 2001. From November 1999 to April 2001, Mr. Scelfo was Vice
President, Finance, for the Asian operations of Dell Computer Corporation, the
leading direct global computer systems company. Prior to Dell, he spent 19 years
with Mobil Oil Corporation, an integrated energy

30

operator, including as its Corporate Assistant Treasurer, Vice President of
Global Risk Management, and Chief Financial Officer of its operations in Japan
and Singapore.

Mr. Scelfo has resigned as our Executive Vice President and Chief Financial
Officer effective April 6, 2003. In connection with his resignation, we entered
into an agreement with Mr. Scelfo terminating his existing employment agreement.
As part of this agreement, Mr. Scelfo agreed, among other things, to consult
with us at such times as we reasonably request during the eighteen-month period
following his resignation. For his agreement to provide such services, we have
agreed to pay Mr. Scelfo an aggregate of $302,500 over an eighteen-month period.

PATRICK L. DONNELLY has served as Executive Vice President, General Counsel
and Secretary since May 1998. From June 1997 to May 1998, he was Vice President
and deputy general counsel of ITT Corporation, a hotel, gaming and entertainment
company that was acquired by Starwood Hotels & Resorts Worldwide, Inc. in
February 1998. From October 1995 to June 1997, he was assistant general counsel
of ITT Corporation. Prior to October 1995, Mr. Donnelly was an associate at the
law firm of Simpson Thacher & Bartlett.

MICHAEL S. LEDFORD has served as Executive Vice President, Engineering,
since December 2002 and served as Senior Vice Engineering, Engineering, from
September 2001 until December 2002. From July 2000 to September 2001,
Mr. Ledford was Vice President of Automotive Strategy at Wingcast, a joint
venture between Ford Motor Company and Qualcomm developing advanced wireless
vehicle applications, or telematics. Prior to Wingcast, he was the Executive
Director of Telematics at Ford, and prior to that was Corporate Executive
Director for Process Engineering responsible for overseeing Ford's worldwide
introduction of new technologies.

DAVID MARGOLESE has served as Chairman of our board of directors since
August 1993, and as a director since August 1991. From August 1993 to
October 2001, Mr. Margolese served as our Chief Executive Officer. 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 its sale in 1987. Mr. Margolese has
been inducted into NASA's Space Technology Hall of Fame and was nominated by
Harvard Business School as Entrepreneur of the Year in 1999.

LEON D. BLACK has been a director since June 2001. Mr. Black is one of the
founding principals of Apollo Advisors, L.P. and Lion Advisors, L.P., which
manage investment capital on behalf of institutions. He is also the founder of
Apollo Real Estate Advisors, L.P. From 1977 to 1990, Mr. Black worked at Drexel
Burnham Lambert Incorporated, where he served as Managing Director, head of the
Mergers & Acquisitions Group and co-head of the Corporate Finance Department.
Mr. Black is a director of Sequa Corporation, United Rentals, Inc., Allied Waste
Industries, Inc., AMC Entertainment Inc. and Wyndham International, Inc.
Mr. Black is a trustee of The Museum of Modern Art, Mt. Sinai Hospital, The
Metropolitan Museum of Art, Lincoln Center for The Performing Arts, Prep for
Prep, The Jewish Museum, the Asia Society and the Vail Valley Foundation.

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. Since June 2000, Mr. Gilberti has been a partner in the law firm of
Reed Smith LLP; from May 1998 through May 2000, he was of counsel to that firm.
From August 1994 to May 1998, Mr. Gilberti was a partner in the law firm of
Fischbein Badillo Wagner & Harding. Mr. Gilberti provided legal services to us
from 1992 until 2001.

JAMES P. HOLDEN has been a director since August 2001. From October 1999
until November 2000, Mr. Holden was the President and Chief Executive Officer of
DaimlerChrysler Corporation, a subsidiary of DaimlerChrysler AG, one of the
world's largest automakers. Prior to being appointed President in 1999,
Mr. Holden held numerous senior positions within Chrysler Corporation during his
19-year career at the company.

31

PETER G. PETERSON has been a director since June 2001. Mr. Peterson has been
chairman of The Blackstone Group L.P., an investment bank, since 1985. Prior to
his involvement with Blackstone, Mr. Peterson served as chairman and chief
executive officer of Lehman Brothers, Kuhn, Loeb, Inc., the investment bank, for
eleven years. He was Secretary of Commerce in 1972 and 1973 after serving as
Assistant to the President for International Economic Affairs and Executive
Director of the Council on Economic Policy in 1971 and 1972. Prior to his
government service, Mr. Peterson was with Bell & Howell Company for thirteen
years, beginning as an executive vice president and director and later as chief
executive officer. Mr. Peterson is a director of Sony Corp. He is chairman of
the board of The Federal Reserve Bank of New York, the Council on Foreign
Relations and Institute for International Economics, founding president of The
Concord Coalition and a trustee of the Committee for Economic Development, the
National Bureau of Economic Research and The Museum of Modern Art. Mr. Peterson
has been a director of 3M, RCA, General Foods, Federated Department Stores,
Continental Group, Black & Decker and Cities Services.

JOSEPH V. VITTORIA has been a director since April 1998. From 1997 until
February 2000, Mr. Vittoria was Chairman and Chief Executive Officer of Travel
Services International, Inc., a travel services distributor. Mr. Vittoria has
served as a member of the Board of Overseers of Columbia Business School since
1988. 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. Mr. Vittoria is a director of ResortQuest International, Inc. and is
Chairman of Transmedia Asia Pacific, Inc. and Puradyn Filter Technologies, Inc.

We expect that Messrs. David Margolese and Joseph V. Vittoria will resign
and our board of directors will appoint two directors, selected by the informal
creditors committee that negotiated with us the principal terms of our
recapitalization, to fill those vacancies. The informal creditors committee has
not yet notified us of the identities of those two directors.

EMPLOYMENT AGREEMENTS

We are a party to an employment agreement with Joseph P. Clayton, Guy D.
Johnson, Mary Patricia Ryan, Patrick L. Donnelly and Michael S. Ledford.

EMPLOYMENT AGREEMENT WITH JOSEPH P. CLAYTON

On November 26, 2001, we entered into an employment agreement with Joseph P.
Clayton to serve as our President and Chief Executive Officer for three years.
This agreement provides for an annual base salary of $600,000, subject to
increase from time to time by our board of directors. We have also agreed to
reimburse Mr. Clayton for the reasonable costs of an apartment in New York City
and for the reasonable costs of commercial travel to and from his home in
Rochester, New York, to our headquarters in New York City. In connection with
this agreement, we agreed to grant Mr. Clayton options to purchase 3,000,000
shares of our common stock at an exercise price of $5.25 per share. 1,500,000 of
these options are issued and exercisable. The remaining options will be issued
and become exercisable in increments of 750,000 on November 26, 2003 and
November 26, 2004.

Under the terms of this agreement, if Mr. Clayton's employment is terminated
without cause or he terminates his employment for good reason (as defined in the
employment agreement), then he is entitled to receive a lump sum amount equal to
(1) his base salary in effect from the termination date through December 31,
2004 and (2) any annual bonuses, at a level equal to 75% of his base salary,
that would have been customarily paid during the period from the termination
date through December 31, 2004; provided that in no event shall this amount be
less than 1.75 times his base salary. In the event Mr. Clayton's employment is
terminated without cause or he terminates his employment for good reason, we are
also obligated to continue his medical and life insurance benefits until
December 31, 2004.

If, following the occurrence of a 'change of control,' Mr. Clayton is
terminated without cause or he terminates his employment for good reason, we are
obligated to pay to Mr. Clayton an

32

amount equal to 5.25 times his base salary and continue his medical and life
insurance benefits until the third anniversary of his termination date. If, in
the opinion of a nationally recognized accounting firm, a 'change of control'
would require Mr. Clayton to pay an excise tax under the United States Internal
Revenue Code on any amounts received by him, we have agreed to pay Mr. Clayton
the amount of such taxes and such additional amount as may be necessary to place
him in the exact same financial position that he would have been in if the
excise tax was not imposed. Under the terms of the employment agreement,
Mr. Clayton may not disclose any of our proprietary information or, during his
employment with us and for three years thereafter, engage in any business
involving the transmission of radio entertainment programming in North America.

EMPLOYMENT AGREEMENT WITH GUY D. JOHNSON

On January 7, 2002, we entered into an employment agreement with Guy D.
Johnson to serve as our Executive Vice President, Sales and Marketing, for three
years. This agreement provides for an annual base salary of $400,000, subject to
increase from time to time by our board of directors. We have also agreed to
reimburse Mr. Johnson for his living expenses in New York City, up to $6,000 per
month, and for the reasonable costs of commercial travel to and from his home in
British Columbia to our headquarters in New York City. In connection with this
agreement, we agreed to grant Mr. Johnson options to purchase 500,000 shares of
our common stock at an exercise price of $9.46 per share. Options with respect
to 250,000 of these shares are currently exercisable. The remaining options
become exercisable in increments of 125,000 on January 7, 2004 and January 7,
2005. We also granted Mr. Johnson 100,000 restricted shares of common stock.
Mr. Johnson forfeited 34,000 of these shares on January 7, 2003 because the
average price of our common stock during the twenty trading days preceding
January 7, 2003 failed to equal or exceed $15.00, the performance target
established by our board of directors for vesting of these shares. The
restrictions applicable to 33,000 of these shares will lapse on January 7, 2004
if the average price of our common stock on the twenty trading days preceding
January 7, 2004 equals or exceeds $20.00; and the restrictions applicable to the
remaining 33,000 shares will lapse on January 7, 2005 if the average price of
our common stock on the twenty trading days preceding January 7, 2005 equals or
exceeds $25.00. Any shares of restricted stock which do not vest on January 7,
2004 or January 7, 2005 will be forfeited.

