Edgar Filing: SIRIUS SATELLITE RADIO INC

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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 SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES 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:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
-------------------- --------------------

None

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

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

On March 5, 2004, 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 $2,723,909,711.

The number of shares of the Registrant's common stock outstanding as of
March 5, 2004 was 1,230,757,540.

DOCUMENTS INCORPORATED BY REFERENCE

Information included in our definitive proxy statement for our 2004 annual
meeting of stockholders to be held on May 25, 2004 is incorporated by reference
in Items 10, 11, 12, 13 and 14 of Part III of this report.
________________________________________________________________________________

SIRIUS SATELLITE RADIO INC.
2003 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

ITEM NO. DESCRIPTION PAGE
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PART I

Item 1. Business.................................................... 2
Item 2. Properties.................................................. 22
Item 3. Legal Proceedings........................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......... 23

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 24
Item 6. Selected Consolidated Financial Data........................ 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Item 7A. Quantitative and Qualitative Disclosures About Market
Risks..................................................... 42
Item 8. Financial Statements and Supplementary Data................. 42
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 42
Item 9A. Controls and Procedure...................................... 42

PART III

Item 10. Directors and Executive Officers of the Registrant.......... 42
Item 11. Executive Compensation...................................... 42
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................ 43
Item 13. Certain Relationships and Related Transactions.............. 43
Item 14. Principal Accountant Fees and Services...................... 43

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 43
Signatures

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 competitive position versus XM Satellite Radio, the
other satellite radio service provider in the United States,
which 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 other component
failures and may not be covered by insurance.

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

We are a provider of satellite radio service, currently offering over 100
streams -- 61 streams of commercial-free music and over 40 streams of news,
sports, talk, entertainment, traffic, weather and children's programming -- to
subscribers throughout the continental United States.

Our 61 original streams of commercial-free music are produced at our
national broadcast studio in New York City and cover virtually every genre of
music. Our non-music streams include programming from CNN, ESPN, NPR, FOX News,
The Weather Channel and traffic for America's top 20 markets from Westwood One,
a leading provider of traffic reports. We are also the leading satellite radio
provider of live sports programming, featuring up to 40 National Hockey League
and National Basketball Association games each week, and have agreed to
broadcast all National Football League games and become the Official Satellite
Radio Partner of the NFL.

Our primary source of revenue is subscription fees, with most of our
customers subscribing to SIRIUS on either a monthly or annual basis. We also
derive revenue from activation fees, the sale of advertising on our non-music
channels and the direct sale of SIRIUS radios. As of December 31, 2003, we had
261,061 subscribers.

To receive our service, subscribers use SIRIUS radios, which are sold by
automakers, mobile audio dealers and other retailers. Currently, the majority of
our subscribers purchase their SIRIUS radios at Best Buy, Circuit City and other
national, regional and local retailers. SIRIUS radios are currently offered
under brands such as Kenwood, JVC, Audiovox and Clarion at over 6,500 retail

locations. In addition, we recently announced agreements for SIRIUS radios to be
sold in over 7,000 RadioShack stores nationwide and by EchoStar's DISH Network,
which has over nine million satellite television subscribers across America.

We expect an increasing number of subscribers to be generated through our
relationships with car companies. SIRIUS radios are currently offered as an
option in over fifty car models. We have exclusive agreements with
DaimlerChrysler, Ford and BMW to offer SIRIUS radios as factory or
dealer-installed equipment in Chrysler, Dodge, Jeep, Mercedes, Ford, Lincoln,
Mercury, Volvo, Mazda, Jaguar, Land Rover, BMW and MINI vehicles and
Freightliner and Sterling heavy trucks. We also have relationships with Nissan,
Infiniti, Volkswagen and Audi to offer SIRIUS radios as factory or
dealer-installed equipment in their vehicles. In addition, we recently announced
agreements with United Auto Group and Penske Automotive Group, which together
operate 144 auto dealerships across the United States, to order and sell
vehicles equipped with SIRIUS radios and subscriptions to our service. SIRIUS
radios are also offered to renters of Hertz vehicles at 53 airport locations.

PROGRAMMING

We currently program 61 streams of 100% commercial-free music under our
SIRIUS brand and over 40 streams of news, sports, talk, entertainment, traffic,
weather and children's programming. We believe that the heart of our enterprise
is programming, and are committed to creating a unique and compelling
entertainment experience for our subscribers. During 2003, we focused on
enhancing our programming staff, refining our music formats, creating new
entertainment streams, and acquiring quality sports and entertainment content.
Our programming is dynamic and fluid, with changes designed to both attract new
subscribers and satisfy the desires of our existing subscribers.

Music Streams. We design and originate the programming on each of our 61
streams of 100% commercial-free music. Each stream is operated as an individual
radio station, with a distinct format and branding. Our line-up currently
consists of:

POP
Sirius Hits-1 // Top 40 Hits
Starlite // Lite Pop
Sirius Love // Love Songs
Movin' Easy // Easy Listening
Sirius Gold // The Best of the `50s
`60s Vibrations // The Best of the `60s
Totally `70s // The Best of the `70s
Big `80s // The Best of the `80s
The Pulse // `90s and Now
The Bridge // Mellow Rock
Kids Stuff // Kids
Spirit // Christian Hits

ROCK
Classic Vinyl // Early Classic Rock
(`60s-mid `70s)
Classic Rewind // Later Classic Rock
(Late `70s and on)
The Vault // Deeper Classic Rock
JamON // Jam Bands
The Spectrum // Adult Album Alternative
Buzzsaw // Classic Hard Rock
Octane// Pure Rock
Alt Nation // Alternative Rock
First Wave // Classic Alternative
Hair Nation // `80s Hair Bands
Sirius Disorder // Eclectic/Free Form
Left of Center // New/College Rock
Hard Attack // Heavy Metal
Faction // Hard Rock, Hip-Hop, Punk mix
Reggae Rhythms // Reggae
Sirius Blues // Blues

COUNTRY
New Country // Today's Country Hits
Prime Country // `80s and `90s Country Hits
Road House // Classic Country
The Border // Alternative Country
Bluegrass // Bluegrass
Folk Town // Folk

HIP HOP
Hip-Hop Nation // New, Raw
and Uncut Hip-Hop
Wax // Hip-Hop mixes, remixes, freestyles
Back Spin // Old Skool Rap
Street Beat // New Hip-Hop Hits

R & B/URBAN
Hot Jamz // Hip Hop and R&B Hits
Heart & Soul // R&B Hits
Slow Jamz // Soul Ballads
Soul Revue // Classic Soul and Motown
Praise // Gospel

DANCE/ELECTRONIC
Remix // Non-Stop Club Mix
Planet Dance // Mainstream Dance
Chill // Smooth Electronic
The Beat // Dance Hits
The Strobe // Disco

JAZZ/STANDARDS
Planet Jazz // Contemporary Jazz
Jazz Cafe // Smooth Jazz
Pure Jazz // Classic Jazz
Swing Street // Swing
Standard Time // Standards
Broadway's Best // Show Music

CLASSICAL
Symphony Hall // Symphonic and Chamber
Classical Voices // Classical Voices
Sirius Pops // Classical Pops

LATIN AND WORLD
Universo Latino // Latin Pop Mix
Mexicana // Mexicana
Tropical // Carribean Dance Music
Horizons // World Music

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. Our music library also includes exclusive original recordings made by
artists who visit our studios. Our music programmers and on-air personalities
have been recruited from the broadcasting and entertainment industries to manage
and host our music streams.

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, or songs, and holders of copyrights in sound
recordings -- records, cassettes, compact discs or audio files.

Musical works rights holders, generally songwriters and music publishers,
are represented by performing rights societies such as the American Society of
Composers, Authors and Publishers, or ASCAP, Broadcast Music, Inc., or BMI, 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 to 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 2004.
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 Sound Exchange collective, formerly a division of the
Recording Industry Association of America, or the RIAA, which negotiates
licenses and collects and distributes royalties. In March 2003, we entered into
an agreement with the RIAA which expires at the end of 2006 to pay royalties for
our public performances of sound recordings.

News, Sports, Entertainment and Other Streams. In addition to our music
streams, we offer over 40 streams of news, sports, talk, entertainment, traffic,
weather and children's programming, most of which include limited commercial
advertising. Our line-up currently consists of:

SPORTS
NFL
NBA
NHL
ESPN Radio
ESPNEWS
Sports Byline USA
Sirius Sports Action
Radio Deportivo

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

ENTERTAINMENT
Radio Disney
Our Time // Talk for Women
SIRIUS Trucking Network
WSM Entertainment
RadioClassics
Court TV, Plus
SIRIUS Entertainment
E! Entertainment Radio
A&E Satellite Radio
Discovery Channel Radio
La Red Hispana
Radio Catolica Mundial
EWTN Global Catholic Network
The Word Network
Wisdom Radio
SIRIUS Right
SIRIUS Left
SIRIUS Talk Central
Cracked Up Comedy // Comedy for the Family
The Raw Dog // Comedy Uncensored
OutQ // Gay & Lesbian Talk
Preview Channel

We expect live play-by-play sports to be an important part of our
programming strategy. During 2003, we entered into agreements with the National
Football League, the National Basketball Association and the National Hockey
League.

In December 2003, we announced a seven-year agreement with the National
Football League to transmit NFL games live. During the NFL's 2004 season, we
will carry the entire regular season, as well as select pre-season contests and
playoff games. Beginning with the 2005 NFL season, we also will carry the
conference championships and the Super Bowl. In most cases, we plan to carry
both the home and visiting team game broadcasts. In addition, we will create
'The NFL Satellite Radio Network,' an around-the-clock exclusive stream of NFL
content for our subscribers. We have also become the Official Satellite Radio
Partner of the NFL, with exclusive rights to use the NFL 'shield' logo and
collective NFL team trademarks. NFL games and the NFL Satellite Radio Network
will be offered as part of our standard programming package.

Since February 2003, we have transmitted live play-by-play broadcasts of up
to 40 National Basketball Association games each week, including the NBA
playoffs and finals, as part of our standard programming package.

Starting in October 2003, we began to transmit live play-by-play broadcasts
of up to 40 National Hockey League games each week, and will also transmit the
Stanley Cup playoffs and Finals, as part of our standard programming package. We
are also an official corporate marketing partner of the NHL.

In February 2004, we entered into a three-year agreement with a subsidiary
of Westwood One, a leading provider of traffic reports. Westwood One will
provide us with continuous, local traffic reports from up to 20 markets
throughout the United States selected by us. We plan to broadcast

all of these reports, together with local weather reports from The Weather
Channel, on ten of our streams.

AUTOMAKERS

We have programs with various automakers to provide for factory and
dealer-installed SIRIUS radios in their vehicles. During 2003, automakers
launched 48 programs to include SIRIUS radios in their vehicles, including 16
factory-installation programs. In 2004, we expect automakers to expand the
availability of SIRIUS radios in their vehicles to an aggregate of 75 programs,
48 of which are expected to include the factory-installation of SIRIUS radios.

We have an agreement with DaimlerChrysler Corporation, Mercedes-Benz USA,
Inc. and Freightliner LLC, companies that we collectively refer to as
DaimlerChrysler. 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 service ('DaimlerChrysler Enabled Vehicles'). We reimburse DaimlerChrysler
for certain advertising expenses and hardware costs of DaimlerChrysler Enabled
Vehicles, and have 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
3,200,000 DaimlerChrysler Enabled Vehicles are manufactured. Our agreement with
DaimlerChrysler extends to May 12, 2007, unless terminated earlier.

DaimlerChrysler offers SIRIUS radios as both a dealer and factory-installed
feature. SIRIUS radios are available at Chrysler, Dodge and Jeep dealerships
across the continental United States on 16 different 2004 model-year vehicles.
SIRIUS radios are offered as a dealer-installed option on nearly all C-Class,
E-Class, S-Class, M-Class, CL-Class, SL-Class, and CLK-Class Mercedes-Benz
vehicles, and will be available as factory-installed options on these same
vehicles shortly. Nearly all 2004 model-year Mercedes-Benz vehicles contain a
SIRIUS-ready head unit and are factory pre-wired for SIRIUS. SIRIUS radios are
also available as a factory-installed option on the Chrysler 300M and Dodge
Durango, and as standard equipment in the Dodge PT Dream Cruiser II.

We also have an agreement with Ford Motor Company. This agreement covers all
Ford brands, including Ford, Lincoln Mercury, Jaguar, Volvo, Land Rover and
Mazda. 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
service ('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 and Mercury offer SIRIUS radios as a dealer-installed option
on the 2004 Ford Thunderbird, Mustang, Explorer, Sport Trac, Expedition, Lincoln
Navigator, Lincoln LS, Lincoln Town Car, Lincoln Aviator and Mercury Mountaneer.
Mazda has announced plans to make SIRIUS radios available as dealer-installed
option during 2004 in its Tribute, MPV, Miata, RX-8, MAZDA3 and MAZDA6 vehicles.

As part of our agreement with BMW, we share with BMW a portion of the
revenues we derive from subscribers using BMW and MINI vehicles equipped to
receive our service ('BMW Enabled Vehicles'). In addition, we reimburse BMW for
certain promotional expenses and hardware costs of BMW Enabled Vehicles. BMW
offers SIRIUS radios as a dealer-installed accessory at BMW centers across the
country. Most BMW 3 Series sedans, coupes and convertibles, 5 Series sedans, X5
sport activity vehicles and X3 sport activity vehicles are equipped with in-dash
stereos that are compatible with SIRIUS radios. Most MINI cars are also factory

equipped with SIRIUS-ready radios. BMW currently offers SIRIUS radios as a
factory option, with a bundled one-year subscription to our service, on all 2004
5 Series sedans.

SIRIUS radios are available as a dealer-installed option in the Nissan
Maxima, Sentra, 350Z coupe, Murano, Quest, Armada and Altima, and in the
Infiniti I35, G35 coupe and sedan, M45, Q45, FX35, FX45 and QX56. SIRIUS radios
are available as a factory-installed option in the Nissan Pathfinder, Maxima,
Murano and Quest, and in the Infiniti I35, G35 coupe and sedan, M45, Q45, FX35
and FX45. Infiniti also pre-wires all of its vehicles to enable Infiniti
retailers to install satellite radios. Nissan pre-wires all of its vehicles,
other than its Pathfinder vehicle, to enable Nissan retailers to install
satellite radios.

All Audi A4 (A4, A4 Avant, A4 Cabriolet); A6 (A6, A6 Avant); S4 (S4, S4
Avant); and allroad quattro vehicles have been pre-wired for SIRIUS radios,
enabling consumers to get a SIRIUS radio installed at Audi dealers nationwide.
The all-aluminum Audi A8L and TT will also be pre-wired for SIRIUS radios in
2004. SIRIUS radios will also be offered as a factory and dealer-installed
option in the 2005 Volkswagen Beetle and Jetta.

In addition to our agreements with DaimlerChrysler, Ford, BMW, Nissan and
Volkswagen, 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.

PENSKE

In January 2004, we entered into agreements with Penske Automotive Group,
Inc., United Auto Group, Inc., Penske Truck Leasing Co. L.P. and Penske
Corporation. United Auto Group and Penske Automotive Group own and operate
approximately 144 auto dealerships in the United States. Penske Truck Leasing, a
leading truck leasing and rental company in the United States, leases heavy
trucks on a long-term basis to individual and fleet operators and rents trucks
on a short-term basis to individuals. Penske Corporation and its affiliates are
active participants in motorsports, with racing teams that participate in
NASCAR, IRL and other events.

United Auto Group and Penske Automotive Group have agreed, where available,
to order SIRIUS radios in vehicles they purchase from automakers, and to use
their best efforts to include a bundled subscription to our service in the sale
or lease of these vehicles. Penske Truck Leasing has agreed to order SIRIUS
radios in certain trucks it purchases. Penske Truck Leasing has also agreed to
install SIRIUS radios in a select number of trucks it leases to consumers. The
Penske companies plan to launch a joint marketing effort with us.

We have agreed to pay the Penske companies a commission upon the sale or
lease of a vehicle that includes a one-year or longer subscription to our
service bundled with the price of the vehicle, share the costs of our joint
marketing efforts, reimburse the Penske companies for certain costs of
purchasing and, if applicable, installing SIRIUS radios, and issue the Penske
companies warrants to purchase an aggregate of 38,000,000 shares of our common
stock at an exercise price of $2.392 per share. Two million of these warrants
vested upon issuance. The balance of these warrants vest over time and upon
achievement of certain milestones by the Penske companies.

SPECIAL MARKETS

Trucks. Sterling and Freightliner offer SIRIUS radios as a factory-installed
option. SIRIUS radios are also available nationwide at Travel Centers of America
and other truck stops. SIRIUS radios are distributed through Pana-Pacific, a
division of The Brix Group and the largest dealer of radios for heavy trucks.

Boats. Genmar Holdings Inc., the world's largest recreational boat builder,
offers SIRIUS radios as a standard feature in all CD-head-unit equipped boats
throughout its 16 boat brands, including Aquasport, Carver, Champion,
Crestliner, Four Winns, Genmar by Zodiac, Glastron,

Hydra-Sports, Larson, Lowe, Lund, Ranger, Seaswirl, Stratos, Triumph and
Wellcraft. In 2004, we expect that approximately 20,000 Genmar boats will be
equipped with SIRIUS radios. Formula Powerboats will also include a SIRIUS radio
and a one-year subscription to our service as a standard feature on all 2004
Formula powerboats.

Recreational Vehicles. Several leading manufacturers of recreational
vehicles currently offer factory-installed SIRIUS radios. Winnebago, the leading
U.S. manufacturer of motor homes, offers SIRIUS radios as a standard feature in
the Winnebago Ultimate Freedom, and as a factory-installed option in the
Fleetwood American Coach Line, Gulfstream Sun Voyager, and the Mandalay by Four
Winds International. Newmar Corp. and Monaco Coach Corporation have also
announced plans to offer SIRIUS radios on various recreational vehicle models
they manufacture.