Under the terms of this agreement, if Mr. Johnson's employment is terminated
without cause or he terminates his employment for good reason (as defined in the
employment agreement), then he is entitled to receive a lump sum amount equal to
(1) his base salary in effect from the termination date through January 6, 2005
and (2) any annual bonuses, at a level equal to 75% of his base salary, that
would have been customarily paid during the period from the termination date
through January 6, 2005; provided that in no event shall this amount be less
than 1.00 times his base salary. In the event Mr. Johnson's employment is
terminated without cause or he terminates his employment for good reason, we are
also obligated to continue his medical and life insurance benefits until
January 6, 2005.

If, following the occurrence of a 'change of control,' Mr. Johnson is
terminated without cause or he terminates his employment for good reason, we are
obligated to pay to Mr. Johnson an amount equal to 1.75 times his base salary
and continue his medical and life insurance benefits until the third anniversary
of his termination date. If, in the opinion of a nationally recognized
accounting firm, a 'change of control' would require Mr. Johnson to pay an
excise tax under the United States Internal Revenue Code on any amounts received
by him, we have agreed to pay Mr. Johnson the amount of such taxes and such
additional amount as may be necessary to place him in the exact same financial
position that he would have been in if the excise tax was not imposed.

Under the terms of the agreement, Mr. Johnson may not disclose any of our
proprietary information or, during his employment with us and for two years
thereafter, engage in any business involving the transmission of radio
entertainment programming in North America.

EMPLOYMENT AGREEMENT WITH MARY PATRICIA RYAN

On May 3, 2002, we entered into an employment agreement with Mary Patricia
Ryan to serve as our Executive Vice President, Marketing, for three years. This
agreement provides for an annual

33

base salary of $320,000, subject to increase from time to time by our board of
directors. Under this agreement, we paid Ms. Ryan a $25,000 starting bonus. In
connection with this agreement, we also granted Ms. Ryan options to purchase
240,000 shares of our common stock at an exercise price of $3.67 per share.
Options with respect to 60,000 of these shares became exercisable upon execution
of the agreement and the remaining options become exercisable in increments of
60,000 on June 10, 2003, June 10, 2004 and June 10, 2005.

Under the terms of this agreement, if Ms. Ryan's employment is terminated
without cause or she terminates her employment for good reason (as defined in
the employment agreement), we are obligated to pay Ms. Ryan an amount equal to
the sum of her annual salary and the annual bonus last paid to her.

If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Ms. Ryan to pay an excise tax under the United States
Internal Revenue Code on any amounts received by her, we have agreed to pay Ms.
Ryan the amount of such taxes and such additional amount as may be necessary to
place her in the exact same financial position that she would have been in if
the excise tax was not imposed.

Under the terms of the agreement, Ms. Ryan may not disclose any of our
proprietary information or, during her employment with us and for two years
thereafter (or one year thereafter if Ms. Ryan's employment is terminated
without cause or she terminates her employment for good reason), enter into the
employment of, render services to, or otherwise assist our competitors.

EMPLOYMENT AGREEMENT WITH PATRICK L. DONNELLY

We have entered into an employment agreement with Patrick L. Donnelly to
serve as our Executive Vice President, General Counsel and Secretary until
March 28, 2004. Pursuant to this agreement, we pay Mr. Donnelly an annualized
base salary of $345,000 per year.

Under the terms of this agreement, if Mr. Donnelly's employment is
terminated without cause or he terminates his employment for good reason (as
defined in the employment agreement), we are obligated to pay Mr. Donnelly an
amount equal to the sum of his annual salary and the annual bonus last paid to
him.

If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Mr. Donnelly to pay an excise tax under the United States
Internal Revenue Code on any amounts received by him, we have agreed to pay
Mr. Donnelly the amount of such taxes and such additional amount as may be
necessary to place him in the exact same financial position that he would have
been in if the excise tax was not imposed.

Under the terms of the agreement, Mr. Donnelly may not disclose any of our
proprietary information or, during his employment with us and for two years
thereafter (or one year thereafter if Mr. Donnelly's employment is terminated
without cause or he terminates his employment for good reason), enter into the
employment of, render services to, or otherwise assist our competitors.

EMPLOYMENT AGREEMENT WITH MICHAEL S. LEDFORD

On August 29, 2001, we entered into an employment agreement with Michael S.
Ledford to serve as our Executive Vice President, Engineering, for three years.
This agreement provides for an annual base salary of $340,000, subject to
increase from time to time by our board of directors. In connection with this
agreement, we granted Mr. Ledford options to purchase 300,000 shares of our
common stock at an exercise price of $4.00 per share. These options become
exercisable in increments of 100,000 shares on September 17, 2002,
September 17, 2003 and September 17, 2004. We also granted Mr. Ledford 50,000
restricted shares of common stock. The restrictions applicable to these shares
of common stock lapse on September 17, 2002, September 17, 2003, September 17,
2004 and September 17, 2005 in equal increments of 12,500 shares.

Under the terms of this agreement, if Mr. Ledford's employment is terminated
without cause or he terminates his employment for good reason (as defined in the
employment agreement), we are obligated to pay Mr. Ledford an amount equal to
his annual salary.

If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Mr. Ledford to pay an excise tax under the United States
Internal Revenue Code on any

34

amounts received by him, we have agreed to pay Mr. Ledford the amount of such
taxes and such additional amount as may be necessary to place him in the exact
same financial position that he would have been in if the excise tax was not
imposed.

Under the terms of the agreement, Mr. Ledford may not disclose any of our
proprietary information or, during his employment with us and for two years
thereafter (or one year thereafter if Mr. Ledford's employment is terminated
without cause or he terminates his employment for good reason), enter into the
employment of, render services to, or otherwise assist our competitors.

BOARD GOVERNANCE AND OPERATIONS

The business and affairs of our company are managed by or under the
direction of our board of directors. Our board includes a majority of
non-employee directors.

Your board reaffirms its accountability to stockholders through the annual
election process. All directors stand for election annually.

Your board reviews and ratifies senior management selection and
compensation, monitors overall corporate performance and ensures the integrity
of our financial controls. Our board of directors also oversees our strategic
and business planning processes.

MEETINGS OF THE BOARD OF DIRECTORS

During the year ended December 31, 2002, there were thirteen meetings of our
board of directors, and the board took action twice by written consent in lieu
of meetings. Each director attended more than 90% of the total number of
meetings of the board and meetings held by all committees on which he served.

COMMITTEES OF THE BOARD OF DIRECTORS

Our board of directors maintains three standing committees, an Audit
Committee, a Compensation Committee and a Finance Committee. The Finance
Committee was established by our board of directors on August 27, 2002. The
board of directors does not maintain a Nominating Committee.

The following table shows the present members of each committee, the number
of committee meetings held during 2002 and the functions performed by each
committee:

- ---------
* Chairperson

35

DIRECTORS' COMPENSATION

In October 2001, we entered into an agreement with Mr. Margolese relating to
his continuing responsibilities as non-executive Chairman of our board of
directors. Mr. Margolese receives, at the discretion of our board of directors,
$50,000 per year for serving as non-executive Chairman of our board of
directors.

Mr. Clayton receives no additional compensation for serving on our board of
directors.

Each non-employee director, including Mr. Margolese, is entitled to receive
options to purchase 10,000 shares of common stock on the business day following
our annual meeting of stockholders. The exercise price for such options is the
fair market value of our common stock on the date of grant. For the year ended
December 31, 2002, each director waived his right to receive stock options for
service on our board of directors.

Non-employee directors are also reimbursed for reasonable travel expenses
incurred in attending meetings of our board of directors and its committees.

ITEM 11. EXECUTIVE COMPENSATION

The table below shows the compensation for the last three years for our
President and Chief Executive Officer and the five next highest paid executive
officers at December 31, 2002.

SUMMARY COMPENSATION TABLE

- ---------

(1) Represents matching contributions by us under our 401(k)
Savings Plan. These amounts were paid in the form of common
stock.

(2) Mr. Clayton became an executive officer in November 2001.

(3) Mr. Johnson became an executive officer in January 2002.

(4) Ms. Ryan became an executive officer in June 2002.

(5) Mr. Scelfo became an executive officer in April 2001 and has
resigned as an executive officer effective April 6, 2003.

(6) Mr. Ledford became an executive officer in September 2001.

(7) Bonus amount includes $160,000 paid to Ms. Ryan as part of
our 2003 bonus program and a $25,000 bonus paid to Ms. Ryan
following execution of her employment agreement.

(8) In addition, Mr. Donnelly was paid a bonus in 2000 of
$290,000.

(9) Represents amounts reimbursed to Mr. Clayton and Mr. Johnson
for temporary living expenses in accordance with their
respective employment agreements. In the case of Mr.
Johnson, the amount also includes $48,541 paid to reimburse
him for certain taxes he may be required to pay.

(10) Represents gross proceeds received by Mr. Ledford on the
sale of 12,500 restricted shares of common stock. The
restrictions applicable to these shares of stock lapsed on
September 17, 2002.

(11) On January 7, 2002, we granted Mr. Johnson 100,000
restricted shares of our common stock. The restrictions
applicable to these shares of common stock lapse in
increments of 34,000 on January 7, 2003, if the average
closing price of our common stock equals or exceeds $15.00
per share; 33,000 on January 7, 2004, if the average closing
price

(footnotes continued on next page)

36

(footnotes continued from previous page)

of our common stock equals or exceeds $20.00 per share; and
33,000 on January 7, 2005, if the average closing price of
our common stock equals or exceeds $25.00 per share. Amount
represents the value of the restricted stock (calculated by
multiplying the closing price of our common stock on January
7, 2002, $9.15 per share, by the number of shares awarded,
100,000) awarded Mr. Johnson as of January 7, 2002. On
December 31, 2002, these restricted shares of our common
stock had an aggregate value of $64,000 (calculated by
multiplying the closing price of our common stock on
December 31, 2002, $0.64 per share, by the number of shares
awarded, 100,000). Mr. Johnson forfeited 34,000 of these
restricted shares of common stock on January 7, 2003 because
the average price of our common stock during the twenty
trading days preceding January 7, 2003 was less than $15.00,
the performance target established by our board of directors
for vesting these shares.