Aircraft. The Federal Aviation Administration has approved the manufacture
by Avionics Innovations, Inc. of a satellite radio system for use in aircraft.
The Avionics Innovations SIRIUS radio is expected to be available in 2004 for
approved aircraft through Avionics Innovations' network of dealers.

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 currently
installed in Hertz vehicles are owned by us, and installed and serviced at our
expense. Our service is offered as a premium feature to Hertz customers for a
daily fee.

As of December 31, 2003, approximately 24,000 vehicles with SIRIUS radios
were available to renters of Hertz's 29 vehicle models, including Ford's Taurus,
Windstar, Escape, Expedition, Explorer, Mountaineer, Crown Victoria, and Mercury
Sable and Grand Marquis. Hertz offers SIRIUS radios at 53 major airport
locations nationwide.

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 transmissions 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.

We continually monitor our existing infrastructure and regularly evaluate
improvements in technology and other opportunities to enhance our broadcast
system.

SATELLITES AND TERRESTRIAL REPEATERS

Satellites. Space Systems/Loral delivered our three operating satellites to
us 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 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 transmit 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.

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 do
not limit the power of our broadcast signal or otherwise affect our current
operations. However, if a substantial number of additional circuit failures
occur the estimated useful life of our existing in-orbit satellites could be
reduced.

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 in the event of a total or constructive
total loss, an amount sufficient to launch our spare satellite as a replacement,
but not sufficient to purchase a new spare satellite. We may, in the future,
decline to purchase such insurance or purchase less insurance than we currently
maintain.

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 power.

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 impaired until such
time as we successfully launch and commission our spare satellite, which could
take six months or more. If two or more of our satellites fail in orbit in close
proximity in time, our operations could be suspended for at least 24 months. In
such event, our business would be materially impacted and we could default on
our commitments and might have to permanently discontinue operations or seek a
purchaser for our business or assets.

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 133 terrestrial repeaters in 92
urban areas. We may deploy additional terrestrial repeaters in the future.

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 transmit 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

Numerous consumer electronics manufacturers manufacture and distribute
various types of SIRIUS radios.

Plug & Play Radios. Plug & Play radios enable subscribers to transport a
radio easily to and from their cars, trucks, homes or boats with available
adapter kits. Plug & Play radios adapt to

existing audio systems and can be easily installed by either a retailer or the
purchaser. Plug & Play radios from Audiovox, JVC and Kenwood are currently
available at retailers nationally. In addition, the Brix STREAMER, a satellite
radio system designed for commercial truckers, is available through
participating truck manufacturers, truck dealers and truck stops.

For more portable use, a SIRIUS boom box, which enables our subscribers to
use their SIRIUS radios virtually anywhere, is available for the Audiovox Plug &
Play radio and is expected to be available shortly for the STREAMER Plug & Play
radio.

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 and Kenwood are
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 auto sound 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,
Infinti, Audi and Volkswagen for factory or dealer installation. When
factory-installed, the cost of the SIRIUS radio is generally included in the
sticker price of the vehicle and may include a one year prepaid subscription to
our service.

Home and Commercial Units. A SIRIUS home unit from Kenwood that connects to
most home stereo systems is available nationally. In addition, a three-zone
commercial unit from Antex Electronics, a manufacturer and distributor of
specialty electronics products, is available through custom electronics dealers.
This unit allows users to listen to different streams in different rooms of the
same home or business.

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 is being developed, funded and will be owned jointly by the two
companies. This unified standard is also intended to meet FCC rules that require
interoperability of both licensed satellite radio systems. We anticipate that it
will still 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.

OTHER

Canada. We have entered into an agreement-in-principle with affiliates of
the Canadian Broadcasting Corporation, Canada's national broadcaster, and
Standard Broadcasting Corporation, one of the largest multi-media companies in
Canada, to form a joint venture to offer a satellite radio service in Canada.
The proposed subscription-based service will give Canadians access to a wide
range of SIRIUS programming and Canadian content, such as CBC/Radio-Canada's
Radio One and La Premiere Chaine. We expect to permit the joint venture to
access our existing satellites to transmit its service. Our launch of this
service in Canada is subject to receipt of a license from the Canadian
Radio-television and Telecommunications Commission, for which the

joint venture has filed an application. The formation of this joint venture is
subject to completion of definitive agreements.

Mexico. We are in discussion with various parties regarding a joint venture
to offer a satellite radio service in Mexico.

We continue to explore various opportunities to acquire additional radio
spectrum that would enable us to expand our service offerings in the future.

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 and provide other ancillary
services. 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.

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. 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 up to 200 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. In that notice, we anticipated that integrated circuits capable of
receiving both services would be available in mid-2004 and that manufacturers
could begin producing interoperable radios thereafter; however, we do not
anticipate that these integrated circuits will be available on this timetable.
We also asked the FCC to concur that our efforts to develop this unified
standard satisfied the conditions to our license. The FCC has not responded to
this request.

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. 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 5, 2004, we had 375 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 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
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.'

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 offers its service for a monthly charge of $9.99, features 68
channels of commercial-free music, 32 channels of news, sports, talk and variety
programming and up to 21 channels of traffic and weather information, and has
acquired a significant number of subscribers. If consumers or other third
parties perceive that XM Radio offers more attractive service, enhanced features
or superior equipment alternatives, or has stronger marketing or distribution
channels, it may gain a long-term competitive advantage over us. As of
December 31, 2003, we had a total of 261,061 subscribers, while XM Radio had
reported over 1.3 million subscribers.

We compete vigorously with XM Radio for subscribers and in all other aspects
of our business, including retail and automotive distribution arrangements,
programming acquisitions and technology. Competition with XM Radio may increase
our operating expenses as we seek arrangements with third parties, such as
programming providers, and may cause us to reach cash flow breakeven with more
subscribers or later than we currently estimate.

Unlike satellite radio, traditional AM/FM radio has a well established and
dominant market presence for its services and offers free broadcasts supported
by commercial advertising rather than by a subscription fee. Many radio stations
also offer consumers well known on-air personalities and information programming
of a local nature, which we do not offer as broadly 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.

In October 2002, the FCC approved technology enabling digital broadcasting
in the AM and FM bands. In October 2003, a company that develops and licenses
digital radio broadcast technology announced that over 280 radio stations in
over 100 markets had licensed its technology and begun digital broadcasting or
were in the process of converting to digital broadcasting. To the extent that
traditional AM/FM radio stations adopt digital transmission technology, and to
the extent such technology allows signal quality that rivals our own, any
competitive advantage that we enjoy over traditional radio because of our
digital signal would be lessened. In addition, other technologies in the mobile
audio environment, such as MP3 devices, could emerge to compete with our
service.

OUR BUSINESS MIGHT NEVER BECOME PROFITABLE.

We were a development stage company until early 2002. As of December 31,
2003, we had an accumulated deficit of approximately $1.2 billion. We expect our
cumulative net losses and cumulative negative cash flow to grow as we make
payments under our various contracts, incur marketing and subscriber acquisition
costs and make interest payments on our debt. 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. If we are unable ultimately to generate
sufficient revenues to become profitable and have positive

cash flow, we could default on our commitments and may have to discontinue
operations or seek a purchaser for our business or assets.

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.

WE NEED TO OBTAIN RIGHTS TO PROGRAMMING, WHICH COULD BE MORE COSTLY THAN
ANTICIPATED.

Third-party content is an important part of the marketing of our service and
may be expensive. We compete with many parties, including XM Radio, for content
arrangements. We may not be able to obtain the third-party content we need at
all or within the costs contemplated by our business plan. We also must
negotiate and enter into music programming royalty arrangements with BMI, and in
the future will have to re-negotiate our existing arrangements with ASCAP, SESAC
and the RIAA. Our ability to obtain third-party content at a reasonable cost and
negotiate royalty arrangements will impact our financial performance and
operating results.

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

We are experiencing, and expect to experience in the future, some subscriber
turnover, or churn. We cannot predict the amount of churn we will experience or
how successful we will be at retaining subscribers. High subscriber turnover, or
our inability to attract customers to our service, would adversely affect our
financial performance and operating results.

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

Based upon our current plans, we believe we have sufficient cash to 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. However, our actual cash requirements could vary materially
from our current estimates. As a result, we may have to raise more funds to
remain in business and continue to develop and market our satellite radio
service. We may not be able to raise additional funds. If we fail to obtain
necessary financing on a timely basis, then our business would be materially
impacted and we could default on our commitments and may have to discontinue
operations or seek a purchaser for our business or assets.

Our financial projections are based on assumptions that we believe are
reasonable but contain significant uncertainties, including estimates relating
to prepaid subscriptions, hardware costs, subscriber acquisition costs,
subscription pricing, the length of time a person will remain a subscriber and
the rate at which we expect to acquire subscribers. A change in any number of
factors could adversely affect our business and our ability to achieve cash flow
breakeven when we estimate. At December 31, 2003, we had 261,061 subscribers. We
currently expect that we will need approximately two million subscribers before
we achieve cash flow breakeven, which we estimate will occur by the end
of 2005.

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

Our business depends in large part on the efforts of third parties,
especially the efforts of:

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

consumer electronics manufacturers that develop,
manufacture, distribute and market SIRIUS radios;

retailers that market and sell SIRIUS radios and promote
subscriptions to our service; and

other third party vendors that have designed, built or
operate important elements of our system, such as the
integrated circuits for SIRIUS radios, our call center, our
subscriber management system, our back-up tracking,
telemetry and control facilities and our satellite uplink
facility.

If one or more of these third parties does not perform in a sufficient or
timely manner, our business will be adversely affected and we could be placed at
a long-term disadvantage.

FAILURE OF OUR SATELLITES COULD DAMAGE OUR BUSINESS.

Each of our satellites is designed to have a useful life of approximately 15
years from the time of its launch, and after this period its performance in
delivering our satellite radio service will deteriorate. Our three satellites
were launched in 2000. 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 we expect,
whether as a result of a satellite failure or technical obsolescence.

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 significant damage to or loss of a satellite; and

damage or destruction by electrostatic storms or collisions
with other objects in space, which occur only in rare cases.

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 do
not limit the power of our broadcast signal or otherwise affect our current
operations. However, if a substantial number of additional circuit failures
occur the useful life of our existing in-orbit satellites could be reduced.

In the ordinary course of operation, satellites experience failures of
component parts and operational and performance anomalies. Components on our
in-orbit satellites have failed, and from time to time we have experienced
anomalies in the operation and performance of our satellites. These failures and
anomalies are expected to continue in the ordinary course, and it is impossible
to predict if any of these future events will have a material adverse effect on
our operations or the useful life of our existing in-orbit satellites.

If one of our three satellites fails in orbit, our service would be impaired
until such time as we successfully launch and commission our spare satellite,
which would take six months or more. If two or more of our satellites fail in
orbit in close proximity in time, our service could be suspended for at least 24
months. In such event, our business would be materially impacted and we could
default on our commitments and might have to permanently discontinue operations
or seek a purchaser for our business or assets.

THE LOSS OF ONE OR MORE OF OUR SATELLITES MAY NOT BE COVERED BY INSURANCE.

We currently maintain in-orbit insurance policies from global space
insurance underwriters covering in-orbit losses totaling $110 million per
satellite in the event of a total or constructive total loss, an amount
sufficient to launch our replacement satellite, but not sufficient to purchase a
new spare satellite.

We may decline to renew this insurance, or we may elect to 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.

WE MAY FROM TIME TO TIME MODIFY OUR BUSINESS PLAN, AND THESE CHANGES COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION.

Our business is in its relative infancy, and we regularly evaluate our plans
and strategy. These evaluations often result in changes to our plans and
strategy, some of which may be material and significantly change our cash
requirements or cause us to achieve cash flow breakeven at a later time. These
changes in our plans or strategy may include: the acquisition of unique or
compelling programming; the introduction of new features or services;
significant new or enhanced distribution arrangements; investments in
infrastructure, such as satellites, equipment or radio spectrum; and
acquisitions that could include programming, distribution, infrastructure, or
any combination of the foregoing.

Changes in our plans or strategy could also result in our issuing
significant equity based compensation, including in the form of our common stock
and warrants to purchase our common stock.

FAILURE TO COMPLY WITH FCC REQUIREMENTS COULD DAMAGE OUR BUSINESS.

As the holder of one of two FCC licenses to operate a satellite radio
service in the United States, we are subject to FCC rules and regulations. The
terms of our license require us to meet certain conditions, including
interoperability of our system with XM Radio, the other company with a 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 our 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 the FCC requires us to reduce
significantly 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.

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

An earthquake, tornado, flood, terrorist attack or other catastrophic event
could damage our national broadcast studio, terrestrial repeater network or
satellite uplink facility, interrupt our service and harm our business. We do
not have replacement or redundant facilities that can be used to assume the
functions of our terrestrial repeater network, national broadcast studio or
satellite uplink facility in the event of a catastrophic event. Any damage to
the satellite that transmits 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 certain areas. Damage to our national broadcast
studio would restrict our programming production and require us to obtain
programming from third parties to continue our service. Damage to our satellite
uplink facility could result in a complete loss of service until we could
identify a suitable replacement facility and transfer our operations to that
site.

CONSUMERS COULD PIRATE OUR SERVICE.

Like all radio transmissions, our signal is subject to interception.
Individuals who engage in piracy may be able to obtain or rebroadcast our
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.

Further, XM Radio may acquire more radio spectrum or technologies not
available to us, which may enable it to offer more services, produce
entertainment products of greater interest to consumers, or operate at a more
competitive cost.

EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information regarding our executive officers is provided below:

NAME AGE POSITION
---- --- --------

Joseph P. Clayton............................ 54 President and Chief Executive Officer

Patrick L. Donnelly.......................... 42 Executive Vice President, General
Counsel and Secretary

David J. Frear............................... 47 Executive Vice President and Chief
Financial Officer

Guy D. Johnson............................... 42 Executive Vice President, Sales

Joseph A. LaPlante........................... 61 Executive Vice President, Programming

Michael S. Ledford........................... 53 Executive Vice President, Engineering

Mary Patricia Ryan........................... 46 Executive Vice President, Marketing

Mr. Johnson will resign as our Executive Vice President, Sales, on April 1,
2004. We expect him to remain involved in our sales strategy after that date as
our Chief Marketing Officer. Mr. Ledford will resign as our Executive Vice
President, Engineering, on April 1, 2004. We anticipate that he will serve in a
strategic capacity after that date as our Chief Technical Officer. Accordingly,
Messrs. Johnson and Ledford will each cease to be executive officers of our
company on April 1, 2004.

JOSEPH P. CLAYTON has served as our President and Chief Executive Officer
and a director since November 2001. Mr. Clayton served as President of Global
Crossing North America, a global internet and long distance services provider,
from September 1999 until November 2001. Mr. Clayton also served as a member of
the board of directors of Global Crossing Ltd. from September 1999 until May
2002. 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 September 1999, Mr. Clayton was President and Chief
Executive Officer of Frontier Corporation, a Rochester, New York-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 University and The Rochester
Institute of Technology and a member of the advisory board of Indiana University
School of Business.

PATRICK L. DONNELLY has served as our 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 LLP.

DAVID J. FREAR has served as our Executive Vice President and Chief
Financial Officer since June 2003. From July 1999 through February 2003, Mr.
Frear was Executive Vice President and Chief Financial Officer of Savvis
Communications Corporation, a global managed service provider, delivering
internet protocol applications for business customers. From October 1999 through
February 2003, Mr. Frear also served as a director of Savvis. Mr. Frear was an
independent consultant in the telecommunications industry from August 1998 until
June 1999. From October 1993 to July 1998, Mr. Frear was Senior Vice President
and Chief Financial Officer of Orion Network Systems Inc., an international
satellite communications company that was acquired by Loral Space &
Communications Ltd. in March 1998. From 1990 to 1993, Mr. Frear was Chief
Financial Officer of Millicom Incorporated, a cellular paging and cable
television company. Prior to joining Millicom, he was an investment banker at
Bear, Stearns & Co., Inc. and Credit Suisse.

GUY D. JOHNSON has served as our Executive Vice President, Sales, 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.

JOSEPH A. LAPLANTE has served as our Executive Vice President, Programming,
since June 2003. From April 2002 until June 2003, he served as our Vice
President, Entertainment Programming. From April 2001 to April 2002, Mr.
LaPlante was Programming Director of WRKO, an AM talk-radio station located in
Boston, Massachusetts owned by Entercom Communications, a broadcast media
company. From February 2000 to March 2001, he served as Vice President,
Terrestrial Radio, for Comedy World, a television, radio and internet
programming service. From July 1998 to February 2000, Mr. LaPlante served as
Vice President, Programming, for Winstar Radio Networks, a division of Winstar
Communications, a telephone service provider, and as Vice President and General
Manager, of SportsFan Radio Network, a provider of syndicated sports
programming. Mr. LaPlante is known professionally as Jay Clark.

MICHAEL S. LEDFORD has served as our Executive Vice President, Engineering,
since December 2002 and served as our Senior Vice President, 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.

MARY PATRICIA RYAN has served as our 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.

EMPLOYMENT AGREEMENTS

We have entered into employment agreements with Joseph P. Clayton, Patrick
L. Donnelly, David J. Frear, Guy D. Johnson, Joseph A. LaPlante, Michael S.
Ledford and Mary Patricia Ryan.

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. 2,250,000 of
these options have been issued and are fully exercisable. The remaining options
will be issued and become exercisable on 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), 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 Mr. Clayton an 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 PATRICK L. DONNELLY

In March 2004, we reached agreement with Patrick L. Donnelly to continue to
serve as our Executive Vice President, General Counsel and Secretary. Pursuant
to this agreement, we pay Mr. Donnelly an annual base salary of $358,000 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 DAVID J. FREAR

In June 2003, we entered in an employment agreement with David J. Frear to
serve as our Executive Vice President and Chief Financial Officer for three
years. Under this agreement, we pay Mr. Frear a annual base salary of $331,500.
We have also agreed to pay expenses associated with Mr. Frear's relocation to
the New York metropolitan area, and have reimbursed him for approximately
$206,000 of such expenses.