(12) On September 17, 2001, we granted Mr. Ledford 50,000
restricted shares of our common stock. The restrictions
applicable to these shares of common stock lapse in equal
increments over four years. Amount represents the value of
the restricted stock (calculated by multiplying the closing
price of our common stock on September 17, 2001, $4.00 per
share, by the number of shares awarded, 50,000) awarded Mr.
Ledford as of September 17, 2001. On December 31, 2002,
these restricted shares of our common stock had an aggregate
value of $24,000 (calculated by multiplying the closing
price of our common stock on December 31, 2002, $0.64 per
share, by the number of shares that remain restricted at
December 31, 2002, 37,500). The restrictions applicable to
12,500 shares of restricted stock awarded to Mr. Ledford on
September 17, 2001 lapsed on September 17, 2002.

The following table sets forth certain information for the fiscal year ended
December 31, 2002, with respect to options granted to individuals named in the
summary compensation table above.

OPTION GRANTS IN LAST FISCAL YEAR

- ---------

(1) Under his employment agreement, we are obligated to issue
Mr. Clayton options to purchase up to 750,000 shares of our
common stock at an exercise price of $5.25 per share on
November 26, 2003 and November 26, 2004. These options will
be exercisable on the date of grant.

(2) Does not include shares of restricted common stock granted
to Mr. Ledford and Mr. Johnson.

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, 2002. Also reported are the values for 'in-the-money' stock options
that represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of our common stock as of
December 31, 2002 ($0.64 per share).

- ---------

(1) The revised exercise price was determined by the
Compensation Committee of our board of directors based on
the five day average of our common stock immediately prior
to the repricing.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Gilberti, a director, is a partner in the law firm of Reed Smith LLP and
has provided legal services to us from 1992 to 2002. We paid Reed Smith LLP
$2,646, $3,845 and $24,462 for legal services during the years ended
December 31, 2002, 2001 and 2000, respectively.

Mr. Clayton was a member of the board of directors of Global Crossing Ltd.,
a global internet and long distance services provider, and Good Guys Inc., a
regional consumer electronics retailer. We have entered into an agreement with
Global Crossing to provide us telecommunications services for monitoring our
terrestrial repeater network and an agreement with Good Guys in connection with
the marketing and sale of subscriptions to our service. We also have reimbursed
Mr. Clayton for expenses associated with our use of an airplane that is owned by
him. In accordance with procedures established by our board of directors, we
reimbursed Mr. Clayton for the reasonable expenses associated with the use of
this airplane in an amount not more that the costs of a similar charter
aircraft. We do not expect to use this airplane in the future, except in cases
where its use is expressly authorized by our board of directors.

REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee of our board of directors, comprised solely of
directors who are not current or former employees, is responsible for overseeing
and administering our compensation programs. The Compensation Committee consults
with our Senior Vice President, Human Resources, and from time to time seeks the
advice of Towers Perrin, independent compensation consultants retained by it.
The Compensation 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.

During 2001 and 2002, we recruited new executive management -- Joseph P.
Clayton, our President and Chief Executive Officer (November 2001); Guy D.
Johnson, our Executive Vice President, Sales and Marketing (January 2002); John
J. Scelfo, our Executive Vice President and Chief Financial Officer (April
2001); Michael S. Ledford, our Executive Vice President, Engineering (September
2001); and Mary Patricia Ryan, our Executive Vice President, Marketing (May
2002). Members of the Compensation Committee actively participated in the
process of interviewing and selecting each of these executive officers, and
recommended to our board of directors approval of their compensation
arrangements.

We entered into an employment agreement with each of these executive
officers. A summary of these employment agreements and the employment agreement
between us and Patrick L. Donnelly, our Executive Vice President, General
Counsel and Secretary, is described above under the heading 'Employment
Agreements'.

38

COMPENSATION PHILOSOPHY

Our compensation program for executive officers consists of three key
elements:

a base salary;

an annual bonus program; and

grants of stock options.

The Compensation Committee believes that this three-part approach is
consistent with programs adopted by similarly situated companies and best serves
the interests of our stockholders. It enables us to meet the requirements of the
competitive environment in which we operate, while ensuring that executive
officers are compensated in a manner that advances both the short and long-term
interests of 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. Stock options relate a significant
portion of long-term remuneration directly to stock price appreciation realized
by stockholders.

During 2002, the Compensation Committee approved a bonus plan for executive
officers and other employees. Under this program, employees were awarded bonuses
based upon satisfaction of the following five criteria: net subscriber
activations, operating expenses, subscriber acquisition costs, customer
satisfaction and employee satisfaction. The Compensation Committee assigned each
of these criteria weight, and measured the achievement of these items in January
2003 based upon data certified by management. These criteria were established by
the Compensation Committee after review of our business plan and budget for the
year ended December 31, 2002, discussions with our management and consultation
with Towers Perrin. The Compensation Committee intends to review this bonus
program in 2003 and may change one or all of the parameters in its discretion.

BASE SALARIES

The base salaries paid to each of our executive officers during 2002 were
paid pursuant to the written employment agreements described above under the
heading 'Employment Agreements'. Changes in base salaries for our executive
officers were based upon competitive salary comparisons, a subjective assessment
of the nature of the position and the contribution and experience of the officer
and the length of the officer's service. Compensation levels were based on
competitive survey data and targeted the 50th percentile of salaries among peer
companies. These peer companies were drawn from those who, in the opinion of the
Compensation Committee, compete with us for talent as well as customers. The
Compensation Committee did not assign any relative weight to the various factors
it considered or set predetermined performance targets for purposes of these
base salary determinations.

The Compensation Committee approved a base salary increase on January 1,
2002 for Mr. Scelfo from $300,000 to $345,000 and Mr. Donnelly from $325,000 to
$345,000. No other executive officers received an increase in his or her base
salary during 2002.

ANNUAL BONUS

In January 2003, the Committee awarded a cash bonus to Mr. Clayton of
$300,000, Mr. Johnson of $200,000, Ms. Ryan of $160,000, Mr. Scelfo of $172,500,
Mr. Donnelly of $172,500, and Mr. Ledford of $170,000.

The bonuses awarded for the year ended December 31, 2002 to Mr. Clayton, Mr.
Johnson, Ms. Ryan, Mr. Scelfo, Mr. Donnelly and Mr. Ledford were generally
determined in accordance with the criteria contained in our 2002 bonus program.
The Compensation Committee does not expect to enter into agreements which
provide guaranteed bonuses for our existing executive officers.

STOCK OPTIONS

We provide long-term incentives through stock options granted to our
executive officers under our long-term stock incentive plan. The Compensation
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

39

typically vest over three years, have a term of ten years and an exercise price
equal to the fair market value of our common stock on the grant date or the date
we commit to issue the options.

Except for options granted to Mr. Johnson and Ms. Ryan in connection with
their employment agreements and the options awarded to Mr. Scelfo, the
Compensation Committee did not award any of our executive officers stock options
during 2002.

The Compensation 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 option grants under this program.

STOCK OPTION REPRICING

During 2002, no options held by executive officers or other employees were
repriced or otherwise amended.

COMPENSATION OF OUR CHIEF EXECUTIVE OFFICER

In November 2001, our board of directors negotiated, and we entered into, an
employment agreement with Mr. Clayton, our President and Chief Executive
Officer. Our board of directors engaged Towers Perrin, an independent
compensation consultant, to assist it in the process of evaluating appropriate
compensation for Mr. Clayton. Towers Perrin identified for the board competitive
compensation arrangements against which the board measured the compensation
agreed to with Mr. Clayton. Mr. Clayton's compensation fell within observed
competitive practices provided by Towers Perrin.

Pursuant to Mr. Clayton's employment agreement, we issued Mr. Clayton an
option to purchase up to 750,000 shares of our common stock at an exercise price
of $5.25 on November 26, 2001 and November 26, 2002. These options were
exercisable on the date of grant. Under his employment agreement, we are
obligated to issue Mr. Clayton options to purchase up to 750,000 shares of our
common stock at an exercise price of $5.25 per share on November 26, 2003 and
November 26, 2004. These options will also be exercisable on the date of grant.

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 Compensation
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. The Compensation Committee also 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 Compensation
Committee reserves the discretion to pay compensation that does not qualify for
exemption under Section 162(m) where the Compensation Committee believes such
action to be in our best interest.

Compensation Committee

Lawrence F. Gilberti, Chairman
Peter G. Peterson
Joseph V. Vittoria

40

PERFORMANCE GRAPH

Set forth below is a graph comparing the cumulative performance of our
common stock with the Standard & Poor's Composite-500 Stock Index (the 'S&P
500') and the Nasdaq Telecommunications Index from December 31, 1997 to
December 31, 2002. The graph assumes that $100 was invested on December 31, 1997
in each of our common stock, the S&P 500 and the Nasdaq Telecommunications Index
and that all dividends were reinvested.

[Line Graph]

- ---------

(1) The Nasdaq Telecommunications Index is a capitalization
weighted index designed to measure the performance of all
Nasdaq-traded stocks in the telecommunications sector,
including satellite technology.

41

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth information regarding beneficial ownership of
our common stock as of March 26, 2003 by (1) each person known by us to be the
beneficial owner of more than 5% of our outstanding common stock, (2) each of
our directors, (3) each of our executive officers and (4) all directors and
executive officers as a group. Except as otherwise indicated, we believe that
the beneficial owners of the common stock listed below, based on information
furnished by these owners, have sole investment and voting power with respect to
these shares, except as otherwise provided by community property laws where
applicable.

- ---------

* Less than one percent.