In connection with this agreement, we granted Mr. Frear options to purchase
1,400,000 shares of our common stock at an exercise price of $1.85 per share,
and 600,000 restricted stock units. 400,000 of these options are expected to
vest on March 14, 2004, as a result of satisfaction of performance milestones
established by the board of directors for the year ended December 31, 2003.
600,000 of these options will vest on July 1, 2008; however, this vesting will
accelerate if we achieve performance milestones to be established by the board
of directors for the year ending December 31, 2004. The balance of Mr. Frear's
options, 400,000, will vest in equal installments on July 1, 2004, July 1, 2005
and July 1, 2006. Mr. Frear's 600,000 restricted stock units will also vest on
July 1, 2008; however, this vesting will accelerate if performance milestones to
be established by the board of directors for the year ending December 31, 2005
are met. Each restricted stock unit entitles Mr. Frear to one share of our
common stock on the vesting date.

Under the terms of this agreement, if Mr. Frear'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. Frear an amount equal to his
annual salary and the annual bonus last paid to him; provided that until
bonuses, if any, are paid with respect to the year ending December 31, 2004 such
bonus amount will be not less than $97,500.

If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Mr. Frear to pay an excise tax under the United States
Internal Revenue Code on any amounts received by him, we have agreed to pay Mr.
Frear 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. Frear 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. Frear'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 GUY D. JOHNSON

In October 2003, we entered into a new employment agreement with Guy D.
Johnson to serve as our Executive Vice President, Sales, until April 1, 2004. On
April 1, 2004, Mr. Johnson will resign as our Executive Vice President, Sales,
and will continue to be employed by us as our Chief Marketing Officer. This
agreement provides for an annual base salary of $400,000 until April 1, 2004,
and an annual base salary of $266,000 during the period from April 1, 2004 until
January 5, 2005. In connection with this agreement, we granted Mr. Johnson
options to purchase 2,000,000 shares of our common stock at an exercise price of
$1.04 per share. Options with respect to 1,500,000 of these shares are expected
to vest on March 14, 2004, as a result of satisfaction of

performance milestones established by the board of directors for the year ended
December 31, 2003. The remaining options become exercisable on March 14, 2005 if
we achieve performance milestones to be established by the board of directors
for the year ending December 31, 2004.

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), he is entitled to receive a lump sum amount equal to
(1) his base salary in effect in October 2003 from the termination date through
January 5, 2005 and (2) any annual bonuses, at a level equal to 75% of his base
salary in effect in October 2003, that would have been customarily paid during
the period from the termination date through January 5, 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 5, 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 Mr. Johnson an amount equal to 1.75 times his base salary in
effect in October 2003 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 JOSEPH A. LAPLANTE

In August 2003, we entered in an employment agreement with Joseph A.
LaPlante to serve as our Executive Vice President, Programming, for three years.
Under this agreement, we pay Mr. LaPlante an annual base salary of $286,000.

Under the terms of this agreement, if Mr. LaPlante'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. LaPlante an
amount equal to 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. LaPlante to pay an excise tax under the United States
Internal Revenue Code on any amounts received by him, we have agreed to pay Mr.
LaPlante 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. LaPlante 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. LaPlante'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

In December 2003, we entered into a new employment agreement with Michael S.
Ledford to serve as our Executive Vice President, Engineering, until April 1,
2004. On April 1, 2004, Mr. Ledford will resign as our Executive Vice President,
Engineering, and will continue to be employed by us as our Chief Technical
Officer. This agreement provides for an annual base salary of $340,000 until
January 1, 2004, and an annual base salary of $255,000 during the period from
January 1, 2004 until April 1, 2005.

In connection with this agreement, we granted Mr. Ledford options to
purchase 2,100,000 shares of our common stock at an exercise price of $1.04 per
share, and 900,000 restricted stock units. 600,000 of these options are expected
to vest on March 14, 2004, as a result of satisfaction of performance milestones
established by the board of directors for the year ended December 31, 2003.
900,000 of these options will vest on July 1, 2008; however, this vesting will
accelerate if we achieve performance milestones to be established by the board
of directors for the year ending December 31, 2004. The balance of Mr. Ledford's
options, 600,000, will vest in equal installments on July 1, 2004, July 1, 2005
and July 1, 2006 if Mr. Ledford continues to be employed by us on those dates.
Mr. Ledford's 900,000 restricted stock units will also vest on July 1, 2008;
however, this vesting will accelerate if performance milestones to be
established by the board of directors for the year ending December 31, 2005 are
met. Each restricted stock unit entitles Mr. Ledford to one share of our common
stock on the vesting date.

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
the sum of his annual salary then in effect and the annual cash bonus, if any,
paid to him with respect to the immediately preceding calendar year.

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 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.

EMPLOYMENT AGREEMENT WITH MARY PATRICIA RYAN

In May 2002, we entered into an employment agreement with Mary Patricia Ryan
to serve as our Executive Vice President, Marketing, for three years. Under this
agreement. we pay Ms. Ryan an annual base salary of $332,800. In connection with
this agreement, we 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
120,000 of these shares are exercisable and the remaining options become
exercisable in equal installments on 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.

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 relating to this lease is approximately $4.9
million, with specified increases and escalations based on operating expenses.
In March 2004, we also subleased the 19th floor at 1221 Avenue of the Americas
to house additional personnel.

We also lease office space in Lawrenceville, New Jersey; Milford, Michigan;
and Farmington Hills, Michigan. The aggregate annual rent for these properties
was approximately $413,000 for the year ended December 31, 2003. None of these
latter 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 to dismiss the
complaint in this class action lawsuit with prejudice pursuant to Federal Rules
of Civil Procedure and the provisions of the Private Securities Litigation
Reform Act. On January 6, 2004, the Court denied our motion to dismiss this
action.

In the ordinary course of business, we are a defendant in various lawsuits
and arbitration proceedings, including actions filed by former employees,
parties to contracts or leases and owners of patents, trademarks or other
intellectual property. None of these actions are, in our opinion, likely to have
a material adverse effect on our business or financial results.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At our annual meeting of stockholders held on November 25, 2003, the persons
set forth below were elected as directors. The relevant voting information for
each person is set forth opposite such person's name:

VOTES CAST
----------
FOR AGAINST
--- -------

Leon D. Black........................................... 933,543,334 7,621,501
Joseph P. Clayton....................................... 920,154,683 21,010,152
Lawrence F. Gilberti.................................... 933,818,969 7,345,866
James P. Holden......................................... 933,942,367 7,222,468
Michael J. McGuiness.................................... 935,428,894 5,735,941
James F. Mooney......................................... 935,540,200 5,624,635
Warren N. Lieberfarb.................................... 935,439,284 5,725,551

Prior to our annual meeting of stockholders, we voluntarily withdrew our
proposal to amend the Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan
to include directors as eligible participants. We expect to submit this item, or
a substantially similar item, for stockholder approval at our 2004 annual
meeting of stockholders.

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:

HIGH LOW
---- ---

YEAR ENDED DECEMBER 31, 2002
First Quarter......................................... $10.88 $4.14
Second Quarter........................................ 5.78 3.28
Third Quarter......................................... 3.77 0.76
Fourth Quarter........................................ 1.32 0.52

YEAR ENDED DECEMBER 31, 2003
First Quarter......................................... $ 1.36 $0.41
Second Quarter........................................ 2.35 0.63
Third Quarter......................................... 2.02 1.53
Fourth Quarter........................................ 3.16 1.85

On March 5, 2004, the closing bid price of our common stock on the Nasdaq
National Market was $3.05 per share. On February 25, 2004, there were
approximately 400,000 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, 2001,
2002 and 2003, and with respect to the consolidated balance sheets at December
31, 2002 and 2003 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, 1999, 2000 and 2001,
and with respect to the consolidated statement of operations for the years ended
December 31, 1999 and 2000, are derived from our consolidated financial
statements audited by Arthur Andersen LLP, 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.'

STATEMENTS OF OPERATIONS DATA

FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Total revenue.......................... $ -- $ -- $ -- $ 805 $ 12,872
Net loss............................... (62,822) (134,744) (235,763) (422,481) (226,215)
Net loss applicable to common
stockholders......................... (96,981) (183,715) (277,919) (468,466) (314,423)
Net loss per share applicable to common
stockholders (basic and diluted)..... $ (3.96) $ (4.72) $ (5.30) $ (6.13) $ (0.38)
Weighted average common shares
outstanding (basic and diluted)...... 24,470 38,889 52,427 76,394 827,186

BALANCE SHEET DATA

AS OF DECEMBER 31,
---------------------------------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
(IN THOUSANDS)

Cash and cash equivalents......... $ 81,809 $ 14,397 $ 4,726 $ 18,375 $ 520,979
Restricted investments, at
amortized cost.................. 67,454 48,801 21,998 7,200 8,747
Marketable securities, at
market.......................... 317,810 121,862 304,218 155,327 28,904
Working capital(1)................ 303,865 143,981 275,732 151,289 497,661
Total assets...................... 1,206,612 1,323,582 1,527,605 1,340,940 1,617,317
Long-term debt, net of current
portion......................... 538,690 522,602 639,990 670,357 194,803
Accrued interest, net of current
portion......................... 5,140 10,881 17,201 46,914 --
Preferred stock................... 362,417 443,012 485,168 531,153 --
Accumulated deficit............... (134,491) (269,235) (504,998) (927,479) (1,153,694)
Stockholders' equity(2)........... $ 134,179 $ 290,483 $ 322,649 $ 36,846 $ 1,325,194

---------

(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 our restructuring in March
2003, are classified as long-term as of December 31, 2002,
as they were exchanged for shares of our common stock in
March 2003.
(2) 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)

EXECUTIVE SUMMARY

We are one of two satellite radio service providers in the United States. We
broadcast over 100 streams of digital-quality entertainment: 61 streams of 100%
commercial-free music and over 40 streams of sports, news, entertainment,
traffic, weather and children's programming for an effective monthly
subscription fee of $11.15 for a three year plan and up to $12.95 for a monthly
plan. We offer discounts for pre-paid and long-term subscriptions as well as
discounts for multiple subscriptions. Approximately 65% of our subscribers have
purchased an annual plan with an effective monthly subscription fee of $11.87.

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. Our satellites were successfully
launched on June 30, 2000, September 5, 2000 and November 30, 2000. On February
14, 2002, we launched our service in select markets and on July 1, 2002, we
launched our service nationwide.

Our costs of services include satellite and transmission, programming and
content, customer service and billing, and costs associated with the sale of
equipment. Satellite and transmission expenses consist primarily of in-orbit
satellite insurance and costs associated with the operation and maintenance of
our satellite tracking, telemetry and control system, terrestrial repeater
network

and national broadcast studio. Programming and content expenses include costs to
acquire programming from third parties, on-air talent costs and broadcast
royalties. Customer service and billing costs include costs associated with the
operation of our customer service center and subscriber management system.

As of December 31, 2003, we had 261,061 subscribers as compared to 29,947 as
of December 31, 2002. Subscriptions, including those currently in promotional
periods and those which have been prepaid, and active SIRIUS radios under our
agreement with Hertz, are included in our subscriber totals.

The following chart contains a breakdown of our subscribers as of the dates
set forth below:

DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
2003 2003 2003 2003 2002
---- ---- ---- ---- ----

Retail.............................. 197,650 110,821 77,713 51,969 26,203
OEM and Special Markets............. 39,400 15,358 7,630 4,252 1,800
Hertz............................... 24,011 23,433 19,843 11,838 1,944
------- ------- ------- ------ ------
Total subscribers............... 261,061 149,612 105,186 68,059 29,947
------- ------- ------- ------ ------
------- ------- ------- ------ ------

SIRIUS radios are primarily distributed through automakers and retailers. We
have agreements with Ford Motor Company, DaimlerChrysler Corporation, BMW of
North America, LLC, Nissan North America, Inc. and Volkswagen of America, Inc.
that contemplate the manufacture and sale of vehicles that include SIRIUS
radios. In the autosound aftermarket, SIRIUS radios are available for sale at
national and regional retailers, including Best Buy, Circuit City, Ultimate
Electronics, Tweeter Home Entertainment Group, Crutchfield and Good Guys. On
December 31, 2003, SIRIUS radios were available at approximately 6,500 retail
locations. SIRIUS radios are also offered to renters of Hertz vehicles at 53
airport locations. We believe our ability to attract and retain subscribers
depends in large part on creating and sustaining distribution channels for
SIRIUS radios, both in the retail aftermarket and with automakers, and on the
quality and entertainment value of our programming.

During 2003 and to date, we have improved our financial position and our
brand awareness, acquired programming and expanded the distribution of SIRIUS
radios. Specifically,

we completed a series of transactions to restructure our debt and equity
capitalization. As part of these transactions, we issued 545,012,162 shares
of our common stock in exchange for approximately 91% of our then
outstanding debt; we issued 76,992,865 shares of our common stock and
warrants to purchase 87,577,114 shares of our common stock in exchange for
all outstanding shares of our 9.2% Series A Junior Cumulative Convertible
Preferred Stock, 9.2% Series B Junior Cumulative Convertible Preferred
Stock and 9.2% Series D Junior Cumulative Convertible Preferred Stock; and
we sold 211,730,379 shares of our common stock for an aggregate of
$200,000;

we sold 159,420,732 shares of our common stock in underwritten public
offerings resulting in net proceeds of $294,497;

we issued $201,250 in aggregate principal amount of our 3 1/2% Convertible
Notes due 2008 in an underwritten public offering resulting in net proceeds
of $194,224;

we signed agreements with Penske Automotive Group, Inc., United Auto Group,
Inc., Penske Truck Leasing Co. L.P. and Penske Corporation. The Penske
companies have agreed, where available, to order SIRIUS radios with the
vehicles they purchase from automakers, and to use their best efforts to
include a bundled subscription to our service in the sale or lease of these
vehicles;

we signed a seven-year agreement with the National Football League to
broadcast NFL games live nationwide, and to become the Official Satellite
Radio Partner of the National Football League, with exclusive rights to use
the NFL 'shield' logo and collective NFL team trademarks. We plan to create
'The NFL Satellite Radio Network,' an around-the-

clock exclusive stream of NFL content featuring both league-wide programs
and team-specific shows;

we announced an agreement with RadioShack to distribute, market and sell
SIRIUS radios. Our agreement with RadioShack is expected to significantly
increase our retail distribution;

we executed an agreement with affiliates of EchoStar Communications
Corporation. EchoStar has agreed to purchase, distribute, market and sell
SIRIUS radios through its extensive network of satellite television dealers
and through certain other retailers and distributors; and

we issued $250,000 in aggregate principal amount of our 2 1/2% Convertible
Notes due 2009 resulting in net proceeds of $244,625.

We have incurred operating losses since inception and expect to continue to
incur operating losses until the number of our subscribers increases
substantially and we develop cash flows sufficient to cover our operating costs.
We also have significant contracts and commercial commitments over the next
several years, including subsidies and distribution costs, programming costs,
repayment of long-term debt and lease payments as further described below under
the heading 'Contractual Commitments.' Our ability to become profitable also
depends upon other factors identified below under the heading 'Liquidity and
Capital Resources.'

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2003 COMPARED WITH YEAR ENDED DECEMBER 31, 2002

Total Revenue. Total revenue increased $12,067 to $12,872 for the year ended
December 31, 2003 from $805 for the year ended December 31, 2002. Total revenue
for the year ended December 31, 2003 included subscriber revenue of $12,615,
consisting of subscription and non-refundable activation fees, net advertising
revenue of $116, equipment revenue of $61 and revenue from other sources of $80.
Total revenue for the year ended December 31, 2002 included subscriber revenue
of $623, net advertising revenue of $146 and revenue from other sources of $36.

Subscriber Revenue. The increase in subscriber revenue of $11,992 was
attributable to the growth of subscribers to our service. We added 231,114 net
new subscribers during the year ended December 31, 2003 and had 261,061
subscribers as of December 31, 2003. We added 29,947 net new subscribers during
the year ended December 31, 2002 and had 29,947 subscribers as of December 31,
2002. Subscriber revenue for the year ended December 31, 2003 included
subscription revenue of $13,759 and activation revenue of $534, which was offset
by $1,678 of costs associated with mail-in rebate programs. Subscriber revenue
for the year ended December 31, 2002 included subscription revenue of $1,016 and
activation revenue of $33, which was offset by $426 of costs associated with
mail-in rebate programs. Activation fees are recognized ratably over the term of
the subscriber relationship, currently estimated to be 3.5 years. An estimate of
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. In subsequent periods estimates are adjusted when necessary. Future
subscription revenue will be dependent upon, among other things, the growth of
our subscriber base, discounts and mail-in rebates offered to subscribers and
the identification of additional revenue streams from subscribers.

Average monthly revenue per subscriber, or ARPU. ARPU, which is not a
measure of financial performance under accounting principles generally accepted
in the United States, is derived from total subscriber revenue over the daily
weighted average number of subscribers for the period and is used by us as a
measure of operational performance. ARPU for the year ended December 31, 2003
was $9.39. This amount included the negative effects of mail-in rebate programs
of $1.25 and the negative effects of Hertz subscribers of $1.38. The Hertz
program generated $3.13 of revenue per subscriber per month for the year ended
December 31, 2003, resulting in dilution to ARPU. ARPU for the year ended
December 31, 2002 was $7.47. This amount included the negative effects of
mail-in rebate programs of $5.11 and the negative effects of Hertz subscribers
of $0.06.

The Hertz program generated $5.11 of revenue per subscriber per month for the
year ended December 31, 2002, resulting in dilution to ARPU. 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.

Set forth below is a chart showing the calculation of ARPU and the average
monthly revenue per Hertz subscriber for the years ended December 31, 2003 and
2002:

2003 2002
---- ----

Average monthly revenue per subscriber...................... $12.02 $12.64
Effects of Hertz subscribers................................ (1.38) (0.06)
------ ------
ARPU before effects of rebates.............................. $10.64 12.58
Effects of rebate programs.................................. (1.25) (5.11)
------ ------
Reported ARPU............................................... $ 9.39 $ 7.47
------ ------
------ ------
Average monthly revenue per Hertz subscriber................ $ 3.13 $ 5.11
------ ------
------ ------

Satellite and Transmission. Satellite and transmission expenses decreased
$6,704 to $32,604 for the year ended December 31, 2003 from $39,308 for the year
ended December 31, 2002. Satellite and transmission expenses consist of in-orbit
satellite insurance and costs associated with the operation and maintenance of
our satellite tracking, telemetry and control system, terrestrial repeater
network and national broadcast studio. The decrease in satellite and
transmission expenses is primarily attributable to a decrease of $3,147 in our
in-orbit satellite insurance as a result of reduced insurance coverage, and a
decrease of $3,977 related to the write-off of costs previously capitalized in
connection with our terrestrial repeater network. During 2003, we recorded a
loss of $1,028 as a result of the write-off of site acquisition costs
capitalized in prior periods for terrestrial repeater sites that will not be
placed in operation. During 2002, we recorded a loss of $5,005 related to the
disposal of certain terrestrial repeater equipment as a result of the
optimization of our terrestrial repeater network. In addition, broadcast
operations expense decreased $273, primarily as a result of reduced costs
associated with system testing, the majority of which took place prior to and
immediately following the launch of our service in February 2002, offset by an
increase of $455 for royalties associated with the use of security software to
prevent the theft of our service. Satellite operations expense increased $155,
which was primarily attributable to a full year of storage costs for our spare
satellite that was delivered in April 2002, and an increase of $538 primarily
for site related costs as a result of additions to our terrestrial repeater
network. As of December 31, 2003, we had 133 terrestrial repeaters in operation
as compared to 98 as of December 31, 2002.

We expect a significant portion of our satellite and transmission expenses
to remain relatively constant. Any increases or decreases in these expenses will
be due to costs of insuring our in-orbit satellites and additions to our
terrestrial repeater network.

Programming and Content. Programming and content expenses increased $7,670
to $30,398 for the year ended December 31, 2003 from $22,728 for the year ended
December 31, 2002. Programming and content expenses include costs to create,
produce and acquire content, on-air talent costs and broadcast royalties. We
have entered into various agreements with third parties for music and non-music
programming. These agreements require us to share advertising revenue, pay
license fees and purchase advertising on media properties owned or controlled by
the licensor. In addition, certain agreements include guaranteed obligations,
which we recognize on a straight-line basis over the term of the applicable
agreement. Advertising revenue share is expensed as the associated revenue is
recognized; license fees are expensed as the programming is aired; and purchased
advertising is recorded as a sales and marketing expense when the advertising is
aired. The costs of sports programming agreements which are for a specified
number of events are amortized on an event-by-event basis; and those which are
for specified seasons are amortized over the seasons on a straight-line basis.
The increase in programming and content expenses was attributable to an increase
of $5,319 for costs to create, produce and acquire content primarily as a result
of the acquisition of additional content from third parties and consultant costs
incurred to

assist us with the acquisition of content and an increase of $1,216 for
additional on-air talent. We have also entered into agreements with various
rights organizations pursuant to which we pay royalties for public performances
of music. These agreements include fixed and variable payment obligations. We
record variable broadcast royalties as they are incurred and fixed obligations
on a straight-line basis over the term of the applicable agreement. Broadcast
royalties increased $1,135 as a result of a full year of operations in 2003.

We anticipate that our programming and content costs will increase
significantly as we continue to develop our streams. Our agreement with the NFL
will result in additional programming and content expenses over the next seven
years. We have agreed to pay the NFL an aggregate of $188,000 in license fees
and we have issued to the NFL 15,173,070 shares of our common stock (which were
originally valued at $32,000) and warrants, which we refer to as media-based
warrants, to purchase 16,666,665 shares of our common stock at a price of $2.50
per share, which vest upon delivery to us of media assets by the NFL and its
member clubs. A portion of the expense associated with the media-based warrants
we granted the NFL will be allocated to programming and content expense as NFL
member clubs deliver to us content for use on the NFL Satellite Radio Network.
Expense associated with these warrants is based on the fair market value of our
common stock. Fair market value could fluctuate at each reporting date until the
final measurement date when the performance criteria are met; therefore, our
expense is not readily predictable.

Customer Service and Billing. Customer service and billing costs increased
$15,795 to $23,657 for the year ended December 31, 2003 from $7,862 for the year
ended December 31, 2002. Customer service and billing costs include costs
associated with the operation of our customer service center and subscriber
management system. Customer service center costs increased $2,036, which is
primarily a result of an increase in the number of representatives at our
customer service center needed to support the growth of our subscriber base.
Subscriber management and billing expense increased $13,759, which was primarily
due to a $14,465 loss on the disposal of our prior subscriber management system
upon termination of our agreement with the provider. Excluding this one-time
charge, subscriber management and billing expense decreased $706 as a result of
reduced operation fees associated with our new subscriber management system,
which we began using in May 2003.

Our new system effectively manages our subscriber data, bills subscribers
and interfaces with our conditional access system. We continue to evaluate the
effectiveness of our new system, and implement enhancements to the system. We
expect our total customer care and billing costs to increase and our costs per
gross activation to decrease as our subscriber base grows.

Sales and Marketing. Sales and marketing expenses increased $33,869 to
$121,216 for the year ended December 31, 2003 from $87,347 for the year ended
December 31, 2002. Sales and marketing expenses include advertising media and
production activities and payments to reimburse retailers, distributors, radio
manufacturers and automakers for marketing and promotional activities.

Advertising Media and Production. Advertising media and production
expense includes promotional events, sponsorships, media, advertising
production and market research. Media is expensed when it is aired and
advertising production costs are expensed as incurred. Advertising media
and production expense increased $18,555 as a result of increased cable
and network television, magazine advertising and sponsorship activities.

Retail and Distribution. Retail and distribution expense includes
the costs of advertising, residual payments, and the costs of market
development funds and in-store merchandising. Advertising is expensed as
incurred. Residuals are monthly fees paid based upon the number of
subscribers using a SIRIUS radio purchased from a retailer and are
expensed as incurred. Market development funds are fixed and variable
payments to reimburse retailers and radio manufacturers for the cost of
advertising and other product awareness activities. Fixed market
development funds are expensed over the periods specified in the
applicable agreement; variable costs are expensed at the time a
subscriber is activated. Retail and distribution expense increased
$5,278, which is primarily a result of an increase in advertising in
retailer circulars, offset by a decrease in retailer and radio
manufacturer market development funds.

Automakers. We have entered into agreements with DaimlerChrysler,
Ford, BMW and other automakers pursuant to which such automakers may
manufacture, market and sell vehicles which are equipped with SIRIUS
radios ('Enabled Vehicles'). Under many of these agreements, we share a
portion of the revenue we derive from subscribers using Enabled
Vehicles. This revenue share is expensed as the corresponding
subscription revenue is earned. We also reimburse automakers for certain
advertising, promotional, hardware and engineering costs. We record
expenses associated with these reimbursements as incurred or on a
straight-line basis over the contract period for guaranteed obligations.
Costs associated with the distribution of SIRIUS radios through
automakers increased $10,036 as a result of an increase in cooperative
advertising with automakers and an increase in the maintenance costs of
SIRIUS radios associated with our Hertz program.

We have issued a warrant to purchase 4,000,000 shares of our common
stock to each of DaimlerChrysler and Ford. These warrants become
exercisable based on, among other conditions, the number of Enabled
Vehicles the automakers manufacture. We record warrant expense based
upon the performance of the automakers in manufacturing Enabled Vehicles
and the fair value of the warrants at each reporting date. The final
measurement date of these warrants will be the date that each
performance commitment for such warrants is satisfied. We recorded
$445 of expense associated with these warrants during the year ended
December 31, 2003. We did not recognize any costs associated with these
warrants during the year ended December 31, 2002.

We expect sales and marketing expenses to increase significantly in the
future as we continue to build brand awareness through national advertising and
promotional activities and expand the distribution of SIRIUS radios. Such
increase will include the impact of the agreements we entered into in January
and February 2004 with Penske, RadioShack, EchoStar and the NFL. Pursuant to
these agreements, we expect to incur additional expense in connection with joint
marketing efforts and the issuance of warrants to purchase our common stock.
Expense associated with joint marketing efforts will be expensed as incurred,
while expense associated with the issuance of warrants will be recognized based
on the fair value of the warrants as certain targets or milestones are achieved.
A portion of the fair value of the media-based warrants issued in connection
with our NFL agreement will be expensed over the NFL season to sales and
marketing expense with respect to that portion of the warrants attributable to
marketing activities only. Expense associated with warrants is based on the fair
market value of our common stock. Fair market value could fluctuate at each
reporting date until the final measurement date when the performance criteria
are met; therefore, our expense is not readily predictable.

Subscriber Acquisition Costs. Subscriber acquisition costs increased $53,822
to $74,860 for the year ended December 31, 2003 from $21,038 for the year ended
December 31, 2002. Subscriber acquisition costs include incentives to purchase,
install and activate SIRIUS radios as well as subsidies paid to radio
manufacturers, automakers, retailers and payments to Agere Systems, Inc., or
Agere, for chip sets. Certain subscriber acquisition costs are incurred in
advance of acquiring a subscriber. Subscriber acquisition costs do not include
advertising, loyalty payments to distributors and dealers of SIRIUS radios and
revenue sharing payments to manufacturers of SIRIUS radios. 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.

The increase in subscriber acquisition costs is attributable to higher
shipments of SIRIUS radios to support sales in the period; an increase in
commissions as a result of higher activations in 2003; an increase in chip set
subsidies as a result of purchase commitments under our contract with Agere,
which were not required to support 2003 sales; and the effect of promotional
activities. In addition to chip set subsidies included in subscriber acquisition
costs, for the year ended December 31, 2003, approximately $4,000 of chip sets
delivered to us by Agere under our agreement will be shipped to radio
manufacturers in future periods, and are included in other current assets on our
consolidated balance sheets as of December 31, 2003.

Subscriber acquisition costs per gross activation, which is not a measure of
financial performance under accounting principles generally accepted in the
United States, is derived from total subscriber acquisition costs and the
negative margins from the sale of SIRIUS radios over the

number of gross activations for the period and is used by us as a key operating
performance indicator. Total subscriber acquisition costs per gross activation
for the year ended December 31, 2003 was $293. Of this amount, approximately $81
per gross activation represented the costs of promotional activities. Subscriber
acquisition costs per gross activation, net of promotional activities, was
approximately $212 per gross activation for the year ended December 31, 2003.

We expect total subscriber acquisition costs to increase in the future as
our gross activations increase and we continue to offer subsidies, commissions
and other incentives to acquire subscribers. Subscriber acquisition costs in
future periods are also expected to include expense for the fair value of the
bounty-based warrants we granted to the NFL. These warrants are earned by the
NFL as we acquire subscribers which are directly trackable through efforts of
the NFL. Expense associated with these warrants is based on the fair market
value of our common stock. Fair market value could fluctuate at each reporting
date until the final measurement date when the subscriber targets are met;
therefore, our expense is not readily predictable. We do anticipate that the
costs of certain subsidized components of SIRIUS radios will decrease in the
future as manufacturers experience economies of scale in production and we
secure additional manufacturers of these components.

General and Administrative. General and administrative expenses increased
$5,529 to $36,211 for the year ended December 31, 2003 from $30,682 for the year
ended December 31, 2002. General and administrative expenses include rent and
occupancy, accounting, legal and investor relations costs. The increase was
primarily a result of $6,846 of legal fees and settlement costs associated with
the termination of our agreement with the prior provider of our subscriber
management system and a $1,158 increase in corporate insurance. This increase
was partially offset by $432 of reduced rent and occupancy costs as a result of
the termination of leases for non-essential office space during 2002 for which
we recognized a loss on disposal of assets of $924. This loss was included in
general and administrative expense for the year ended December 31, 2002.

Research and Development. Research and development expense decreased $5,553
to $24,534 for the year ended December 31, 2003 from $30,087 for the year ended
December 31, 2002. Research and development costs include the costs to develop
our next generation chip sets and new products and costs associated with the
incorporation of SIRIUS radios into vehicles manufactured by automakers. Our
agreement with Agere to develop and produce chip sets for use in SIRIUS radios
requires Agere to manufacture a minimum quantity of chip sets during each year
of the agreement, and requires us to pay Agere fixed monthly payments. These
costs are allocated between research and development and subscriber acquisition
costs for development work and chip set production, respectively. The decrease
in research and development expense is primarily a result of $8,134 paid to
Panasonic in 2002 to release us from a radio purchase commitment and to reduce
the factory price of SIRIUS radios. Excluding this one-time item, research and
development expense increased $2,581 primarily as a result of $6,997 in costs
associated with the incorporation of SIRIUS radios into vehicles manufactured by
automakers offset by a decrease of $4,575 in chip set development costs as we
completed our first generation of chip sets.

We expect our research and development expense to increase as automakers
continue their efforts to incorporate SIRIUS radios across a broad range of
their vehicles and as we develop future generations of chip sets and new
products.

Depreciation Expense. Depreciation expense increased $12,606 to $95,353 for
the year ended December 31, 2003 from $82,747 for the year ended December 31,
2002. The increase was due to a full period of depreciation of our satellite
radio system, which began in February 2002, offset by reduced depreciation
expense as a result of the disposal of our prior subscriber management system.

Non-Cash Stock Compensation. We recognized non-cash stock compensation
expense of $11,454 and a non-cash stock compensation benefit of $7,867 for the
years ended December 31, 2003 and 2002, respectively. Non-cash stock
compensation includes charges and benefits associated with the grant of certain
stock options and restricted stock units and the issuance of our common

stock to employees and employee benefit plans. The increase in 2003 is a result
of the issuance of approximately 48 million stock-based awards to employees and
consultants, which include a combination of stock options with an exercise price
of $1.04 per share and restricted stock units. The difference between the
exercise price and the market price on the date of grant is recorded to non-cash
stock compensation expense over the applicable vesting period. Included in
non-cash stock compensation expense for the year ended December 31, 2003 is
$5,251 associated with the accelerated vesting of options upon the satisfaction
of performance criteria in 2003. Future non-cash stock compensation is
contingent upon a number of factors, including the price of our common stock and
the vesting date of stock options and restricted stock units, and could
materially change.

Debt Restructuring. We recorded a gain of $256,538 in connection with the
restructuring of our long-term debt in March 2003. This gain represents the
difference between the carrying value of our 15% Senior Secured Discount Notes
due 2007, 14 1/2% Senior Secured Notes due 2009, Lehman term loans and Loral
term loans, including accrued interest, and the fair market value of the common
stock issued, adjusted for unamortized debt issuance costs and direct costs
associated with the restructuring. This gain is net of a loss on our 8 3/4%
Convertible Subordinated Notes due 2009 exchanged in the restructuring. The loss
represents the difference between the fair market value of the common stock
issued in the exchange and the fair market value of the common stock which would
have been issued under the original conversion ratio, including accrued
interest, adjusted for unamortized debt issuance costs and direct costs
associated with the restructuring.

Interest Expense. Interest expense decreased $55,653 to $50,510 for the year
ended December 31, 2003 from $106,163 for the year ended December 31, 2002. We
capitalized $5,426 of interest costs during the year ended December 31, 2002. We
did not capitalize any interest costs during the year ended December 31, 2003.
The decrease in interest expense was primarily attributable to the exchange of
approximately $636,000 in aggregate principal amount at maturity of our
outstanding long-term debt for common stock in March 2003. Interest expense also
includes costs incurred as a result of the exchange of debt for our common
stock. Such debt conversion costs represent the loss on conversion and the
write-off of unamortized debt issuance costs associated with the debt exchanged.
Debt conversion costs were $19,439 and $9,650 for the years ended December 31,
2003 and 2002, respectively. Debt conversion costs for 2003 were a result of the
issuance of 54,805,993 shares of our common stock for $65,000 in aggregate
principal amount of our 3 1/2% Convertible Notes due 2008, including accrued
interest. Conversion costs for 2002 were a result of the issuance of 2,913,483
shares of our common stock in exchange for $29,475 in aggregate principal amount
of our 8 3/4% Convertible Subordinated Notes due 2009, including accrued
interest.

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

Total Revenue. 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. We did not have any revenue for the year ended December
31, 2001, as we were in our development stage.

Subscriber Revenue. The increase in subscriber revenue was attributable to
the growth of subscribers to our service. We added 29,947 net new subscribers
during the year ended December 31, 2002 and had 29,947 subscribers as of
December 31, 2002. Subscriber revenue for the year ended December 31, 2002
included subscription revenue of $1,016 and activation revenue of $33, which was
offset by $426 of costs associated with our mail-in rebate program.

Average monthly revenue per subscriber, or ARPU. ARPU for the year ended
December 31, 2002 was $7.47. This amount included the negative effects of
mail-in rebate programs of $5.11 and the negative effects of Hertz subscribers
of $0.06. The Hertz program generated $5.11 of revenue per subscriber per month
for the year ended December 31, 2002, resulting in dilution to ARPU.

Set forth below is a chart showing the calculation of ARPU and the average
monthly revenue per Hertz subscriber for the year ended December 31, 2002:

2002
----

Average monthly revenue per subscriber...................... $12.64
Effects of Hertz subscribers................................ (0.06)
------
ARPU before effects of rebates.............................. 12.58
Effects of rebate programs.................................. (5.11)
------
Reported ARPU............................................... $ 7.47
------
------
Average monthly revenue per Hertz subscriber................ $ 5.11
------
------

Satellite and Transmission. Satellite and transmission expenses increased
$8,252 to $39,308 for the year ended December 31, 2002 from $31,056 for the year
ended December 31, 2001. The increase in satellite and transmission expenses is
primarily attributable to an increase of $6,601 in expense related to our
terrestrial repeater network operations, which included a loss of $5,005 related
to the disposal of equipment as a result of the optimization of our terrestrial
repeater network and an additional $1,596 of expense related to the expansion of
our terrestrial repeater network resulting in additional site leases and
utilities costs. In addition, our in-orbit satellite insurance increased $886 as
a result of higher costs to insure our in-orbit satellites and broadcast
operations expense increased $796 as a result of costs associated with system
testing, the majority of which took place prior to and immediately following the
launch of our service in February 2002. These increases were offset by a
decrease of $31 in satellite operations expense.