(footnotes continued on next page)

42

(footnotes continued from previous page)

(1) This table is based upon information supplied by directors,
officers and principal stockholders. Unless otherwise
indicated, the address of the beneficial owner is Sirius
Satellite Radio Inc., 1221 Avenue of the Americas, 36th
Floor, New York, New York 10020.
(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) This information is based upon a letter dated October 16,
2002 from Oppenheimer to us.
(4) Represents 117,569,352 shares of our common stock and
warrants to purchase an additional 45,416,690 shares of our
common stock.
(5) Represents 61,253,340 shares of our common stock and
warrants to purchase an additional 42,160,424 shares of our
common stock.
(6) This information is based upon a Form 4 dated March 19, 2003
filed by Lehman Brothers Holdings Inc. Represents 89,171,823
shares of our common stock and warrants to purchase an
additional 2,100,000 shares of our common stock.
(7) This information is based upon information contained in the
Lock-Up Agreement, dated as of October 17, 2002, among
Sirius Satellite Radio Inc., Apollo Investment Fund IV,
L.P., Apollo Overseas Partners IV, L.P., Blackstone CCC
Capital Partners, L.P., Blackstone CCC Offshore Capital
Partners, L.P., Blackstone Family Investment
Partnership III L.P., LJH Partners, LP, Robert C. Fanch
Revocable Trust, BCI Investments II, LLC, Space
Systems/Loral, Inc., Lehman Commercial Paper Inc. and
certain holders of our 15% Senior Secured Discount Notes due
2007, 14 1/2% Senior Secured Notes due 2009 and 8 3/4%
Convertible Subordinated Notes due 2009.
(8) Includes 4,700,000 shares of common stock issuable under
stock options that are exercisable within 60 days and
1,600,000 shares owned by Mr. Margolese.
(9) Represents 1,500,000 shares of common stock issuable under
stock options exercisable within 60 days, 3,124 shares of
common stock acquired under our 401(k) Plan and 160,000
shares beneficially owned by Mr. Clayton.
(10) Includes 35,000 shares owned by Mr. Johnson, 66,000
restricted shares of common stock, 8,890 shares of common
stock acquired under our 401(k) Plan and 250,000 shares of
common stock issuable under stock options exercisable within
60 days. Does not include 250,000 shares issuable under
stock options that are not exercisable within 60 days.
(11) Mr. Black is the founding partner of Apollo Management,
L.P., an affiliate of Apollo Investment Fund IV, L.P. and
Apollo Overseas Partners IV, L.P. Mr. Black disclaims
beneficial ownership of all shares of our common stock in
excess of his pecuniary interest, if any.
(12) Represents 65,000 shares of common stock issuable under
stock options exercisable within 60 days.
(13) Represents 40,000 shares of common stock issuable under
stock options exercisable within 60 days.
(14) Mr. Peterson is the founder and chairman of The Blackstone
Group L.P. Mr. Peterson disclaims beneficial ownership of
all shares of our common stock owned by Blackstone and its
affiliated funds.
(15) Represents 65,000 shares of common stock issuable under
stock options exercisable within 60 days.
(16) Includes 8,086 shares of common stock acquired under our
401(k) Plan and 500,000 shares of common stock issuable
under stock options exercisable within 60 days.
(17) Includes 37,500 restricted shares of common stock, 1,400
shares of common stock acquired under our 401(k) Plan and
100,000 shares of common stock issuable under stock options
exercisable within 60 days. Does not include 200,000 shares
issuable under stock options that are not exercisable within
60 days.
(18) Includes 5,000 shares of common stock owned by Mr. Scelfo,
7,069 shares of common stock acquired under our 401(k) Plan
and 400,000 shares of common stock issuable under stock
options exercisable within 60 days.
(19) Includes 60,000 shares of common stock issuable under stock
options exercisable within 60 days and 4,000 shares of
common stock acquired under our 401(k) Plan. Does not
include 180,000 shares issuable under stock options that are
not exercisable within 60 days.
(20) Includes 7,680,000 shares of common stock issuable under
stock options exercisable within 60 days. Does not include
630,000 shares issuable under stock options that are not
exercisable within 60 days.

Securities Authorized for Issuance under Equity Compensation Plans. The
following table sets forth information as of December 31, 2002 regarding the
number of shares of our common stock to be issued under outstanding options,
warrants or rights, the weighted average exercise price of such outstanding
options, warrants or rights, and the securities remaining available for issuance
under our equity compensation plans that have been approved and not approved by
our security holders.

43

EQUITY COMPENSATION PLAN INFORMATION

- ---------

(1) Our stockholders have approved the Sirius Satellite Radio
1999 Long-Term Stock Incentive Plan, our Amended and
Restated 1994 Stock Option Plan and our Amended and Restated
1994 Directors' Nonqualified Stock Option Plan. The
information does not include any options, warrants or rights
that may be issued, and are issuable, under the Sirius
Satellite Radio 2003 Long-Term Stock Incentive Plan, which
was approved by our stockholders on March 4, 2003.

(2) The number of securities available for issuance under Sirius
Satellite Radio 1999 Long-Term Stock Incentive Plan is equal
to 15% of the sum of: (i) the issued and outstanding shares
of common stock (other than shares issued upon exercise of
stock options by employees or directors pursuant to the
plan, our Amended and Restated 1994 Stock Option Plan, our
Amended and Restated 1994 Director's Nonqualified Stock
Option Plan or otherwise); (ii) any shares of common stock
which are issuable as a result of any conversion, exchange
or exercise of any preferred stock, warrant or other
security of the company which is outstanding on the date of
determination; and (iii) the shares of common stock which
have been issued or are issuable to employees, consultants
and directors pursuant to the plan, our Amended and Restated
1994 Stock Option Plan and our Amended and Restated 1994
Directors' Nonqualified Stock Option Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Gilberti, a director, is a partner in the law firm of Reed Smith LLP and
has provided legal services to us from 1992 to 2002. We paid Reed Smith LLP
$2,646, $3,845 and $24,462 for legal services during the years ended December
31, 2002, 2001 and 2000, respectively.

During 2002, we reimbursed Mr. Clayton for expenses associated with our use
of an airplane that is owned by him. In accordance with procedures established
by our board of directors, we reimbursed Mr. Clayton for the reasonable expenses
associated with the use of this airplane in an amount not more than the costs of
a similar charter aircraft. We do not expect to use this airplane in the future,
except in cases where its use is expressly authorized by our board of directors.

Leon D. Black, a member of our board of directors, is also one of the
founding principals of Apollo Advisors, IV, L.P., an affiliate of one of our
large investors. Peter G. Peterson, a member of our board of directors, is also
the chairman of The Blackstone Group L.P., an affiliate of one of our large
investors.

ITEM 14. CONTROLS AND PROCEDURES

As of December 31, 2002, an evaluation was performed under the supervision
and with the participation of our management, including Joseph P. Clayton, our
President and Chief Executive Officer, and John J. Scelfo, our Executive Vice
President and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure and control procedures. Based on that evaluation,
our management, including our chief executive officer and chief financial
officer, concluded that our disclosure controls and procedures were effective as
of December 31, 2002.

There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to December
31, 2002.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the fees billed to us by Ernst & Young, our
independent auditor as of and for the year ended December 31, 2002:

44

AUDIT FEES

Audit fees billed by Ernst & Young related to the following services:
(i) audit of our annual consolidated financial statements as of and for the year
ended December 31, 2002; (ii) review of our interim consolidated financial
statements included in our Quarterly Reports on Form 10-Q for the periods ended
March 31, June 30 and September 30, 2002; (iii) attest services and the
provision of comfort letters; (iv) the provision of consents; and (v) review and
advice in respect of accounting matters in connection with our recapitalization.

AUDIT-RELATED FEES

Audit-related fees billed by Ernst & Young related to the audit of our
401(k) Plan financial statements.

TAX FEES

Tax fees billed by Ernst & Young related to the following services: (i) tax
compliance; (ii) tax planning; and (iii) tax advice in connection with our
recapitalization.

ALL OTHER FEES

Other fees billed by Ernst & Young related to: (i) the administrative and
consulting services in connection with our 401(k) Plan; and (ii) advisory
services in associated with our stock option plans.

The following table sets forth the fees billed to us by Andersen, our
independent accountant as of and for the year ended December 31, 2001:

AUDIT FEES

Audit fees billed by Andersen related to the following services: (i) audit
of our consolidated financial statements as of and for the year ended December
31, 2001; (ii) review of our interim consolidated financial statements included
in our Quarterly Reports on Form 10-Q for the periods ended March 31, June 30,
September 30, 2001; (iii) attest services and provision of comfort letters; and
(iv) provision of consents.

AUDIT-RELATED FEES

Audit-related fees billed by Andersen related to the audit of our 401(k)
Plan financial statements.

TAX FEES

Tax fees billed by Andersen related to the following services: (i) tax
compliance; (ii) tax planning; and (iii) tax advice.

ALL OTHER FEES

All other fees billed by Andersen related to consulting services provided
during the implementation of our financial and informational reporting systems.

45

PART IV

ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements, Financial Statement Schedules and Exhibits

(1) Financial Statements

See index to financial statements appearing on page F-1.

(2) Financial Statement Schedules

None.

(3) Exhibits

See Exhibit Index appearing on pages E-1 through E-3 for a list of
exhibits filed or incorporated by reference as part of this Annual Report
on Form 10-K.

(b) Reports on Form 8-K

On October 24, 2002, we filed a Current Report on Form 8-K to report
that our board of directors had extended the expiration date of the
preferred stock purchase rights issued pursuant to our Rights Agreement,
dated as of October 22, 1997, with The Bank of New York from October 22,
2002 to May 1, 2003. A copy of the related Amendment to Rights Agreement was
filed as an exhibit to such Current Report on Form 8-K.

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.

46

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 28th day of
March, 2003.

SIRIUS SATELLITE RADIO INC.

By: /S/ JOHN J. SCELFO
..................................
JOHN J. SCELFO
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL 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.