Programming and Content. Programming and content expenses increased $12,892
to $22,728 for the year ended December 31, 2002 from $9,836 for the year ended
December 31, 2001. The increase in programming and content expenses was
attributable to an additional $4,052 for the acquisition of content from third
parties to expand our stream lineup, $2,619 in on-air talent costs as a result
of the launch of commercial operations in February 2002, and $6,221 in broadcast
royalties. We did not incur any broadcast royalties during 2001 as we commenced
commercial operations in February 2002.

Customer Service and Billing. Customer service and billing costs increased
$1,290 to $7,862 for the year ended December 31, 2002 from $6,572 for the year
ended December 31, 2001. Customer service center costs increased $1,218 as a
result of an increase in the number of representatives at our customer service
center to support the growth of our subscriber base. Subscriber management and
billing expense increased $72 for the year ended December 31, 2002.

Sales and Marketing. Sales and marketing expenses increased $65,781 to
$87,347 for the year ended December 31, 2002 from $21,566 for the year ended
December 31, 2001.

Advertising Media and Production. Advertising media and production
expense increased $31,101 as a result of cable and network television,
radio and magazine advertising and sponsorship activities.

Retail and Distribution. Retail and distribution expense increased
$30,889 as a result of increases in development funds paid to retailers
and radio manufacturers, the cost of point-of-sale materials and the
cost of outsourced retail services.

Automakers. Costs associated with the distribution of SIRIUS radios
through our automotive partners increased $3,791 as a result of
development funds paid to automakers to reimburse them for costs
associated with the marketing and sale of SIRIUS radios.

Subscriber Acquisition Costs. Subscriber acquisition costs were
approximately $21,038 for the year ended December 31, 2002. We did not incur any
subscriber acquisition costs during the year ended December 31, 2001 as we were
in our development stage.

General and Administrative. General and administrative expenses increased
$2,146 to $30,682 for the year ended December 31, 2002 from $28,536 for the year
ended December 31, 2001. The increase in 2002 was associated with increased
consulting, legal and investor 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
approximately $4,500 primarily attributable to the lease termination.

Research and Development. Research and development costs decreased $17,707
to $30,087 for the year ended December 31, 2002 from $47,794 for the year ended
December 31, 2001. The decrease in 2002 is primarily a result of a decrease in
chip set development costs of $14,728. This decrease is a result of the
completion of development work for our first generation of chip sets.

Depreciation Expense. Depreciation expense increased $73,695 to $82,747 for
the year ended December 31, 2002 from $9,052 for the year ended December 31,
2001. The increase is due to the depreciation of our satellite system and
terrestrial repeater network, which began during 2002, our first year of
commercial operations.

Non-Cash Stock Compensation. We recognized a non-cash stock compensation
benefit of $7,867 and non-cash stock compensation expense of $14,044 for the
years ended December 31, 2002 and 2001, respectively. 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 benefit or expense related to the repriced stock
options based on the market value of our common stock at the end of each
reporting period.

Debt Restructuring. 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 incurred costs of $4,259 related to the
sale of common stock in connection with our recapitalization, which costs were
used in determining the net proceeds from the sale of common stock.

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

Interest and Investment Income. Interest and investment income decreased
$11,809 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. Interest expense increased $16,477 to $106,163 for the
year ended December 31, 2002 from $89,686 for the year ended December 31, 2001.
We capitalized interest costs of $5,426 and $19,270 for the years ended December
31, 2002 and 2001, respectively. Interest expense increased $15,086 primarily as
a result of reduced capitalized interest associated with the completion of our
satellite system and terrestrial repeater network. Debt conversion costs in 2002
increased $1,391 as a result of the issuance of 2,913,483 shares of our common
stock in exchange for $29,475 in aggregate principal amount of our 8 3/4%
Convertible Subordinated Notes due 2009, including accrued interest. Debt
conversion costs for 2001 were a result of the issuance of 2,283,979 shares of
our common stock in exchange for $34,900 in aggregate principal amount of our
8 3/4% Convertible Subordinated Notes due 2009.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations through the sale of debt and equity
securities. As of December 31, 2003, we had cash, cash equivalents and
marketable securities totaling $549,883 and working capital of $497,661,
compared with cash, cash equivalents and marketable securities totaling $173,702
and working capital of $151,289 as of December 31, 2002. During 2003, our
recapitalization and our issuance of convertible debt and common stock in
exchange for net proceeds of $686,883 substantially improved our liquidity.

In February 2004, we signed a seven-year programming and marketing agreement
with the NFL. In connection with this agreement, we paid $5,000 in December
2003, $5,000 in February 2004 and $85,000 was deposited in escrow. We are not
required to make further payments to the NFL until August 2009. In February
2004, we also issued $250,000 in aggregate principal amount of our 2 1/2%
Convertible Notes due 2009, resulting in net proceeds of $244,625. We intend to
use these proceeds for general corporate purposes, including investments in
programming and infrastructure and to pay the costs of retail and automotive
distribution arrangements. In January

2004, we also issued 21,027,512 shares of our common stock for $19,850 in net
proceeds in connection with Blackstone's exercise of certain warrants.

Based upon our current plans, we believe that our cash, cash equivalents and
marketable securities will be sufficient to cover our estimated funding needs
through cash flow breakeven, the point at which our revenues are sufficient to
fund expected operating expenses, capital expenditures, working capital
requirements, interest and principal payments and taxes. Our financial
projections are based on assumptions, which we believe are reasonable but
contain significant uncertainties. As of December 31, 2003, we had 261,061
subscribers. We currently expect that we will need approximately two million
subscribers before we achieve cash flow breakeven, which we estimate will occur
by the end of 2005. We may change our plans and, as a result, our actual funding
requirements could vary materially. We may need to raise additional funds
through the sale of additional debt and equity securities to fund costs that are
not contemplated by our business plan. Such costs may include the costs of
acquiring new programming as well as distribution costs and subscriber
acquisition costs, investing in our infrastructure and/or potential
acquisitions. The sale of additional equity or convertible debt securities could
result in dilution to our stockholders. The incurrence of indebtedness would
result in increased fiscal obligations and could result in operating covenants
that would restrict our operations. We cannot provide assurance that these
additional sources of funds will be available, or, if available, would have
reasonable terms.

CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2003 COMPARED WITH YEAR ENDED
DECEMBER 31, 2002

Net cash used in operating activities decreased $36,324 to $284,487 for the
year ended December 31, 2003 from $320,811 for the year ended December 31, 2002.
The decrease in cash used in operations is primarily attributable to 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 $283,303 for the year ended December 31, 2003 from $244,249 for the
year ended December 31, 2002. This increase in cash used in operations was
primarily attributable to the growth of our business. We experienced increases
in our cost of services and other operating expenses primarily to obtain
additional content on our music and non-music streams and to market our service
to potential future subscribers. In addition, our cash outflows increased as we
continued to pay incentives and subsidies to acquire new subscribers. We expect
to continue to use cash during 2004 to fund our operations. These net outflows
of cash were offset by the net inflow of cash from subscribers on annual
subscription plans and certain other prepaid subscription programs for which we
recorded additional deferred revenue for the year ended December 31, 2003. We
expect such deferred revenue balances to increase in future periods as our
subscriber base grows.

Net cash provided by investing activities decreased $94,623 to $105,056 for
the year ended December 31, 2003 from $199,679 for the year ended December 31,
2002. The change from the prior period was principally due to the effect of
purchases and maturities of marketable securities and maturities of restricted
investments. Excluding such transactions, net cash used in investing activities
decreased to $20,118 for the year ended December 31, 2003 from $41,625 for the
year ended December 31, 2002. This decrease was a result of a reduction in
capital expenditures in 2003 as we substantially completed the build-out of our
terrestrial repeater network during 2002.

Net cash provided by financing activities increased $547,254 to $682,035 for
the year ended December 31, 2003 from $134,781 for the year ended December 31,
2002. During 2003, we sold 371,151,111 shares of common stock in various
offerings resulting in net proceeds of $491,609. In addition, we issued $201,250
in principal amount of our 3 1/2% Convertible Notes due 2008 resulting in net
proceeds of $194,224, and incurred costs associated with our debt restructuring
of $4,737. During the year ended December 31, 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.

CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED
DECEMBER 31, 2001

Net cash used in operating activities decreased $13,943 to $320,811 for the
year ended December 31, 2002 from $334,754 for the year ended December 31, 2001.
The decrease in cash used in operations was primarily attributable to the nature
of 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 2002 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 certain
subscriber acquisition costs, advertising media and in-orbit satellite insurance
in advance of incurring the expense.

Net cash provided by investing activities increased $249,825 to $199,679 for
the year ended December 31, 2002 from 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 reduced capital expenditures
during the year ended December 31, 2002 for the construction of our satellite
system, which was substantially completed by December 31, 2001, offset by
expenditures for the build-out of our terrestrial repeater network during 2002.

Net cash provided by financing activities decreased $240,448 to $134,781 for
the year ended December 31, 2002 from $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.

RECENT DEBT AND EQUITY TRANSACTIONS; RECAPITALIZATION

We entered into debt and equity transactions in 2004 to improve our
financial position. Specifically,

in February 2004, we issued $250,000 in aggregate principal amount of our
2 1/2% Convertible Notes due 2009 in a private placement pursuant to Rule
144A under the Securities Act resulting in net proceeds of $244,625. Our
2 1/2% Convertible Notes due 2009 are convertible, at the option of the
holder, into shares of our common stock at any time at a conversion rate of
226.7574 shares of common stock for each $1,000.00 principal amount, or
$4.41 per share of common stock, subject to certain adjustments;

in February 2004, Blackstone exercised 25,296 warrants, with an exercise
price of $1.04 per share, and 16,864 warrants, with an exercise price of
$0.92 per share, through a cashless exercise. In connection with these
exercises, we issued 28,432 shares of common stock to Blackstone;

in January 2004, Blackstone exercised 4,205,503 warrants, with an exercise
price of $1.04 per share, and 16,822,009 warrants, with an exercise price
of $0.92 per share. In connection with these exercises, we issued
21,027,512 shares of common stock for $19,850 in net proceeds; and

in January 2004, we issued 56,409,853 shares of common stock in exchange
for $69,000 in principal amount of our 3 1/2% Convertible Notes due 2008,
including accrued interest. Following this exchange, $67,250 in aggregate
principal amount of our 3 1/2% Convertible Notes due 2008 was outstanding.

After giving effect for these transactions, our cash, cash equivalents and
marketable securities and total outstanding debt would have been as follows:

AS OF DECEMBER 31, 2003
------------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)

Cash, cash equivalents and marketable securities... $549,883 $814,358
Total outstanding debt............................. $194,803 $375,803

Debt and equity transactions that occurred during 2003 and 2002 which
impacted our liquidity and capital resources to improve our financial position
included the following:

in December 2003, we issued 54,805,993 shares of our common stock in
exchange for $65,000 in aggregate principal amount of our 3 1/2%
Convertible Notes due 2008, including accrued interest. In connection with
this transaction, we incurred debt conversion costs of $19,439;

in November 2003, we sold 73,170,732 shares of our common stock in an
underwritten public offering resulting in net proceeds of $149,600;

in June 2003, we sold 86,250,000 shares of our common stock in an
underwritten public offering resulting in net proceeds of $144,897;

in May 2003, we issued $201,250 in aggregate principal amount of our 3 1/2%
Convertible Notes due 2008 in an underwritten public offering resulting in
net proceeds of $194,224. Our 3 1/2% Convertible Notes due 2008 are
convertible, at the option of the holder, into shares of our common stock
at any time at a conversion rate of 724.6377 shares of common stock for
each $1,000.00 principal amount, or $1.38 per share of common stock,
subject to certain adjustments;

in March 2003, we completed a series of transactions to restructure our
debt and equity capitalization. As part of these transactions, we issued
545,012,162 shares of our common stock in exchange for approximately 91% of
our then outstanding debt; we issued 76,992,865 shares of our common stock
and warrants to purchase 87,577,114 shares of our common stock in exchange
for all outstanding shares of our 9.2% Series A Junior Cumulative
Convertible Preferred Stock, 9.2% Series B Junior Cumulative Convertible
Preferred Stock and 9.2% Series D Junior Cumulative Convertible Preferred
Stock; and we sold 211,730,379 shares of our common stock for an aggregate
of $200,000. In March 2003, we recorded a gain of $256,538 and a deemed
dividend of $79,510 as a result of the exchange 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; and

in January 2002, we sold 16,000,000 shares of our common stock in an
underwritten public offering resulting in net proceeds of $147,500.

2003 LONG-TERM INCENTIVE PLAN

In January 2003, our board of directors adopted the Sirius Satellite Radio
2003 Long-Term Stock Incentive Plan (the '2003 Plan'), and on March 4, 2003 our
stockholders approved this plan. The purpose of the 2003 Plan is to promote our
long-term financial success by enhancing our ability to attract, retain and
reward individuals who contribute to our success and to further align our
personnel with stockholders. Employees and consultants are eligible to receive
awards under the 2003 Plan. As of December 31, 2003, approximately 114,206,000
shares of our common stock were available for grant under the 2003 Plan.

with the individuals receiving the awards. Stock-based awards granted under the
2003 Plan generally vest over three to five years from the date of grant and
expire in ten years.

During the year ended December 31, 2003, we granted a total of 47,707,250
stock options to employees and consultants with an exercise price of $1.04 per
share. Approximately 42% of these options vest ratably over three years, 25%
vest in July 2008 with acceleration to March 2004 if performance criteria are
satisfied in 2003 and 33% vest in July 2008 with acceleration to March 2005 if
performance criteria are satisfied in 2004. During the year ended December 31,
2003, the vesting provisions of certain options accelerated to March 15, 2004
upon the satisfaction of performance criteria. The exercise of vested options
could potentially result in an inflow of cash in future periods.

CONTRACTUAL COMMITMENTS

We have entered into various contracts which have resulted in significant
cash obligations in future periods. The following table summarizes our expected
contractual commitments as of December 31, 2003:

2004 2005 2006 2007 2008 THEREAFTER TOTAL
---- ---- ---- ---- ---- ---------- -----

Long-term debt
obligations............ $ 13,688 $13,688 $13,688 $42,888 $145,558 $36,542 $266,052
Lease obligations........ 7,870 7,193 6,393 6,181 6,121 30,121 63,879
Satellite and
transmission........... 2,374 2,374 2,374 2,374 2,374 16,621 28,491
Programming and
content................ 28,296 32,591 23,750 2,002 1,000 -- 87,639
Customer service and
billing................ 2,984 1,440 360 -- -- -- 4,784
Sales and marketing...... 17,190 7,511 6,216 4,500 -- -- 35,417
Research and
development............ 13,736 4,129 -- -- -- -- 17,865
Chip set development and
production............. 14,400 -- -- -- -- -- 14,400
-------- ------- ------- ------- -------- ------- --------
Total contractual
commitments............ $100,538 $68,926 $52,781 $57,945 $155,053 $83,284 $518,527
-------- ------- ------- ------- -------- ------- --------
-------- ------- ------- ------- -------- ------- --------

LONG-TERM DEBT OBLIGATIONS

Long-term debt obligations include principal and interest payments. As of
December 31, 2003, we had $197,452 in aggregate principal amount of outstanding
debt, consisting of $29,200 in aggregate principal amount at maturity of our 15%
Senior Secured Discount Notes due 2007, $30,258 in aggregate principal amount of
our 14 1/2% Senior Secured Notes due 2009, $136,250 in aggregate principal
amount of our 3 1/2% Convertible Notes due 2008 and $1,744 in aggregate
principal amount of our 8 3/4% Convertible Subordinated Notes due 2009.

OPERATING LEASES

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

SATELLITE AND TRANSMISSION

We have entered into an agreement with a provider of satellite services to
operate our off-site satellite telemetry, tracking and control 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,
guarantee minimum advertising revenue share or purchase advertising on
properties owned or controlled by these licensors. In addition, we have
agreements with various rights organizations pursuant to which we pay royalties
for public performances of music. We have agreed to pay the NFL an aggregate of
$188,000 in license fees.

Since this commitment was not effective as of December 31, 2003, this amount is
not reflected in the contractual commitments table.

CUSTOMER SERVICE AND BILLING

We have entered into agreements with third parties to provide customer
service, billing and subscriber management services.

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.

RESEARCH AND DEVELOPMENT

We have entered into agreements with automakers that anticipate the
incorporation of SIRIUS radios into vehicles manufactured by these automakers.
We have agreed to reimburse them for certain engineering and development costs.

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 manufacture a
minimum quantity of chip sets during each year of the agreement.

JOINT DEVELOPMENT AGREEMENT

Under the terms of a joint development agreement with XM Radio, the other
holder of a FCC satellite radio license, each party is obligated to fund one
half of the development cost for a unified standard for satellite radios. During
the year ended December 31, 2003, we incurred costs of $306 under this
agreement. We did not incur any costs associated with the joint development
agreement during the year ended December 31, 2002. The costs related to the
joint development agreement are being expensed as incurred in research and
development. We are currently unable to determine the expenditures necessary to
complete this process, but they may be significant.

OTHER COMMITMENTS

We have agreed to use reasonable efforts to assist certain manufacturers of
SIRIUS radios and components for those radios in the event that production of
such radios and components are greater than sales. In certain circumstances,
these reasonable efforts may include the purchase of unsold SIRIUS radios or
components. 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.

We are required under the terms of certain agreements to provide letters of
credit which place restrictions on our cash and cash equivalents. As of December
31, 2003 and 2002, $8,747 and $7,200, respectively, were classified as
restricted investments to secure our reimbursement obligations under these
letters of credit.

We have not entered into any off-balance sheet arrangements or transactions.

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. We have disclosed all significant accounting
policies in note 2 to the consolidated financial statements included in 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. As required by Emerging Issues Task Force No. 01-09, 'Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products),' an estimate of mail-in rebates that are paid by us directly
to subscribers is recorded as a reduction to subscription revenue in the period
the subscriber activates our service.

Stock-Based Compensation. In accordance with Accounting Principles Board
('APB') Opinion No. 25, 'Accounting for Stock Issued to Employees,' we use the
intrinsic value method to measure the compensation costs of stock-based awards
granted to employees. Accordingly, we record non-cash compensation expense for
stock-based awards granted to employees and directors over the vesting period
equal to the excess of the market price of the underlying common stock at the
date of grant over the exercise price of the stock-based award. The intrinsic
value of restricted stock units as of the date of grant is amortized to non-cash
stock compensation expense over the vesting period. To the extent any
performance criteria are satisfied and the vesting of any stock options and/or
restricted stock units accelerate, the unamortized non-cash stock compensation
expense associated with these options is also accelerated.

We account for stock-based awards granted to non-employees at fair value in
accordance with Statement of Financial Accounting Standards ('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 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.

In accordance with Emerging Issues Task Force 96-18, 'Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services,' we record expense based upon
performance and the fair value of equity instruments issued to other than
employees at each reporting date. The final measurement date of equity
instruments is the date that each performance commitment for such equity
instrument is satisfied. These costs are classified in our accompanying
statements of operations according to the nature of the services performed.

Subscriber Acquisition Costs. Subscriber acquisition costs include
incentives to purchase, install and activate SIRIUS radios as well as subsidies
paid to radio manufacturers, automakers and retailers and payments to Agere for
chip set production. Certain subscriber acquisition costs are incurred in
advance of acquiring a subscriber. Subscriber acquisition costs do not include
advertising, loyalty payments to distributors and dealers of SIRIUS radios and
revenue sharing payments to manufacturers of SIRIUS radios. Subscriber
acquisition costs are expensed as incurred. 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.

acquisition costs when the chip sets are shipped to radio manufacturers. Chip
sets that are shipped to us are recorded as inventory and expensed as subscriber
acquisition costs when shipped to radio manufacturers.

Long-Lived Assets. We carry our long-lived assets at cost less accumulated
depreciation. In accordance with SFAS No. 144, 'Accounting for the Impairment or
Disposal of Long-Lived Assets,' 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,
our spare satellite and our terrestrial repeater network. In accordance with
SFAS No. 144, 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 in April 2002. If placed into orbit, our spare
satellite is expected to operate effectively for fifteen years. Space
Systems/Loral, the manufacturer of our satellites, has identified circuit
failures in solar arrays on satellites since 1997, including our satellites. We
continue to monitor these failures, which we believe have not affected the
expected useful lives of our satellites. If events or circumstances indicate
that the useful lives of our satellites have changed, we will modify the
depreciable life accordingly.

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. In
accordance with SFAS No. 142, 'Goodwill and Other Intangible Assets,' we
completed an impairment analysis of our FCC license on November 1, 2003, 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.

Accrued Expenses. Payments owed to our manufacturing and distribution
partners and other service providers are expensed during the month in which the
applicable service is performed. The amount of these expenses is dependent upon
information provided by our internal systems and processes and partner systems
and processes. Due to the length of time necessary to receive accurate
information from these partners, estimates of amounts due are necessary in order
to record monthly expenses. In subsequent months expenses are reconciled, and
adjusted where necessary. Since launching commercial operations, we continue to
refine the estimation process based on an increased understanding of the time
requirements, and close working relationships with our partners.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB issued Interpretation No. 46 (Revised 2003),
'Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.'
This Interpretation, which replaces FASB Interpretation No. 46, 'Consolidation
of Variable Interest Entities,' addresses the consolidation by business
enterprises of variable interest entities as defined in the Interpretation. This
Interpretation is effective no later than the end of the first reporting period
that ends after March 15, 2004 and did not have an impact on our consolidated
results of operations or financial position.

In May 2003, the FASB issued SFAS No. 150, 'Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity,' which is
effective for all financial instruments created or modified after May 31, 2003
and otherwise effective at the beginning of the first interim period after June
15, 2003. SFAS No. 150 establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the issuer
and have characteristics

of both liabilities and equity. The adoption of SFAS No. 150 did not have an
impact on our consolidated results of operations or financial position.

In April 2003, the FASB issued SFAS No. 149, 'Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.' SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, 'Accounting for Derivative Instruments
and Hedging Activities.' SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships after June 30, 2003.
All provisions of SFAS No. 149 should be applied prospectively. This statement
did not have an impact on our consolidated results of operations or financial
position.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

As of December 31, 2003, we did not have any derivative financial
instruments and do not intend to use derivatives. We do not hold or issue any
free-standing derivatives. We invest our cash in short-term commercial paper,
investment-grade corporate and government obligations and money market funds.
Our long-term debt includes fixed interest rates and the fair market value of
the debt is sensitive to changes in interest rates. Under our current policies,
we do not use interest rate derivative instruments to manage our exposure to
interest rate fluctuations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Financial Statements contained in Item 15 herein.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

As of December 31, 2003, 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 David J. Frear, 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, 2003.

There have been no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to
December 31, 2003.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this item for executive officers is set forth under
the heading 'Executive Officers of the Registrant' in Part I, Item 1, of this
report. The other information required by Item 10 is included in our definitive
proxy statement for our 2004 annual meeting of stockholders to be held on May
25, 2004, and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is included in our definitive proxy
statement for our 2004 annual meeting of stockholders to be held on May 25,
2004, and is incorporated herein by reference.

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

The information required by this item is included in our definitive proxy
statement for our 2004 annual meeting of stockholders to be held on May 25,
2004, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is included in our definitive proxy
statement for our 2004 annual meeting of stockholders to be held on May 25,
2004, and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is included in our definitive proxy
statement for our 2004 annual meeting of stockholders to be held on May 25,
2004, and is incorporated herein by reference.

PART IV

ITEM 15. 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

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

(3) Exhibits

See Exhibit Index appearing on pages E-1 through E-4 for a list of
exhibits filed or incorporated by reference as part of this Annual Report on
Form 10-K.

(b) Reports on Form 8-K

On October 29, 2003, we filed a Current Report on Form 8-K reporting our
results for the quarter ended September 30, 2003.

On December 3, 2003, we filed a Current Report on Form 8-K to report
that we had entered into a Terms Agreement, which incorporated by reference
our Form Underwriting Agreement attached thereto, with UBS Securities LLC
(the 'Terms Agreement'). Pursuant to the Terms Agreement, we issued
73,170,732 shares of our common stock, par value $.001 per share, under our
Registration Statement on Form S-3 (File No. 333-108387) on November 24,
2003.

On December 16, 2003, we filed a Current Report on Form 8-K to announce
that we had signed a seven-year agreement with the National Football League
to broadcast NFL games live nationwide, and to become the Official Satellite
Radio Partner of the NFL, with exclusive rights to use the NFL 'shield' logo
and collective NFL team trademarks.

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.

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 12th day of
March 2004.

SIRIUS SATELLITE RADIO INC.

By: /s/ DAVID J. FREAR
................................
DAVID J. FREAR
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.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ JOSEPH P. CLAYTON President and Chief Executive Officer and March 12, 2004
........................................ Director (Principal Executive Officer)
(JOSEPH P. CLAYTON)

/s/ DAVID J. FREAR Executive Vice President and Chief March 12, 2004
........................................ Financial Officer (Principal Financial
(DAVID J. FREAR) Officer)

/s/ EDWARD WEBER, JR. Vice President and Controller March 12, 2004
........................................ (Principal Accounting Officer)
(EDWARD WEBER, JR.)

/s/ LEON D. BLACK Director March 12, 2004
........................................
(LEON D. BLACK)

/s/ LAWRENCE F. GILBERTI Director March 12, 2004
........................................
(LAWRENCE F. GILBERTI)

/s/ JAMES P. HOLDEN Director March 12, 2004
........................................
(JAMES P. HOLDEN)

/s/ WARREN N. LIEBERFARB Director March 12, 2004
........................................
(WARREN N. LIEBERFARB)

Director March 12, 2004
........................................
(MICHAEL J. MCGUINESS)

/s/ JAMES F. MOONEY Director March 12, 2004
........................................
(JAMES F. MOONEY)

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, 2003, 2002 and 2001.......................... F-4
Consolidated Balance Sheets as of December 31, 2003 and
2002...................................................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2003, 2002 and 2001.............. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001.......................... F-7
Notes to Consolidated Financial Statements.................. F-9
Schedule II -- Schedule of Valuation and Qualifying
Accounts.................................................. F-33

F-1

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
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 sheets of Sirius
Satellite Radio Inc. and Subsidiary (the 'Company') as of December 31, 2003 and
2002 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years then ended. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial statements
and the schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits. The consolidated financial statements of the
Company for the year ended December 31, 2001 was 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 2003 and 2002 and the consolidated results of its
operations and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material respects
the information set forth therein.

ERNST & YOUNG LLP

New York, New York
January 23, 2004

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 A 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.

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)

FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2003 2002 2001
---- ---- ----

Revenue:
Subscriber revenue, including effects of mail-in
rebates............................................... $ 12,615 $ 623 $ --
Advertising revenue, net of agency fees................. 116 146 --
Equipment revenue....................................... 61 -- --
Other revenue........................................... 80 36 --
--------- --------- ---------
Total revenue............................................... 12,872 805 --
--------- --------- ---------
Operating expenses:
Cost of services (excludes depreciation expense shown
separately below):
Satellite and transmission.......................... 32,604 39,308 31,056
Programming and content............................. 30,398 22,728 9,836
Customer service and billing........................ 23,657 7,862 6,572
Cost of equipment................................... 115 -- --
Sales and marketing..................................... 121,216 87,347 21,566
Subscriber acquisition costs............................ 74,860 21,038 --
General and administrative.............................. 36,211 30,682 28,536
Research and development................................ 24,534 30,087 47,794
Depreciation expense.................................... 95,353 82,747 9,052
Non-cash stock compensation expense (benefit) (1)....... 11,454 (7,867) 14,044
--------- --------- ---------
Total operating expenses.................................... 450,402 313,932 168,456
--------- --------- ---------
Loss from operations.................................... (437,530) (313,127) (168,456)
Other income (expense):
Debt restructuring...................................... 256,538 (8,448) --
Gain on extinguishment of debt.......................... -- -- 5,313
Interest and investment income.......................... 5,287 5,257 17,066
Interest expense, net of amounts capitalized............ (50,510) (106,163) (89,686)
--------- --------- ---------
Total other income (expense)................................ 211,315 (109,354) (67,307)
--------- --------- ---------
Net loss................................................ (226,215) (422,481) (235,763)
Preferred stock dividends................................... (8,574) (45,300) (41,476)
Preferred stock deemed dividends............................ (79,634) (685) (680)
--------- --------- ---------
Net loss applicable to common stockholders.............. $(314,423) $(468,466) $(277,919)
--------- --------- ---------
--------- --------- ---------
Net loss per share applicable to common stockholders (basic
and diluted).............................................. $ (0.38) $ (6.13) $ (5.30)
--------- --------- ---------
--------- --------- ---------
Weighted average common shares outstanding (basic and
diluted).................................................. 827,186 76,394 52,427
--------- --------- ---------
--------- --------- ---------

---------

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

Satellite and transmission............................... $ 508 $ (1,403) $ 1,936
Programming and content.................................. 1,032 (1,807) 2,256
Customer service and billing............................. 136 (172) 223
Sales and marketing...................................... 4,399 (1,046) 2,051
General and administrative............................... 4,210 (1,616) 3,831
Research and development................................. 1,169 (1,823) 3,747
----------- ----------- -----------
Total non-cash stock compensation expense
(benefit).......................................... $ 11,454 $ (7,867) $ 14,044
----------- ----------- -----------
----------- ----------- -----------

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 AND PER SHARE AMOUNTS)

AS OF DECEMBER 31,
------------------
2003 2002
---- ----

ASSETS
Current assets:
Cash and cash equivalents............................... $ 520,979 $ 18,375
Marketable securities................................... 28,904 155,327
Prepaid expenses........................................ 18,745 24,562
Restricted investments.................................. 1,997 --
Other current assets.................................... 9,039 1,345
---------- ----------
Total current assets................................ 579,664 199,609
Property and equipment, net................................. 941,052 1,032,874
FCC license................................................. 83,654 83,654
Restricted investments, net of current portion.............. 6,750 7,200
Deferred financing fees..................................... 5,704 12,803
Other long-term assets...................................... 493 4,800
---------- ----------
Total assets........................................ $1,617,317 $1,340,940
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................... $ 65,919 $ 43,336
Accrued interest........................................ 1,349 3,234
Deferred revenue........................................ 14,735 1,750
---------- ----------
Total current liabilities........................... 82,003 48,320
Long-term debt.............................................. 194,803 670,357
Accrued interest, net of current portion.................... -- 46,914
Deferred revenue, net of current portion.................... 3,724 --
Other long-term liabilities................................. 11,593 7,350
---------- ----------
Total liabilities................................... 292,123 772,941
---------- ----------
Commitments and contingencies:
9.2% Series A Junior Cumulative Convertible Preferred
Stock, $.001 par value: 4,300,000 shares authorized,
no shares and 1,902,823 shares issued and outstanding
at December 31, 2003 and December 31, 2002,
respectively (liquidation preference of $ -- and
$190,282), at net carrying value including accrued
dividends............................................. -- 193,230
9.2% Series B Junior Cumulative Convertible Preferred
Stock, $.001 par value: 2,100,000 shares authorized,
no shares and 853,450 shares issued and outstanding at
December 31, 2003 and December 31, 2002, respectively
(liquidation preference of $ -- and $85,345), at net
carrying value including accrued dividends............ -- 84,781
9.2% Series D Junior Cumulative Convertible Preferred
Stock, $.001 par value: 10,700,000 shares authorized,
no shares and 2,558,655 shares issued and outstanding
at December 31, 2003 and December 31, 2002,
respectively (liquidation preference of $ -- and
$255,866), at net carrying value including accrued
dividends............................................. -- 253,142
Stockholders' equity:
Common stock, $.001 par value: 2,500,000,000 shares
authorized, 1,137,758,947 and 77,454,197 shares issued
and outstanding at December 31, 2003 and December 31,
2002, respectively.................................... 1,138 77
Additional paid-in capital.............................. 2,525,135 963,335
Deferred compensation................................... (47,411) --
Accumulated other comprehensive income.................. 26 913
Accumulated deficit..................................... (1,153,694) (927,479)
---------- ----------
Total stockholders' equity.......................... 1,325,194 36,846
---------- ----------
Total liabilities and stockholders' equity.......... $1,617,317 $1,340,940
---------- ----------
---------- ----------

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)

ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
---------------------- PAID-IN DEFERRED COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS) DEFICIT TOTAL
------ ------ ---------- ------------ ------------- ----------- ----------

BALANCES, DECEMBER 31, 2000....... 42,107,957 $ 42 $ 559,676 $ -- $-- $ (269,235) $ 290,483

Net loss.......................... -- -- -- -- -- (235,763) (235,763)

Sale of common stock to employee
benefit plans.................... 38,720 -- 334 -- -- -- 334

Compensation in connection with
the issuance of stock options.... -- -- 11,395 -- -- -- 11,395

Sale of $.001 par value common
stock, $21.00 per share, net of
expenses......................... 11,500,000 12 229,288 -- -- -- 229,300

Exchange of 8 3/4% Convertible
Subordinated Notes due 2009,
including accrued interest....... 2,283,979 2 42,676 -- -- -- 42,678

Acquisition of 15% Senior Secured
Discount Notes due 2007.......... 948,565 1 8,588 -- -- -- 8,589

Exercise of stock options, between
$1.00 and $26.875 per share...... 185,221 -- 611 -- -- -- 611

Issuance of common stock to
employees and employee benefit
plans............................ 391,489 -- 5,299 -- -- -- 5,299

Issuance of warrants in connection
with Lehman term loan............ -- -- 11,879 -- -- -- 11,879

Preferred stock dividends......... -- -- (41,476) -- -- -- (41,476)

Preferred stock deemed
dividends........................ -- -- (680) -- -- -- (680)
------------- ------ ---------- -------- ---- ----------- ----------

BALANCES, DECEMBER 31, 2001....... 57,455,931 57 827,590 -- -- (504,998) 322,649

Net loss.......................... -- -- -- -- -- (422,481) (422,481)

Unrealized gain on
available-for-sale securities.... -- -- -- -- 913 -- 913
----------
Total comprehensive loss.......... (421,568)
==========
Issuance of common stock to
employees and employee benefit
plans............................ 910,204 1 3,347 -- -- -- 3,348

Compensation in connection with
the issuance of stock options.... -- -- (9,495) -- -- -- (9,495)

Warrant expense associated with
acquisition of programming....... -- -- 20 -- -- -- 20

Sale of $.001 par value common
stock, $9.85 per share, net of
expenses......................... 16,000,000 16 147,484 -- -- -- 147,500

Exchange of 8 3/4% Convertible
Subordinated Notes due 2009,
including accrued interest....... 2,913,483 3 39,297 -- -- -- 39,300

Exercise of stock options, $7.50
per share........................ 3,000 -- 22 -- -- -- 22

Issuance of common stock in
connection with marketing
agreement........................ 150,000 -- 129 -- -- -- 129

Reduction of warrant exercise
price in connection with the
amendment to Lehman term loan.... -- -- 926 -- -- -- 926

Issuance of common stock in
connection with conversion of
10 1/2% Series C Convertible
Preferred Stock in prior
period........................... 21,579 -- -- -- -- -- --

Preferred stock dividends......... -- -- (45,300) -- -- -- (45,300)

Preferred stock deemed
dividends........................ -- -- (685) -- -- -- (685)
------------- ------ ---------- -------- ---- ----------- ----------