47

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Joseph P. Clayton, the Chief Executive Officer of Sirius Satellite Radio
Inc., certify that:

1. I have reviewed this annual report on Form 10-K of Sirius Satellite Radio
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the 'Evaluation Date'); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

By: /S/ JOSEPH P. CLAYTON
.................................
JOSEPH P. CLAYTON
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
(PRINCIPAL EXECUTIVE OFFICER)

March 28, 2003

48

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, John J. Scelfo, the Chief Financial Officer of Sirius Satellite Radio Inc.,
certify that:

1. I have reviewed this annual report on Form 10-K of Sirius Satellite Radio
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the 'Evaluation Date'); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

By: /S/ JOHN J. SCELFO
.................................
JOHN J. SCELFO
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)

March 28, 2003

49

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors.............................. F-2
Report of Independent Public Accountants.................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2002, 2001 and 2000.......................... F-4
Consolidated Balance Sheets as of December 31, 2002 and
2001...................................................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2002, 2001 and 2000.............. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000.......................... F-7
Notes to Consolidated Financial Statements.................. F-8

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Sirius Satellite Radio Inc. and Subsidiary:

We have audited the accompanying consolidated balance sheet of Sirius
Satellite Radio Inc. and Subsidiary (the 'Company') as of December 31, 2002 and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. 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 audit. The consolidated financial
statements of the Company as of December 31, 2001 and for each of the years
ended December 31, 2001 and 2000 were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those
consolidated financial statements in their report dated March 26, 2002.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 2002 and the consolidated results of its
operations and cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.

ERNST & YOUNG LLP

New York, New York
February 7, 2003, except for Note 2,
as to which the date is March 17, 2003

F-2

THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH THE FILING OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN
LLP IN CONNECTION WITH THE FILING OF THIS ANNUAL REPORT ON FORM 10-K. SEE
EXHIBIT 23.2 FOR FURTHER DISCUSSION.

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, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for the three
years in the period ended December 31, 2001 and for the period from May 17, 1990
(date of inception) to December 31, 2001. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sirius Satellite Radio Inc.
and subsidiary, as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the three years in the period ended
December 31, 2001 and for the period from May 17, 1990 (date of inception) to
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

ARTHUR ANDERSEN LLP

New York, New York
March 26, 2002

F-3

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

- ---------

(1) Allocation of non-cash stock compensation (benefit)/expense to other
operating expenses:

Satellite and transmission............................... $ (1,403) $ 1,936 $ 384
Programming and content.................................. (1,807) 2,256 910
Customer service and billing............................. (172) 223 17
Sales and marketing...................................... (1,046) 2,051 271
General and administrative............................... (1,616) 3,831 4,406
Research and development................................. (1,823) 3,747 1,190
--------- --------- ---------
Total non-cash stock compensation
(benefit)/expense.................................. $ (7,867) $ 14,044 $ 7,178
--------- --------- ---------
--------- --------- ---------

The accompanying notes are an integral part of these consolidated financial
statements.

F-4

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The accompanying notes are an integral part of these consolidated financial
statements.

F-5

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The accompanying notes are an integral part of these consolidated financial
statements.

F-6

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.

F-7

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

1. BUSINESS

Sirius Satellite Radio Inc. broadcasts digital-quality audio from three
orbiting satellites throughout the continental United States for a monthly
subscription fee of $12.95. We deliver 60 streams of 100% commercial-free music
in virtually every genre, and over 40 streams of news, sports, weather, talk,
comedy, public radio and children's programming.

Since inception, we have used substantial resources to develop our satellite
radio system. Our satellite radio system consists of our FCC license, satellite
system, national broadcast studio, terrestrial repeater network and satellite
telemetry, tracking and control facilities.

We emerged from the development stage in the first quarter of 2002 following
the launch of our service on February 14, 2002 in select markets. We launched
our service nationally on July 1, 2002.

As of December 31, 2002, we had 29,947 subscribers. We consider subscribers
to be those who have agreed to pay for our service and have activated their
SIRIUS radio, including those who are currently in promotional periods, and
active SIRIUS radios under our agreement with Hertz Corporation. Our primary
source of revenue is subscription and activation fees. In addition, we derive
revenues from selling limited advertising on our non-music streams.

2. RECAPITALIZATION

On March 7, 2003, we completed a series of transactions to restructure our
debt and equity capitalization. As part of these transactions:

we exchanged 545,012,162 shares of our common stock for
approximately 91% of our outstanding debt, resulting in the
cancellation of all of our Lehman term loans, all of our
Loral term loans, $251,230 in aggregate principal amount at
maturity of our 15% Senior Secured Discount Notes due 2007,
$169,742 in aggregate principal amount of our 14 1/2% Senior
Secured Notes due 2009, and $14,717 in aggregate principal
amount of our 8 3/4% Convertible Subordinated Notes due
2009;

we exchanged 76,992,865 shares of our common stock and
warrants to purchase 87,577,114 shares of our common stock
for all of our outstanding convertible preferred stock;

we sold 24,060,271 shares of our common stock to affiliates
of Apollo Management, L.P. for an aggregate of $25,000 in
cash;

we sold 24,060,271 shares of our common stock to affiliates
of The Blackstone Group L.P. for an aggregate of $25,000 in
cash; and

we sold 163,609,837 shares of our common stock to affiliates
of OppenheimerFunds, Inc. for an aggregate of $150,000 in
cash.

After giving effect to these transactions, at March 7, 2003, we had $61,202
in aggregate principal amount of outstanding debt, consisting of $29,200 in
aggregate principal amount at maturity of 15% Senior Secured Discount Notes due
2007, $30,258 in aggregate principal amount of 14 1/2% Senior Secured Notes due
2009 and $1,744 in aggregate principal amount of 8 3/4% Convertible Subordinated
Notes due 2009, and approximately 911,479,700 shares of common stock
outstanding. We recognized a non-cash gain of approximately $257,000 during the
first quarter of 2003 as a result of these transactions.

At March 7, 2003, we had in excess of $300,000 of cash, cash equivalents and
marketable securities, an amount sufficient to cover our estimated funding needs
into the second quarter of 2004. We estimate that we will need additional
funding of approximately $100,000 before we achieve cash flow breakeven, the
point at which our revenues are sufficient to fund expected operating expenses,
capital expenditures, interest and principal payments and taxes.

F-8

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

In connection with the exchange offer relating to our debt, we also amended
the indentures under which our 15% Senior Secured Discount Notes due 2007,
14 1/2% Senior Secured Notes due 2009 and 8 3/4% Convertible Subordinated Notes
due 2009 were issued to eliminate substantially all of the restrictive
covenants. Holders of our debt also waived any existing events of default or
events of default caused by the restructuring.

Refer to Notes 8 and 9 for further information regarding these transactions.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Sirius
Satellite Radio Inc. and Satellite CD Radio, Inc., our wholly owned subsidiary.
We emerged from development stage and entered commercial operations on February
14, 2002; as such, we revised our Consolidated Statements of Operations to
reflect our operational status.

REVENUE RECOGNITION

Revenue from subscribers consists of subscription fees, including revenue
derived from our agreement with Hertz, and non-refundable activation fees. We
recognize subscription fees as our service is provided. Activation fees are
recognized ratably over the estimated term of the subscriber relationship of 3.5
years. The estimated term of a subscriber relationship is based on market
research and management's judgment and, if necessary, will be refined in the
future as historical data becomes available.

During 2002, we offered a mail-in rebate program to new subscribers. As
required by EITF No. 01-09, 'Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor's Products),' we reported the cost
of this program as a reduction of subscriber revenue, as we paid mail-in rebates
directly to subscribers. As sufficient historical data related to our mail-in
rebate program was not available, we initially accrued 100% of all potential
rebates to new subscribers. We concluded this mail-in rebate program during 2002
and have adjusted the related accrual to reflect the actual amounts paid to
subscribers.

We recognize advertising revenue from the sale of spot announcements to
advertisers as the announcements are broadcast. Agency fees are calculated based
on a stated percentage applied to gross billing revenue for our advertising
inventory and are reported as a reduction of advertising revenue.

SUBSCRIBER ACQUISITION COSTS

Subscriber acquisition costs include incentives for the purchase,
installation and activation of SIRIUS radios, as well as subsidies paid to
manufacturers of SIRIUS radios in order to acquire new subscribers. Certain
subscriber acquisition costs are recorded in advance of acquiring a subscriber.
Subscriber acquisition costs do not include advertising and promotional
activities, loyalty payments to distributors and dealers of SIRIUS radios,
revenue sharing payments to manufacturers of SIRIUS radios and guaranteed
payments to automakers. We retain ownership of the SIRIUS radios installed in
vehicles under our agreement with Hertz Corporation, as a result, amounts
capitalized in connection with this program are not included in our subscriber
acquisition costs.

F-9

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

STOCK OPTIONS

At December 31, 2002, we had three stock-based employee compensation plans,
which are described more fully in Note 10. We have adopted the disclosure
provisions allowed by Statement of Financial Accounting Standards ('SFAS')
No. 148, 'Accounting for Stock-Based Compensation -- Transition and
Disclosure -- An Amendment of FASB Statement No. 123.' In addition, we have
elected to continue using the intrinsic value method to measure the compensation
costs of stock-based awards granted to employees in accordance with Accounting
Principles Board ('APB') Opinion No. 25, 'Accounting for Stock Issued to
Employees'; as a result, we recognize compensation expense for employee stock
options granted at a price less than the market value of our common stock on the
date of grant. The following table illustrates the effect on net loss and net
loss per share had stock-based employee compensation been recorded based on the
fair value method under SFAS No. 123.

In accordance with APB Opinion No. 25, we use the intrinsic value method to
measure the compensation costs of stock-based awards granted to employees as the
excess of the market value of our common stock on the date of grant over the
amount that must be paid to acquire our common stock. We record these
compensation costs over the vesting period of the stock-based award.

We account for stock-based awards granted to non-employees at fair value in
accordance with SFAS No. 123, 'Accounting for Stock-Based Compensation.'

In accordance with Financial Accounting Standards Board ('FASB')
Interpretation No. 44, 'Accounting for Certain Transactions Involving Stock
Compensation,' we record compensation

F-10

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

charges or benefits related to repriced stock options based on the market value
of our common stock until the repriced stock options are exercised, forfeited or
expire.

COSTS OF RECAPITALIZATION

Costs associated with the restructuring of our debt are expensed as
incurred. Costs associated with the sale of common stock in connection with our
recapitalization are capitalized and will be used in determining the net
proceeds from the transaction.