BALANCES, DECEMBER 31, 2002....... 77,454,197 77 963,335 -- 913 (927,479) 36,846

(table continued on next page)

F-6

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(table continued from previous page)

Net loss.......................... -- -- -- -- -- (226,215) (226,215)
Change in unrealized gain on
available-for-sale securities.... -- -- -- -- (887) -- (887)
----------
Total comprehensive loss.......... (227,102)
==========
Issuance of common stock to
employees and employee benefit
plans............................ 810,814 1 537 -- -- -- 538
Compensation in connection with
the issuance of stock options.... -- -- 535 -- -- -- 535
Issuance of stock-based awards.... -- -- 58,110 (58,110) -- -- --
Cancellation of stock-based
awards........................... -- -- (135) 135 -- -- --
Amortization of deferred
compensation..................... -- -- -- 10,564 -- -- 10,564
Warrant expense associated with
sales and marketing agreement.... -- -- 445 -- -- -- 445
Sale of common stock, par value
$.001 per share, at $0.92 and
$1.04 per share, net of
expenses......................... 211,730,379 212 192,641 -- -- -- 192,853
Exchange of Lehman term loans,
including accrued interest....... 120,988,793 121 85,781 -- -- -- 85,902
Exchange of Loral term loans,
including accrued interest....... 58,964,981 59 41,806 -- -- -- 41,865
Exchange of 15% Senior Secured
Discount Notes due 2007,
including accrued interest....... 204,319,915 204 144,863 -- -- -- 145,067
Exchange of 14 1/2% Senior Secured
Notes due 2009, including accrued
interest......................... 148,301,817 148 105,146 -- -- -- 105,294
Exchange of 8 3/4% Convertible
Subordinated Notes due 2009,
including accrued interest....... 12,436,656 13 24,342 -- -- -- 24,355
Exchange of 9.2% Series A and B
Junior Cumulative Convertible
Preferred Stock, including
accrued dividends................ 39,927,796 40 304,807 -- -- -- 304,847
Exchange of 9.2% Series D Junior
Cumulative Convertible Preferred
Stock, including accrued
dividends........................ 37,065,069 37 283,748 -- -- -- 283,785
Issuance of warrants in connection
with the exchange of 9.2%
Series A, B and D Junior
Cumulative Convertible Preferred
Stock, at $0.92 and $1.04 per
share............................ -- -- 30,731 -- -- -- 30,731
Sale of common stock, par value
$.001 per share, $1.80 per share,
net of expenses.................. 86,250,000 86 144,811 -- -- -- 144,897
Sale of common stock, par value
$.001 per share, $2.10 per share,
net of expenses.................. 73,170,732 73 149,527 -- -- -- 149,600
Exercise of warrants, $1.04 per
share............................ 11,531,805 12 (12) -- -- -- --
Exchange of 3 1/2% Convertible
Notes due 2008, including accrued
interest......................... 54,805,993 55 82,325 -- -- -- 82,380
Preferred stock dividends......... -- -- (8,574) -- -- -- (8,574)
Preferred stock deemed
dividends........................ -- -- (79,634) -- -- -- (79,634)
------------- ------ ---------- -------- ---- ----------- ----------
BALANCES, DECEMBER 31, 2003....... 1,137,758,947 $1,138 $2,525,135 $(47,411) $ 26 $(1,153,694) $1,325,194
------------- ------ ---------- -------- ---- ----------- ----------
------------- ------ ---------- -------- ---- ----------- ----------

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

F-7

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
2003 2002 2001
--------- --------- ---------

Cash flows from operating activities:
Net loss.................................. $(226,215) $(422,481) $(235,763)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation expense.................. 95,353 82,747 9,052
Non-cash interest expense............. 22,708 58,957 54,889
Non-cash stock compensation expense
(benefit)........................... 11,454 (7,867) 14,044
Loss on disposal of assets............ 15,493 8,919 --
Non-cash gain associated with debt
restructuring....................... (261,275) -- --
Gain on extinguishment of long-term
debt................................ -- -- (5,313)
Costs associated with debt
restructuring....................... 4,737 8,448 --
Expense associated with the issuance
of equity securities to third
parties............................. 629 149 --
Increase (decrease) in cash and cash
equivalents resulting from changes in
assets and liabilities:
Marketable securities................. (1,184) (76,562) (182,315)
Prepaid expenses...................... 5,817 (12,401) 5,946
Other assets.......................... (7,773) (1,377) 3,245
Accounts payable and accrued
expenses............................ 21,996 5,254 (5,493)
Accrued interest...................... 12,821 28,587 6,907
Deferred revenue...................... 16,709 1,750 --
Other long-term liabilities........... 4,243 5,066 47
--------- --------- ---------
Net cash used in operating
activities....................... (284,487) (320,811) (334,754)
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment... (20,118) (41,625) (78,423)
Additions to FCC license.............. -- -- (286)
Proceeds from the sale of assets...... -- -- 13
Purchases of restricted investments... -- -- (450)
Maturities of restricted
investments......................... -- 14,500 29,000
Purchases of available-for-sale
securities.......................... (24,826) (273,196) --
Maturities of available-for-sale
securities.......................... 150,000 500,000 --
--------- --------- ---------
Net cash provided by (used in)
investing activities............. 105,056 199,679 (50,146)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt,
net..................................... 194,224 -- 145,000
Proceeds from issuance of common stock,
net..................................... 492,659 147,500 229,635
Costs associated with debt
restructuring........................... (4,737) (12,707) --
Proceeds from exercise of stock options
and warrants............................ -- 22 610
Other..................................... (111) (34) (16)
--------- --------- ---------
Net cash provided by financing
activities....................... 682,035 134,781 375,229
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. 502,604 13,649 (9,671)
Cash and cash equivalents at the beginning of
period....................................... 18,375 4,726 14,397
--------- --------- ---------
Cash and cash equivalents at the end of
period....................................... $ 520,979 $ 18,375 $ 4,726
--------- --------- ---------
--------- --------- ---------

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

F-8

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

1. BUSINESS

Sirius Satellite Radio Inc. broadcasts over 100 streams of digital-quality
entertainment: 61 streams of 100% commercial-free music and over 40 streams of
news, sports, talk, entertainment, traffic, weather and children's programming
for an effective monthly subscription fee of $11.15 for a three year plan and up
to $12.95 for a monthly plan. We offer discounts for pre-paid and long-term
subscriptions as well as discounts for multiple subscriptions. Approximately 65%
of our subscribers have purchased an annual plan with an effective monthly
subscription fee of $11.87.

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. 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, 2003, we had 261,061 subscribers. Our subscriber totals
included subscribers currently in promotional periods and those which have been
prepaid, and active SIRIUS radios under our agreement with Hertz.

Our primary source of revenue is subscription and activation fees. In
addition, we derive revenues from selling advertising on our non-music streams
and from the direct sale of SIRIUS radios.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements, including the accounts
of Sirius Satellite Radio Inc. and our wholly owned subsidiary, have been
prepared in accordance with accounting principles generally accepted in the
United States. All intercompany transactions have been eliminated in
consolidation.

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.

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. We record deferred
revenue for prepaid subscription fees and amortize these prepayments to revenue
ratably over the term of the respective subscription plan. Activation fees are
recognized ratably over the estimated term of a subscriber relationship,
currently 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. We record an estimate of
mail-in rebates that are paid by us directly to subscribers as a reduction to
subscription revenue in the period the subscriber activates our service. In
subsequent periods, estimates are adjusted when necessary.

F-9

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

We recognize revenues from the sale of advertising on our non-music streams
as the advertising is 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.

Equipment revenue from the direct sale of SIRIUS radios is recognized upon
shipment of the radios.

STOCK-BASED COMPENSATION

In accordance with Accounting Principles Board ('APB') Opinion No. 25,
'Accounting for Stock Issued to Employees,' we use the intrinsic value method to
measure the compensation costs of stock-based awards granted to employees.
Accordingly, we record non-cash compensation expense for stock-based awards
granted to employees and directors over the vesting period equal to the excess
of the market price of the underlying common stock at the date of grant over the
exercise price of the stock-based award. The intrinsic value of restricted stock
units as of the date of grant is amortized to non-cash stock compensation
expense over the vesting period. To the extent any performance criteria are
satisfied and the vesting of any stock options and/or restricted stock units
accelerate, the unamortized non-cash stock compensation expense associated with
these options is also accelerated.

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

In accordance with Emerging Issues Task Force 96-18, 'Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services,' we record expense based upon
performance and the fair value of equity instruments issued to other than
employees at each reporting date. The final measurement date of equity
instruments is the date that each performance commitment for such equity
instrument is satisfied. These costs are classified in our accompanying
statements of operations according to the nature of the services performed.

We have adopted the disclosure provisions of SFAS No. 148, 'Accounting for
Stock-Based Compensation -- Transition and Disclosure -- An Amendment of FASB
Statement No. 123.' The following table illustrates the effect on net loss
applicable to common stockholders and net loss per share applicable to common
stockholders had stock-based employee compensation been recorded based on the
fair value method under SFAS No. 123:

FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
2003 2002 2001
---- ---- ----

Net loss applicable to common stockholders -- as reported... $(314,423) $(468,466) $(277,919)
Non-cash stock compensation expense (benefit) -- as
reported.................................................. 11,454 (7,867) 14,044
Stock-based compensation -- pro forma....................... (43,198) (33,834) (40,666)
--------- --------- ---------
Net loss applicable to common stockholders -- pro forma..... $(346,167) $(510,167) $(304,541)
--------- --------- ---------
--------- --------- ---------
Net loss per share applicable to common stockholders:
Basic and diluted -- as reported........................ $ (0.38) $ (6.13) $ (5.30)
Basic and diluted -- pro forma.......................... $ (0.42) $ (6.68) $ (5.81)

F-10

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

The measure of fair value most often employed under SFAS No. 123, and used
by us, is the Black-Scholes option valuation model ('Black-Scholes').
Black-Scholes has become the standard for estimating the fair value of traded
options. Traded options, unlike our stock-based awards, are not subject to
vesting restrictions, are fully transferable and use significantly lower
expected stock price volatility measures than those assumed below. It is our
opinion that this model (and other similar option valuation models) does not
produce a single reliable measure of the fair value of our stock-based awards.
The pro forma stock-based employee compensation was estimated using
Black-Scholes with the following assumptions for each period:

FOR THE YEARS ENDED
DECEMBER 31,
------------------------
2003 2002 2001
---- ---- ----

Risk-free interest rate................................... 0.91-3.25% 2.48% 4.05%
Expected life of options -- years......................... 4.89-5.88 4.75 4.48
Expected stock price volatility........................... 115-118% 110% 78%
Expected dividend yield................................... N/A N/A N/A

SPORTS PROGRAMMING COSTS

In accordance with SFAS No. 63, 'Financial Reporting by Broadcasters,' the
costs of sports programming agreements which are for a specified number of
events are amortized on an event-by-event basis; those agreements which are for
a specified season are amortized over the season on a straight-line basis.

SUBSCRIBER ACQUISITION COST

Subscriber acquisition costs include incentives to purchase, install and
activate SIRIUS radios as well as subsidies paid to radio manufacturers,
automakers and retailers and payments to Agere Systems, Inc. ('Agere') for chip
sets. Certain subscriber acquisition costs are incurred in advance of acquiring
a subscriber. Subscriber acquisition costs do not include advertising, loyalty
payments to distributors and dealers of SIRIUS radios and revenue sharing
payments to manufacturers of SIRIUS radios. Subscriber acquisition costs are
expensed as incurred. 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 have an agreement with Agere to develop and produce chip sets for use in
SIRIUS radios. This agreement requires Agere to manufacture a minimum quantity
of chip sets during each year of the agreement. We pay Agere fixed monthly
payments under this agreement. These costs are allocated between research and
development and subscriber acquisition costs for development work and chip set
production, respectively. Costs allocated to chip set production are expensed as
subscriber acquisition costs when the chip sets are shipped to radio
manufacturers. Chip sets that are shipped to us are recorded as inventory and
expensed as subscriber acquisition costs when shipped to radio manufacturers.

RESEARCH AND DEVELOPMENT COSTS

Costs associated with the development of the next generation of chip sets
and new products and development and tooling costs associated with the
incorporation of SIRIUS radios in vehicles manufactured by our automotive
partners are expensed as incurred.

F-11

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

ADVERTISING COSTS

Media is expensed when it is aired and advertising production costs are
expensed as incurred. Market development funds are fixed and variable payments
to reimburse retailers and radio manufacturers for the cost of advertising and
other product awareness activities. Fixed market development funds are expensed
over the periods specified in the applicable agreement; variable costs are
expensed at the time a subscriber is activated.

GAIN ON EARLY EXTINGUISHMENT OF DEBT

We have 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 losses 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 the accompanying consolidated statement of operations for the
year ended December 31, 2001.

DEBT RESTRUCTURING

We recorded a gain of $256,538 in connection with the restructuring of our
long-term debt in March 2003. This gain represents the difference between the
carrying value of our 15% Senior Secured Discount Notes due 2007, 14 1/2% Senior
Secured Notes due 2009, Lehman term loans and Loral term loans, including
accrued interest, and the fair market value of the common stock issued, adjusted
for unamortized debt issuance costs and direct costs associated with the
restructuring. This gain is net of a loss on our 8 3/4% Convertible Subordinated
Notes due 2009 exchanged in the restructuring. This loss represents the
difference between the fair market value of the common stock issued in the
exchange and the fair market value of the common stock which would have been
issued under the original conversion ratio, including accrued interest, adjusted
for unamortized debt issuance costs and direct costs associated with the
restructuring.

PREFERRED STOCK DEEMED DIVIDEND

We recorded a deemed dividend of $79,510 in connection with the exchange in
March 2003 of all outstanding shares of our preferred stock for shares of our
common stock and warrants to purchase our common stock. This deemed dividend
represents the difference between the fair market value of the common stock and
warrants issued in exchange for all outstanding shares of our 9.2% Series A
Junior Cumulative Convertible Preferred Stock, 9.2% Series B Junior Cumulative
Convertible Preferred Stock and 9.2% Series D Junior Cumulative Convertible
Preferred Stock and the fair market value of the common stock which would have
been issued under the original conversion ratios, adjusted for unamortized
issuance costs and direct costs associated with the exchange of the preferred
stock.

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 debt, warrants, stock options and restricted stock
units) were exercised or converted into common stock. Common stock

F-12

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

equivalents of approximately 122,155,000, 17,486,000 and 18,872,000 were not
considered in the calculation of diluted net loss per share for the years ended
December 31, 2003, 2002 and 2001, respectively, as the effect would have been
anti-dilutive.

COMPREHENSIVE INCOME (LOSS)

We report comprehensive income (loss) in accordance with SFAS No. 130,
'Reporting Comprehensive Income.' SFAS 130 established a standard for reporting
and displaying other comprehensive income (loss) and its components within
financial statements. Unrealized gains and losses on available-for-sale
securities is the only component of our other comprehensive loss.

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 current income tax plus the change in deferred assets and
liabilities.

CASH AND CASH EQUIVALENTS

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

MARKETABLE SECURITIES

We account for marketable securities in accordance with the provisions of
SFAS No. 115, 'Accounting for Certain Investments in Debt and Equity
Securities.' Marketable securities consist of U.S. government notes and U.S.
government agency obligations. Effective April 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 2002, marketable
securities were classified as trading securities and unrealized holding gains
and losses were recognized in earnings. We recognized gains on the sale or
maturity of marketable securities of $1,184, $7,328 and $13,183 for the years
ended December 31, 2003, 2002 and 2001, respectively. Marketable securities held
at December 31, 2003 and 2002 mature within one year from the date of purchase.
We had unrealized holding gains on marketable securities of $26 and $913 as of
December 31, 2003 and 2002, respectively.

RESTRICTED INVESTMENTS

Restricted investments consist of fixed income securities, which are stated
at amortized cost plus accrued interest. As of December 31, 2003, long-term
restricted investments included certificates of deposit of $6,750. As of
December 31, 2003, short-term restricted investments included certificates of
deposit and United States government obligations of $1,997. As of December 31,
2002, long-term restricted investments included certificates of deposit of
$7,200. These certificates of deposit and United States government obligations
are pledged to secure our

F-13

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

reimbursement obligations under letters of credit issued primarily for the
benefit of the lessor of our headquarters.

PROPERTY AND EQUIPMENT

Costs incurred to prepare our satellite radio system for use were
capitalized. Such costs consist of interest, satellite and launch vehicle
construction, broadcast studio equipment, terrestrial repeater network, and
satellite telemetry, tracking and control facilities.

The estimated useful lives of our property and equipment are as follows:

Customer care, billing and conditional access............... 1-7 years
Furniture, fixtures, equipment and other.................... 3-7 years
Broadcast studio equipment.................................. 3-8 years
Satellite telemetry, tracking and control facilities........ 3-15 years
Terrestrial repeater network................................ 5-15 years
Leasehold improvements...................................... 15 years
Satellite system............................................ 15 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.
Space Systems/Loral, the manufacturer of our satellites, has identified circuit
failures in solar arrays on satellites since 1997, including our satellites. We
continue to monitor these failures, which we believe have not affected the
expected useful lives of our satellites. If events or changes in circumstances
indicate that the useful lives of our satellites have changed, we will modify
the depreciable life accordingly. All other property and equipment is
depreciated on a straight-line basis over the estimated useful lives stated
above. Expenditures for maintenance and repairs are charged to expense as
incurred. Major expenditures for renewals and asset improvements are capitalized
and depreciated over their useful lives.

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 that goodwill and intangible assets with
indefinite useful lives 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 in November 2003, and concluded that there was
no impairment loss related to our FCC license. 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.

F-14

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

DEFERRED FINANCING FEES

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 portion of long-term debt and accrued
interest that was exchanged for shares of our common stock in March 2003 was
classified as long-term liabilities as of December 31, 2002.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, accounts and other
receivables, and accounts payable approximate fair value due to the short-term
maturity of these instruments. The carrying amounts of outstanding capital lease
obligations approximate fair value based on the terms and interest rates
available to us for similar transactions.