GAIN ON EARLY EXTINGUISHMENT OF DEBT

We adopted SFAS No. 145 'Rescission of SFAS Nos. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections,' which requires gains and loss
from the extinguishment of debt to be classified as extraordinary only if they
meet the criteria in APB Opinion No. 30, 'Reporting the Results of Operations,
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions.' During 2001, we
recognized an extraordinary gain of $5,313, or $0.10 per share, on the
extinguishment of $16,500 in principal amount at maturity of our 15% Senior
Secured Discount Notes due 2007. Our adoption of SFAS No. 145 required us to
classify the gain on early extinguishment of debt as other income in our
Consolidated Statement of Operations.

NET LOSS PER SHARE

Basic net loss per share is based on the weighted average common shares
outstanding during each reporting period. Diluted net loss per share adjusts the
weighted average for the potential dilution that could occur if common stock
equivalents (convertible preferred stock, convertible debt, warrants and stock
options) were exercised or converted into common stock. Approximately 17,486,000
and 18,872,000 common stock equivalents were outstanding as of December 31, 2002
and 2001, respectively, and were excluded from the calculation of diluted net
loss per share, as they were anti-dilutive.

COMPREHENSIVE INCOME

SFAS No. 130, 'Reporting Comprehensive Income,' established a standard for
reporting and displaying other comprehensive income and its components within
financial statements. The change in unrealized gain on available-for-sale
securities is the only component of other comprehensive income.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include investments purchased with an original
maturity of three months or less. Cash and cash equivalents are stated at fair
market value and consist of cash on hand and money market funds.

MARKETABLE SECURITIES

Marketable securities consist of U.S. government notes and U.S. government
agency obligations. Effective April 1, 2002, we began classifying marketable
securities as available-for-sale securities rather than trading securities
because we no longer intend to actively buy and sell marketable securities with
the objective of generating trading profits. Available-for-sale securities are
carried at fair market value and unrealized gains and losses are included as a
component of stockholders' equity. Prior to April 1, 2002, marketable securities
were classified as trading

F-11

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

securities and unrealized holding gains and losses were recognized in earnings.
Marketable securities held at December 31, 2002 and 2001 mature within one year
from the date of purchase. We had unrealized holding gains on marketable
securities of $913 and $3,387 as of December 31, 2002 and 2001, respectively.

RESTRICTED INVESTMENTS

Restricted investments consist of fixed income securities, which are stated
at amortized cost plus accrued interest. Restricted investments included
long-term certificates of deposit of $7,200 as of December 31, 2002 and
short-term and long-term certificates of deposit totaling $7,789 as of
December 31, 2001. These certificates of deposit are pledged to secure our
reimbursement obligations under letters of credit issued primarily for the
benefit of the lessor of our headquarters. Also included in restricted
investments as of December 31, 2001 were U.S. Treasury Notes of $14,209, the
proceeds from which were used to pay interest on our 14 1/2% Senior Secured
Notes due 2009 on May 15, 2002. These U.S. Treasury Notes were classified as
held-to-maturity securities and unrealized holding gains and losses were not
reflected in earnings. As of December 31, 2001, we had an unrealized holding
gain of $196 related to our held-to-maturity securities and the fair market
value of our held-to-maturity securities was $14,405.

PROPERTY AND EQUIPMENT

All costs incurred to prepare our satellite radio system for use were
capitalized. Such costs consist of satellite and launch vehicle construction,
broadcast studio equipment, terrestrial repeater network, satellite telemetry,
tracking and control facilities and interest. The estimated useful lives of our
property and equipment are as follows:

Leasehold improvements...................................... 15 years
Satellite system............................................ 15 years
Broadcast studio equipment.................................. 3-8 years
Terrestrial repeater network................................ 5-15 years
Satellite telemetry, tracking and control facilities........ 3-15 years
Customer care, billing and conditional access............... 3-7 years
Furniture, fixtures, equipment and other.................... 3-7 years

The estimated useful lives of our satellites are fifteen years from the date
that they were placed into orbit. We depreciate our satellite system on a
straight-line basis over the respective remaining useful lives of our satellites
from the date we launched our service in February 2002 or, in the case of our
spare satellite, from the date it was delivered to ground storage in April 2002.
All other property and equipment is depreciated over the estimated useful lives
stated above.

We review our long-lived 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 of a long-lived asset is identified,
except for our FCC license discussed below, the impairment will be measured in
accordance with SFAS No. 144, 'Accounting for the Impairment or Disposal of
Long-Lived Assets,' as the amount by which the carrying amount of a long-lived
asset exceeds its fair value. To determine fair value we would employ an
expected present value technique, which utilizes multiple cash flow scenarios
that reflect the range of possible outcomes and an appropriate discount rate.

FCC LICENSE

In June 2001, the FASB issued SFAS No. 142, 'Goodwill and Other Intangible
Assets.' SFAS No. 142 requires, for all fiscal years beginning after December
15, 2001, that goodwill and

F-12

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually. In accordance with SFAS No.
142, we determined that our FCC license has an indefinite life and will be
evaluated for impairment on an annual basis. We completed an impairment analysis
during the first half of the year ended December 31, 2002, and concluded that
there was no impairment loss related to our FCC license. On November 1, 2002, we
updated our impairment test and determined that there was no impairment. We use
projections of estimated future cash flows and other factors in assessing the
fair value of our FCC license. If these estimates or projections change in the
future, we may be required to record an impairment charge related to our FCC
license. To date, we have not recorded any amortization expense related to our
FCC license, and therefore are not required to include the transitional
disclosures contained in SFAS No. 142.

DEBT ISSUANCE COSTS

Costs associated with the issuance of debt are deferred and amortized to
interest expense over the term of the respective debt.

CLASSIFICATION OF LONG-TERM DEBT AND ACCRUED INTEREST

In accordance with SFAS No. 6, 'Classification of Short-Term Obligations
Expected to be Refinanced,' the current portions of long-term debt and accrued
interest that were exchanged for shares of our common stock on March 7, 2003 as
part of our debt restructuring are classified as long-term liabilities as of
December 31, 2002.

FAIR VALUE OF DEBT AND PREFERRED STOCK

We determined the estimated fair values of our debt and preferred stock
using available market information and commonly accepted valuation methods.
Considerable judgment is necessary to develop estimates of fair value and the
estimates presented are not necessarily indicative of the amounts that could be
realized upon disposition of our debt or preferred stock. The use of alternative
valuation methods and/or estimates may have resulted in estimations which are
materially different from those presented. The estimated fair values were based
on available information as of December 31, 2002 and 2001.

We estimated the fair value of our debt and preferred stock using the
following methods and assumptions: (1) quoted market prices were used to
estimate the fair market values of our 15% Senior Secured Discount Notes due
2007, 14 1/2% Senior Secured Notes due 2009 and 8 3/4% Convertible Subordinated
Notes due 2009; (2) a discounted cash flow analysis was used to estimate the
fair market values of our term loan facilities; and (3) the fair value of our
preferred stock was estimated on an as-converted basis using the market price of
our common stock on December 31, 2002 and 2001.

F-13

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

The following table summarizes the book and fair values of our debt and
preferred stock:

INCOME TAXES

We account for income taxes in accordance with SFAS No. 109, 'Accounting for
Income Taxes.' Deferred income taxes are recognized for the tax consequences
related to temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for tax
purposes at each year-end, based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the sum of income tax payable for the period and the change during the period in
deferred tax assets and liabilities.

PREFERRED STOCK

We record 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 is
amortized using the effective interest method and is recognized as a deemed
dividend over the shortest period of conversion. The carrying value of the stock
accretes to its liquidation value over the mandatory redemption period,
increasing the periodic net loss applicable to common stockholders.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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. 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.

RECLASSIFICATIONS

Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the current presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 143, 'Accounting for Asset Retirement
Obligations,' which is effective for fiscal years beginning after June 15, 2002,
with early application encouraged.

F-14

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

SFAS No. 143 requires obligations associated with the retirement of long-lived
assets to be recognized at their fair value at the time the obligations are
incurred. The amount of the legal obligation should be capitalized as part of
the related long-lived asset when the cost is recognized and allocated to
expense over the useful life of the asset. We do not believe that our adoption
of SFAS No. 143 will have a material impact on our financial position or results
of operations.

In June 2002, the FASB issued SFAS No. 146, 'Accounting for Costs Associated
with Exit or Disposal Activities,' which requires that a liability associated
with an exit or disposal activity be measured at fair value and recognized when
the liability is incurred. The provisions of this statement are effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged. We do not believe that our adoption of SFAS No.
146 will have a material impact on our financial position or results of
operations.

4. SUBSCRIBER REVENUE

Subscriber revenue, which consists of subscription and non-refundable
activation fees, was partially offset by the cost of our mail-in rebate program
during the year ended December 31, 2002. Mail-in rebates that are paid by us
directly to subscribers are recorded as a reduction to subscriber revenue in the
period the subscriber activates our service. Subscriber revenue consists of the
following:

5. NON-CASH STOCK COMPENSATION

We record non-cash stock compensation benefits or expenses in connection
with the grant of certain stock options, the issuance of common stock to
employees and the issuance of common stock to our employee benefit plans. In
accordance with FASB Interpretation No. 44, 'Accounting for Certain Transactions
Involving Stock Compensation,' we recognized a non-cash stock compensation
benefit of $7,867 for the year ended December 31, 2002 and non-cash stock
compensation expense of $14,044 and $7,178 for the years ended December 31, 2001
and 2000, respectively. The non-cash stock compensation benefit for the year
ended December 31, 2002 includes a non-cash compensation benefit of $9,717
related to options that were repriced during 2001. The non-cash stock
compensation expense for the year ended December 31, 2001 includes a non-cash
compensation charge of $9,937 in connection with these repriced stock options.

6. INTEREST COST

We capitalize a portion of the interest on funds borrowed to finance our
construction in process. The following is a summary of our interest cost:

F-15

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

Interest cost charged to expense for the years ended December 31, 2002, 2001
and 2000 included non-cash costs associated with the induced conversion of our
8 3/4% Convertible Subordinated Notes due 2009 of $9,650, $8,259 and $12,432,
respectively.

7. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Construction in process consisted of the following:

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 20, 2000, following the
completion of in-orbit testing of each satellite. Our spare satellite was
delivered to ground storage on April 19, 2002. Our three-satellite constellation
and terrestrial repeater network were placed into service on February 14, 2002.

CUSTOMER CARE, BILLING AND CONDITIONAL ACCESS

On November 4, 2002, we notified Sentraliant, Inc., the company that
developed and operates our subscriber management system, that it had breached
the agreement under which it provides that system, and that, unless various
defects and other problems with the system were corrected by January 3, 2003,
the agreement would terminate on that date. We later extended the termination
date to January 17, 2003. Sentraliant has informed us that it believes the
issues we identified have been previously resolved, are enhancements to the
system that had not yet been authorized by us, or are defects that are not
material.

On January 15, 2003, Sentraliant filed a petition under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District
of Virginia. On January 22, 2003, Sentraliant filed a proceeding with the
Bankruptcy Court seeking, among other things, a declaratory judgment that our
agreement with Sentraliant has not terminated and that our subscriber management
system is free of material defects.

The Bankruptcy Court has scheduled a trial on this matter for April 3 and 4,
2003. If the Bankruptcy Court finds that the subscriber management system is
free of material defects, we will be required to continue our arrangement with
Sentraliant. If the Bankruptcy Court finds that the

F-16

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

agreement is no longer in effect or that the subscriber management system
contains material defects, the agreement will be terminated. Termination of our
agreement with Sentraliant would result in a non-cash charge of approximately
$15,000 related to the net book value of our subscriber management system.

We are prepared to implement a new subscriber management system. Our new
system effectively manages our existing customer data, captures new customer
data and interfaces with our conditional access system, although we have not
completed development and testing of all of the system's functions.

OPTIMIZATION OF TERRESTRIAL REPEATER NETWORK

During the year ended December 31, 2002, we implemented our terrestrial
network optimization plan, which was designed to improve our signal coverage in
urban areas. In connection with this optimization, we recorded a loss of $5,005
related to the disposal of certain terrestrial repeater equipment, which is
included in satellite and transmission costs on our Consolidated Statement of
Operations.

8. LONG-TERM DEBT AND ACCRUED INTEREST

Our long-term debt consists of the following:

Accrued interest associated with our long-term debt is as follows:

DEBT RESTRUCTURING

In connection with our recapitalization we issued 204,319,915, 148,301,817
and 12,436,656 shares of our common stock in exchange for $251,230 in aggregate
principal amount at maturity of

F-17

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

our 15% Senior Secured Discount Notes due 2007, $169,742 in aggregate principal
amount of our 14 1/2% Senior Secured Notes due 2009, and $14,717 in aggregate
principal amount of our 8 3/4% Convertible Subordinated Notes due 2009,
respectively, including in each case accrued interest. In addition, we issued
120,988,793 and 58,964,981 shares of our common stock for the cancellation of
our Lehman term loan facility and Loral term loan facility, including accrued
interest. Long-term debt and accrued interest that were exchanged for shares of
our common stock are classified as long-term liabilities as of December 31,
2002.

After giving effect to the restructuring, at March 7, 2003, we had
approximately $61,202 in aggregate principal amount of outstanding debt,
consisting of $29,200 in aggregate principal amount at maturity of 15% Senior
Secured Discount Notes due 2007, $30,258 in aggregate principal amount of
14 1/2% Senior Secured Notes due 2009 and $1,744 in aggregate principal amount
of 8 3/4% Convertible Subordinated Notes due 2009 outstanding.

In connection with the exchange offer relating to our debt, we also amended
the indentures under which our 15% Senior Secured Discount Notes due 2007,
14 1/2% Senior Secured Notes due 2009 and 8 3/4% Convertible Subordinated Notes
due 2009 were issued to eliminate substantially all of the restrictive
covenants. Holders of our debt also waived any existing events of default or
events of default caused by the restructuring. Refer to Note 2 for further
information regarding our recapitalization.

15% SENIOR SECURED DISCOUNT NOTES DUE 2007

Our 15% Senior Secured Discount Notes mature on December 1, 2007. Cash
interest is payable semi-annually on each June 1 and December 1, commencing on
June 1, 2003, through December 1, 2007. The obligations under our 15% Senior
Secured Discount Notes due 2007 are secured by a lien on the stock of Satellite
CD Radio, Inc., our subsidiary that holds our FCC license, and our spare
satellite.

During 2001, we issued 948,565 shares of our common stock in exchange for
$16,500 in principal amount at maturity of our 15% Senior Secured Discount Notes
due 2007.

14 1/2% SENIOR SECURED NOTES DUE 2009

Our 14 1/2% Senior Secured Notes mature on May 15, 2009. Cash interest is
payable semi-annually on each May 15 and November 15 through May 15, 2009. The
obligations under our 14 1/2% Senior Secured Notes due 2009 are secured by a
lien on the stock of Satellite CD Radio, Inc., our subsidiary that holds our FCC
license, and our spare satellite.

As of December 31, 2002, we were in default under the indenture governing
our 14 1/2% Senior Secured Notes due 2009 as we elected to not make certain
interest payments during 2002. We cured the interest default under this
indenture through a cash payment on March 12, 2003 in respect of the portion of
our 14 1/2% Senior Secured Notes due 2009 that remained outstanding after our
restructuring.

8 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2009

Our 8 3/4% Convertible Subordinated Notes mature on May 15, 2009. Cash
interest is payable semi-annually on each March 29 and September 29 through
September 29, 2009. The obligations under our 8 3/4% Convertible Subordinated
Notes due 2009 are not secured by any of our assets.

As of December 31, 2002, we were in default under the indenture governing
our 8 3/4% Convertible Subordinated Notes due 2009 as we elected to not make
certain interest payments during 2002. We cured the interest default under this
indenture through a cash payment on

F-18

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

March 17, 2003 in respect of the portion of our 8 3/4% Convertible Subordinated
Notes due 2009 that remained outstanding after our restructuring.

During the years ended December 31, 2002, 2001 and 2000, we issued
2,913,483, 2,283,979 and 2,134,582 shares of our common stock in exchange for
$29,475, $34,900 and $52,914, respectively, in aggregate principal amount of our
8 3/4% Convertible Subordinated Notes due 2009 and in satisfaction of accrued
interest of $1,117, $637 and $222, respectively, related to these notes.

LEHMAN TERM LOAN FACILITY

On March 26, 2002, we entered into an amendment to our Lehman term loan
facility, which adjusted the financial covenants, accelerated the payment
schedule of the term loan and reduced the exercise price of the warrants that
had been issued in connection with the term loan from $29.00 to $15.00 per
share. In connection with this exercise price reduction, we adjusted the book
value of our term loan and future amortization schedule.

As of December 31, 2002, we had not made any principal payments under our
Lehman term loan facility, including the payments originally due on June 30,
2002, September 30, 2002 and December 31, 2002. As of December 31, 2002, our
obligations under our Lehman term loan facility were secured by a lien on the
stock of Satellite CD Radio, Inc., our subsidiary that holds our FCC license,
and our spare satellite.

LORAL TERM LOAN FACILITY

Loral has deferred $50,000 due under our amended and restated satellite
contract. The amount deferred was originally due in quarterly installments
beginning in June 2002. Loral's delay in delivering our spare satellite resulted
in a revision to our payment schedule. As of December 31, 2002, our obligations
under our Loral term loan facility were secured by a security interest in our
terrestrial repeater network.

9. CAPITAL STOCK

COMMON STOCK, PAR VALUE $.001 PER SHARE

In February 2000, we sold 2,290,322 shares of our common stock to
DaimlerChrysler Corporation for net proceeds of approximately $100,000. In
February 2001, we sold 11,500,000 shares of our common stock in a public
offering for net proceeds of approximately $229,300. In January 2002, we sold
16,000,000 shares of our common stock in a public offering for net proceeds of
approximately $147,500.

As of December 31, 2002, approximately 86,000,000 shares of our common stock
were reserved for issuance in connection with outstanding shares of convertible
preferred stock, convertible debt, warrants and incentive stock plans.

On March 4, 2003, our stockholders approved an amendment and restatement of
our certificate of incorporation to increase our authorized shares of common
stock from 500,000,000 to 2,500,000,000. We filed this amended and restated
certificate of incorporation with the Secretary of State of the State of
Delaware on March 4, 2003.

On March 7, 2003, we sold 24,060,271 shares of our common stock to
affiliates of Apollo Management, L.P. for an aggregate of $25,000 in cash;
24,060,271 shares of our common stock to affiliates of The Blackstone Group L.P.
for an aggregate of $25,000 in cash; and 163,609,837 shares of our common stock
to affiliates of OppenheimerFunds, Inc. for an aggregate of $150,000 in cash.

F-19

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

PREFERRED STOCK

As of December 31, 2002 and 2001 there were 1,902,823 and 1,742,512 shares
of our 9.2% Series A Junior Cumulative Convertible Preferred Stock outstanding,
respectively. 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 by a
conversion price of $30.00 and entitles its holder to vote on all matters voted
on by holders of our common stock on an as-converted basis. 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 a price of $100.00 per
share, 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. 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 $100.00
per share plus any unpaid dividends on November 15, 2011. On November 15, 2002,
2001 and 2000, we issued 160,111, 146,805 and 134,437 shares of our 9.2%
Seriess A Junior Cumulative Convertible Preferred Stock, respectively, as
payment of accrued dividends. At December 31, 2002, accrued dividends payable on
our 9.2% Series A Junior Cumulative Convertible Preferred Stock was $2,206.

As of December 31, 2002 and 2001 there were 853,450 and 781,548 shares of
our 9.2% Series B Junior Cumulative Convertible Preferred Stock outstanding,
respectively. 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. On November 15, 2002, 2001 and 2000, we issued
71,902, 65,845 and 60,297 shares of our 9.2% Series B Junior Cumulative
Convertible Preferred Stock, respectively, in satisfaction of accrued dividends.
At December 31, 2002, accrued dividends payable on our 9.2% Series B Junior
Cumulative Convertible Preferred Stock was $990.

As of December 31, 2002 and 2001 there were 2,558,655 and 2,343,091 shares
of our 9.2% Series D Junior Cumulative Convertible Preferred Stock outstanding,
respectively. 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 by a
conversion price of $34.00 and entitles its holder to vote on all matters voted
on by holders of our common stock on an as-converted basis. 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 a price of $100.00 per
share, 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. 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 $100.00
per share plus any unpaid dividends on November 15, 2011. On November 15, 2002,
2001 and 2000, we issued 215,564, 197,403 and 145,688 shares of our 9.2%
Series D Junior Cumulative Convertible Preferred Stock, respectively, in
satisfaction of accrued dividends. At December 31, 2002, accrued dividends
payable on our 9.2% Series D Junior Cumulative Convertible Preferred Stock was
$2,967.

On March 7, 2003, we issued 39,927,796 shares of our common stock in
exchange for all of the outstanding shares of our 9.2% Series A Junior
Cumulative Convertible Preferred Stock and 9.2% Series B Junior Cumulative
Convertible Preferred Stock, and 37,065,069 shares of our common stock in
exchange for all of the outstanding shares of our 9.2% Series D Junior
Cumulative Convertible Preferred Stock, including in each case accrued
dividends. In addition, we issued warrants to purchase 87,577,114 shares of our
common stock in connection with the exchange of our preferred stock. Refer to
Note 2 for further discussion regarding our recapitalization.

F-20

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

WARRANTS

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 of December 31, 2002, all of
these warrants were outstanding.

In connection with the issuance of our 14 1/2% Senior Secured Notes due 2009
in May 1999, we issued 600,000 warrants, each to purchase 3.65 shares of our
common stock at an exercise price of $28.60 per share. As required by the terms
of these warrants, we may adjust the number of shares for which each warrant may
be exercised and the exercise price per share for issuances of convertible debt,
convertible preferred stock, common stock and warrants. As of December 31, 2002,
the warrants may be exercised to purchase 4.189 shares of our common stock at an
exercise price of $24.92 per share. As of December 31, 2002, 578,990 of these
warrants were outstanding and remained outstanding following our restructuring.

As part of our agreement with DaimlerChrysler, on January 28, 2000, we
issued DaimlerChrysler a warrant to purchase 4,000,000 shares of our common
stock at an exercise price of $60.00 per share. On October 25, 2002, we
cancelled the warrant previously issued to DaimlerChrysler and issued a new
warrant which entitles DaimlerChrysler to purchase up to 4,000,000 shares of our
common stock at a purchase price of $3.00 per share. This warrant is exercisable
based upon the number of new vehicles equipped to receive our broadcasts
DaimlerChrysler manufactures, and is fully exercisable after 4,000,000 new
DaimlerChrysler vehicles equipped to receive our broadcasts are manufactured.
There was no accounting impact associated with the cancellation of the original
warrant and subsequent issuance of the new warrant as DaimlerChrysler had not
begun to perform under the original agreement.

As part of our agreement with Ford Motor Company, on June 11, 1999, we
issued Ford a warrant to purchase 4,000,000 shares of our common stock at an
exercise price of $30.00 per share. On October 7, 2002, we cancelled the warrant
previously issued to Ford and issued a new warrant which entitles Ford to
purchase up to 4,000,000 shares of our common stock at a purchase price of $3.00
per share. The new warrant is exercisable based upon certain corporate events
and the number of new vehicles equipped to receive our broadcasts Ford
manufactures, and is fully exercisable after 1,500,000 new Ford vehicles
equipped to receive our broadcasts are manufactured. There was no accounting
impact associated with the cancellation of the original warrant and subsequent
issuance of the new warrant as Ford had not begun to perform under the original
agreement.

In connection with the Lehman term loan facility, we granted Lehman
Commercial Paper Inc. 2,100,000 warrants, each to purchase one share of our
common stock, at an exercise price of $29.00 per share. On March 26, 2002, we
entered into an amendment to our term loan agreement with Lehman that reduced
the exercise price of these warrants from $29.00 to $15.00 per share. These
warrants remained outstanding following our restructuring.

In connection with the exchange of our preferred stock in our
recapitalization, we issued warrants to purchase 35,030,846 shares of our common
stock at an exercise price of $0.92 per share and warrants to purchase
52,546,268 shares of our common stock at an exercise price of $1.04 per share.

10. EMPLOYEE BENEFIT PLANS

STOCK OPTION PLANS

In February 1994, we adopted our 1994 Stock Option Plan (the '1994 Plan')
and our 1994 Directors' Nonqualified Stock Option Plan (the 'Directors' Plan').
In June 1999, we adopted our 1999 Long-Term Stock Incentive Plan (the '1999
Plan'). Generally, options granted under the

F-21

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

plans vest over a three or four-year period and are exercisable for ten years
from the date of grant. As of December 31, 2002, the aggregate number of shares
of common stock available for issuance pursuant to our stock option plans was
approximately 18,989,000 and the options available for grant pursuant to our
stock option plans was approximately 4,171,000.

The following table summarizes the option activity under all stock option
plans:

Exercise prices for stock options outstanding as of December 31, 2002 ranged
from $0.68 to $57.00. The following table provides certain information with
respect to stock options outstanding and exercisable at December 31, 2002:

401(K) SAVINGS PLAN

We sponsor the Sirius Satellite Radio 401(k) Savings Plan for eligible
employees. Effective December 1, 2001, CIGNA Retirement & Investment Services
was appointed the trustee, recordkeeper and investment manager for this plan.
Our 401(k) plan allows eligible employees to voluntarily contribute from 1% to
16% of their pre-tax salary subject to certain defined limits. We may match up
to 75% of the voluntary employee contribution in the form of our common stock.
Our matching contribution vests at a rate of 33 1/3% for each year of employment
and is fully vested after three years. Contribution expense resulting from our
matching contribution to our 401(k) plan was $1,231, $1,224 and $864 for the
years ended December 31, 2002, 2001 and 2000, respectively.

F-22

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

11. INCOME TAXES

Taxes on income included in our Consolidated Statements of Operations
consists of the following:

The reconciliation of net loss, as reported, to taxes on income is as
follows:

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:

A significant portion of costs incurred to date has been capitalized for tax
purposes as a result of our status as a start-up enterprise. Total unamortized
start-up costs as of December 31, 2002 were $237,990. These capitalized costs
are being amortized over 60 months. The total deferred tax assets include
approximately $8,096, which, if realized, would not affect financial statement
income but will be recorded directly to stockholders' equity.

At December 31, 2002, we had net operating loss ('NOL') carryforwards of
approximately $691,857 for federal and state income tax purposes available to
offset future taxable income. The NOL carryforwards expire on various dates
beginning in 2008. We have had several ownership

F-23

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

changes under Section 382 of the Internal Revenue Code, the last of which
occurred in early 2002, which may limit our ability to utilize tax deductions
attributable to periods prior to that time. Furthermore, future changes in our
ownership, including those arising from our recapitalization, may limit our
ability to utilize our deferred tax assets. Realization of deferred tax assets
is dependent upon future earnings; accordingly, a full valuation allowance was
recorded against the assets.

12. RELATED PARTIES

During the years ended December 31, 2001 and 2000 we made payments of $200
and $67, respectively, to a financial advisory firm, of which a related party
was a partner. We made no payments to this related party during the year ended
December 31, 2002.

13. LEASES OBLIGATIONS

Total rent expense for the years ended December 31, 2002, 2001 and 2000 was
$12,792, $10,972 and $6,515, respectively. Future minimum lease payments under
non-cancelable operating leases as of December 31, 2002 are payable as follows:

2003....................................................... $ 7,548
2004....................................................... 7,628
2005....................................................... 6,860
2006....................................................... 6,069
2007....................................................... 6,032
Thereafter................................................. 35,903
-------
Total.................................................. $70,040
-------
-------

14. COMMITMENTS AND CONTINGENCIES

The following table summarizes our contractual commitments as of December
31, 2002:

CHIP SET DEVELOPMENT AND PRODUCTION

We have entered into an agreement with Agere to develop and produce chip
sets for use in SIRIUS radios. This agreement requires Agere to develop future
generation chip sets and to produce a minimum quantity of chip sets during each
year of the agreement.

SATELLITE AND TRANSMISSION

We have entered into an agreement with a provider of satellite services to
operate our external satellite telemetry, tracking and control facilities and
provide connectivity to our external facilities.

F-24

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

PROGRAMMING AND CONTENT

We have entered into agreements with licensors of music and non-music
programming and, in certain instances, are obligated to pay license fees, share
advertising revenues or to purchase advertising on properties owned or
controlled by these licensors.

SALES AND MARKETING

We have entered into various marketing and sponsorship agreements to promote
our brand and are obligated to make payments to sponsors, retailers, automakers
and radio manufacturers.

CUSTOMER SERVICE AND BILLING

We have entered into agreements with third parties to provide customer
service, billing service and subscriber management. We are required to pay
minimum monthly fees for the services provided under these agreements. We are
currently involved in litigation with the provider of our billing services and
subscriber management, which is described more fully in Note 7, under which we
are seeking relief from our contractual commitments.

OTHER COMMITMENTS

In addition to the contractual commitments described above, we have also
entered into agreements with automakers, radio manufacturers and others that
include per-radio and per-subscriber required payments and revenue sharing
arrangements. These future costs are dependent upon many factors and are
difficult to anticipate; however, these costs may be substantial. We may enter
into additional programming, marketing and other agreements that contain
provisions similar to our current agreements.

15. QUARTERLY FINANCIAL DATA (UNAUDITED)

Our quarterly results of operations are summarized below:

The sum of the quarterly net loss per share applicable to common
stockholders does not necessarily agree to the net loss per share for the year
due to the timing of our common stock issuances.

F-25

EXHIBIT INDEX

E-1

E-2

- ---------

* This document has been identified as a management contract or compensatory
plan or arrangement.

'D' Portions of this exhibit has been omitted pursuant to an application for
confidential treatment filed by the Company with the Securities and Exchange
Commission.

E-3
STATEMENT OF DIFFERENCES

The dagger symbol shall be expressed as............................... 'D'