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. The use of alternative valuation methods and/or
estimates may have resulted in materially different estimates from those
presented. The estimated fair values were based on available information as of
December 31, 2003 and 2002.

Quoted market prices were used to estimate the fair market values of our
3 1/2% Convertible Notes due 2008, 14 1/2% Senior Secured Notes due 2009 and 15%
Senior Secured Discount Notes due 2007. A discounted cash flow analysis was used
to estimate the fair market value of our term loan facilities. Quoted market
prices were used to estimate the fair market value of our 8 3/4% Convertible
Subordinated Notes due 2009 as of December 31, 2002 and a discounted cash flow
analysis was used to estimate the fair market value of these notes as of
December 31, 2003 as there is no longer an active market for these notes. 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.

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

AS OF DECEMBER 31,
-------------------------------------------------
2003 2002
----------------------- -----------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------

3 1/2% Convertible Notes due 2008................. $136,250 $347,438 $ -- $ --
8 3/4% Convertible Subordinated Notes due 2009.... 1,744 1,632 16,461 6,749
14 1/2% Senior Secured Notes due 2009............. 27,609 31,052 179,382 79,000
15% Senior Secured Discount Notes due 2007........ 29,200 29,967 280,430 102,357
Lehman term loan facility......................... -- -- 144,084 113,855
Loral term loan facility.......................... -- -- 50,000 42,759
9.2% Series A Junior Cumulative Convertible
Preferred Stock................................. -- -- 193,230 4,059
9.2% Series B Junior Cumulative Convertible
Preferred Stock................................. -- -- 84,781 1,821
9.2% Series D Junior Cumulative Convertible
Preferred Stock................................. -- -- 253,142 4,816

F-15

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

ASSET RETIREMENT OBLIGATION

In accordance with SFAS No. 143, 'Accounting for Asset Retirement
Obligations,' we recorded costs equal to the present value of the future
obligation associated with the retirement of our terrestrial repeater network.
These costs, which are included in other long-term liabilities, include an
amount that we estimate will be sufficient to satisfy our obligations under
leases to remove our terrestrial repeater equipment and restore the sites to
their original condition. The following table reconciles the beginning and
ending aggregate carrying amount of this asset retirement obligation:

ASSET
RETIREMENT
OBLIGATION
----------

Balance, December 31, 2002.................................. $--
Present value of asset retirement obligation................ 195
Accretion expense........................................... 84
----
Balance, December 31, 2003.................................. $279
----
----

RECLASSIFICATIONS

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

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB issued Interpretation No. 46 (Revised 2003),
'Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.'
This Interpretation, which replaces FASB Interpretation No. 46, 'Consolidation
of Variable Interest Entities,' addresses the consolidation by business
enterprises of variable interest entities as defined in the Interpretation. This
Interpretation is effective no later than the end of the first reporting period
that ends after March 15, 2004. This Interpretation did not have an impact on
our consolidated results of operations or financial position.

In May 2003, the FASB issued SFAS No. 150, 'Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity,' which is
effective for all financial instruments created or modified after May 31, 2003
and otherwise effective at the beginning of the first interim period after
June 15, 2003. SFAS No. 150 establishes standards for classifying and measuring
as liabilities certain financial instruments that embody obligations of the
issuer and have characteristics of both liabilities and equity. The adoption of
SFAS No. 150 did not have an impact on our consolidated results of operations or
financial position.

F-16

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

3. RECENT DEBT AND EQUITY TRANSACTIONS; RECAPITALIZATION

In December 2003, we issued 54,805,993 shares of common stock in exchange
for $65,000 in aggregate principal amount of our 3 1/2% Convertible Notes due
2008, including accrued interest. As of December 31, 2003, $136,250 in aggregate
principal amount of our 3 1/2% Convertible Notes due 2008 was outstanding. In
connection with this transaction we incurred debt conversion costs of $19,439.

In November 2003, we sold 73,170,732 shares of our common stock in an
underwritten public offering resulting in net proceeds of $149,600.

In June 2003, we sold 86,250,000 shares of our common stock in an
underwritten public offering resulting in net proceeds of $144,897.

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

we issued 545,012,162 shares of our common stock in exchange
for approximately 91% of our then outstanding debt, including 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 issued 39,927,796 shares of our common stock and warrants
to purchase 45,416,690 shares of our common stock in exchange for
all outstanding shares of our 9.2% Series A Junior Cumulative
Convertible Preferred Stock and 9.2% Series B Junior Cumulative
Convertible Preferred Stock held by affiliates of Apollo Management,
L.P. ('Apollo');

we issued 37,065,069 shares of our common stock and warrants
to purchase 42,160,424 shares of our common stock in
exchange for all outstanding shares of our 9.2% Series D
Junior Cumulative Convertible Preferred Stock held by affiliates
of The Blackstone Group L.P. ('Blackstone');

we sold 24,060,271 shares of our common stock to Apollo for
an aggregate of $25,000;

we sold 24,060,271 shares of our common stock to Blackstone
for an aggregate of $25,000; and

we sold 163,609,837 shares of our common stock to affiliates
of OppenheimerFunds, Inc. ('Oppenheimer') for an aggregate
of $150,000.

In March 2003, we recorded a gain of $256,538 and a deemed dividend of
$79,510 as a result of the exchange 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.

F-17

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

4. SUBSCRIBER REVENUE

Subscriber revenue consists of subscription revenue, non-refundable
activation revenue and the effects of mail-in rebate programs. An estimate of
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 service.
In subsequent periods estimates are adjusted when necessary. Subscriber revenue
consists of the following:

FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
2003 2002 2001
---- ---- ----

Subscription revenue........................................ $13,759 $1,016 $ --
Activation revenue.......................................... 534 33 --
Effects of mail-in rebates.................................. (1,678) (426) --
------- ------ ------
Total subscriber revenue, including effects of mail-in
rebates............................................... $12,615 $ 623 $ --
------- ------ ------
------- ------ ------

5. NON-CASH STOCK COMPENSATION

We record non-cash stock compensation expense or benefit in connection with
the grant of certain stock options and restricted stock units, and the issuance
of common stock to employees and employee benefit plans. We recognized non-cash
stock compensation expense of $11,454, a non-cash stock compensation benefit of
$7,867 and non-cash stock compensation expense of $14,044 for the years ended
December 31, 2003, 2002 and 2001, respectively.

The non-cash stock compensation expense for the year ended December 31, 2003
includes $5,251 as a result of the accelerated vesting of options due to the
satisfaction of 2003 performance criteria. The non-cash stock compensation
benefit and expense for the years ended December 31, 2002 and 2001,
respectively, are primarily a result of options that were repriced in April
2001.

6. INTEREST COST

During the years ended December 31, 2002 and 2001, we capitalized a portion
of the interest on funds borrowed to finance our construction in process. The
following is a summary of our interest cost:

FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
2003 2002 2001
---- ---- ----

Interest costs charged to expense...................... $31,071 $ 96,513 $ 81,427
Debt conversion costs charged to expense............... 19,439 9,650 8,259
------- -------- --------
Total interest expense............................. 50,510 106,163 89,686
Interest costs capitalized............................. -- 5,426 19,270
------- -------- --------
Total interest costs incurred...................... $50,510 $111,589 $108,956
------- -------- --------
------- -------- --------

Debt conversion costs for the year ended December 31, 2003 are a result of
the exchange of $65,000 in aggregate principal amount of our 3 1/2% Convertible
Notes due 2008 for shares of our common stock. Debt conversion costs for the
years ended December 31, 2002 and 2001 are a result of the exchange of $29,475
and $34,900, respectively, in aggregate principal amount of our 8 3/4%
Convertible Subordinated Notes due 2009 for shares of our common stock.

F-18

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

7. SUPPLEMENTAL CASH FLOW DISCLOSURES

The following represents supplemental cash flow information:

FOR THE YEARS ENDED
DECEMBER 31,
----------------------
2003 2002
---- ----

Cash paid for interest...................................... $ 14,998 $24,042
Supplemental non-cash operating activities:
Common stock issued in satisfaction of accrued
compensation.......................................... -- 1,720
Supplemental non-cash investing and financing activities:
Capitalized interest.................................... -- 5,426
Common stock issued in exchange for 15% Senior Secured
Discount Notes due 2007, including accrued interest... 145,067 --
Common stock issued in exchange for 14 1/2% Senior
Secured Notes due 2009, including accrued interest.... 105,294 --
Common stock issued in exchange for Lehman term loans,
including accrued interest............................ 85,902 --
Common stock issued in exchange for Loral term loans,
including accrued interest............................ 41,865 --
Common stock issued in exchange for 8 3/4% Convertible
Subordinated Notes due 2009, including accrued
interest.............................................. 24,355 39,300
Common stock issued in exchange for 3 1/2% Convertible
Notes due 2008, including accrued interest............ 82,380 --
Common stock issued in exchange for 9.2% Series A and B
Junior Cumulative Convertible Preferred Stock,
including accrued dividends........................... 304,847 --
Common stock issued in exchange for 9.2% Series D Junior
Cumulative Convertible Preferred Stock, including
accrued dividends..................................... 283,785 --
Warrants issued in exchange for 9.2% Series A, B and D
Junior Cumulative Convertible Preferred Stock,
including accrued dividends........................... 30,731 --

8. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

AS OF DECEMBER 31,
-----------------------
2003 2002
---- ----

Satellite system............................................ $ 945,548 $ 945,548
Terrestrial repeater network................................ 69,342 64,036
Leasehold improvements...................................... 26,210 25,348
Broadcast studio equipment.................................. 25,847 23,332
Customer care, billing and conditional access............... 6,436 19,984
Satellite telemetry, tracking and control facilities........ 16,570 16,418
Furniture, fixtures, equipment and other.................... 34,842 25,908
Construction in process..................................... 2,221 5,769
---------- ----------
Total property and equipment............................ 1,127,016 1,126,343
Accumulated depreciation.................................... (185,964) (93,469)
---------- ----------
Property and equipment, net............................. $ 941,052 $1,032,874
---------- ----------
---------- ----------

F-19

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

Construction in process consisted of the following:

AS OF DECEMBER 31,
-------------------
2003 2002
---- ----

Construction of terrestrial repeater network................ 1,949 5,769
Other....................................................... 272 --
------ ------
Construction in process................................. $2,221 $5,769
------ ------
------ ------

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.

SUBSCRIBER MANAGEMENT SYSTEM

In April 2003, we terminated our agreement with Sentraliant, the company
that developed and operated our prior subscriber management system. Pursuant to
that agreement, we paid Sentraliant $5,000 to terminate our agreement, of which
approximately $1,000 related to fees for operating the system through the date
of termination. As a result of this termination, we recorded a non-cash charge
of $14,465 related to the write-off of the net book value of our subscriber
management system. These costs are included in customer service and billing in
the accompanying consolidated statements of operations for the year ended
December 31, 2003.

In May 2003, we began using our new subscriber management system. The new
system effectively manages our subscriber data, bills subscribers and interfaces
with our conditional access system. We continue to evaluate the effectiveness of
our new system and implement enhancements to the system.

TERRESTRIAL REPEATER NETWORK

During the year ended December 31, 2002, we implemented a plan to optimize
our terrestrial network, 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 in the accompanying consolidated
statement of operations for the year ended December 31, 2002.

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

AS OF DECEMBER 31,
-------------------
2003 2002
---- ----

Accounts payable............................................ $ 1,630 $ 3,848
Accrued compensation........................................ 5,247 4,869
Accrued capital expenditures................................ 2,469 7,566
Accrued research and development costs...................... 4,400 6,590
Accrued subsidies and distribution.......................... 30,770 8,221
Accrued broadcast royalties................................. 3,478 1,095
Other accrued expenses...................................... 17,925 11,147
------- -------
$65,919 $43,336
------- -------
------- -------

F-20

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

10. LONG-TERM DEBT AND ACCRUED INTEREST

Our long-term debt consists of the following:

AS OF DECEMBER 31,
-------------------
2003 2002
---- ----

3 1/2% Convertible Notes due 2008........................... $136,250 $ --
8 3/4% Convertible Subordinated Notes due 2009.............. 1,744 16,461
14 1/2% Senior Secured Notes due 2009....................... 27,609 179,382
15% Senior Secured Discount Notes due 2007.................. 29,200 280,430
Lehman term loans........................................... -- 144,084
Loral term loans............................................ -- 50,000
-------- --------
Total long-term debt.................................... $194,803 $670,357
-------- --------
-------- --------

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

AS OF DECEMBER 31,
---------------------
2003 2002
---- ----

3 1/2% Convertible Notes due 2008........................... $ 397 $ --
8 3/4% Convertible Subordinated Notes due 2009.............. 38 1,088
14 1/2% Senior Secured Notes due 2009....................... 549 18,206
15% Senior Secured Discount Notes due 2007.................. 365 3,505
Lehman term loan facility................................... -- 3,170
Loral term loan facility.................................... -- 24,179
-------- -------
Total accrued interest.................................. $ 1,349 $50,148
Less: current portion............................... (1,349) (3,234)
-------- -------
Total long-term accrued interest........................ $ -- $46,914
-------- -------
-------- -------

The maturities of our long-term debt are as follows:

AS OF
DECEMBER 31, 2003
-----------------

2004........................................................ $--
2005........................................................ --
2006........................................................ --
2007........................................................ 29,200
2008........................................................ 136,250
Thereafter.................................................. 32,002
--------
Total Debt.............................................. $197,452
--------
--------

DEBT RESTRUCTURING

In March 2003, we issued 545,012,162 shares of our common stock in exchange
for approximately 91% of our then outstanding debt, including all of our Lehman
term loans, all of our Loral term loans and $435,689 in aggregate principal
amount at maturity 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. In March 2003, we recorded a gain of $256,538 as a result of the exchange
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

F-21

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

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.

3 1/2% CONVERTIBLE NOTES DUE 2008

In May 2003, we issued $201,250 in aggregate principal amount of our 3 1/2%
Convertible Notes due 2008 in an underwritten public offering resulting in net
proceeds of $194,224. Our 3 1/2% Convertible Notes due 2008 are convertible, at
the option of the holder, into shares of our common stock at any time at a
conversion rate of 724.6377 shares of common stock for each $1,000.00 principal
amount, or $1.38 per share of common stock, subject to certain adjustments. Our
3 1/2% Convertible Notes due 2008 mature on June 1, 2008 and interest is payable
semi-annually on June 1 and December 1 of each year. The obligations under our
3 1/2% Convertible Subordinated Notes due 2008 are not secured by any of our
assets.

8 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2009

Our 8 3/4% Convertible Subordinated Notes mature on September 29, 2009 and
interest is payable semi-annually on March 29 and September 29 of each year. Our
8 3/4% Convertible Notes due 2009 are convertible, at the option of the holder,
into shares of our common stock at any time at a conversion rate of 35.134
shares of common stock for each $1,000.00 principal amount, or $28.4625 per
share of common stock, subject to certain adjustments. The obligations under our
8 3/4% Convertible Subordinated Notes due 2009 are not secured by any of our
assets.

During the year ended December 31, 2002, we issued 2,913,483 shares of our
common stock in exchange for $29,475 in aggregate principal amount of our 8 3/4%
Convertible Subordinated Notes due 2009, including accrued interest. During the
year ended December 31, 2001, we issued 2,283,979 shares of our common stock in
exchange for $34,900 in aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009, including accrued interest. In connection with
these transactions we incurred debt conversion costs of $9,650 and $8,259,
respectively, for the years ended December 31, 2002 and 2001.

14 1/2% SENIOR SECURED NOTES DUE 2009

Our 14 1/2% Senior Secured Notes mature on May 15, 2009 and interest is
payable semi-annually on May 15 and November 15 of each year. As of
December 31, 2003, $30,258 in aggregate principal amount of our 14 1/2% Senior
Secured Notes due 2009 was outstanding. The aggregate principal amount of our
14 1/2% Senior Secured Notes due 2009 is reduced by $2,649, the unamortized
portion of the fair market value of warrants issued in connection with these
notes. The obligations under our 14 1/2% Senior Secured Notes due 2009 are
secured by a lien on the stock of our subsidiary that holds our FCC license and
a lien on our spare satellite.

15% SENIOR SECURED DISCOUNT NOTES DUE 2007

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

F-22

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

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

LEHMAN TERM LOAN FACILITY

On June 1, 2000, we entered into a term loan agreement with Lehman
Commercial Paper Inc. ('LCPI') and Lehman Brothers Inc. On March 7, 2001, we
borrowed $150,000 from LCPI under this agreement. Interest on the term loan was
based on an annual rate equal to the eurodollar rate plus 5% or a base rate,
typically the prime rate, plus 4%. The term loan was secured by the stock of our
subsidiary that holds our FCC license and a lien on our spare satellite. On
March 26, 2002, we entered into an amendment to this term loan agreement
adjusting the financial covenants, accelerating the amortization schedule of the
term loan and reducing the exercise price of the warrants 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. In March 2003, we issued
120,988,793 shares of our common stock in exchange for all of our outstanding
Lehman term loans, including accrued interest.

LORAL TERM LOAN FACILITY

Loral 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. Our obligations under our Loral term loan
facility were secured by a security interest in our terrestrial repeater
network. In March 2003, we issued 58,964,981 shares of our common stock in
exchange for all of our outstanding Loral term loans, including accrued
interest.

11. STOCKHOLDERS' EQUITY

COMMON STOCK, PAR VALUE $.001 PER SHARE

As of December 31, 2003, approximately 376,105,000 shares of our common
stock were reserved for issuance in connection with outstanding convertible
debt, warrants and incentive stock plans.

In November 2003, we sold 73,170,732 shares of our common stock in an
underwritten public offering resulting in net proceeds of $149,600. In June
2003, we sold 86,250,000 shares of our common stock in an underwritten public
offering resulting in net proceeds of $144,897. In March 2003, we sold
24,060,271 shares of our common stock to Apollo for an aggregate of $25,000;
24,060,271 shares of our common stock to Blackstone for an aggregate of $25,000;
and 163,609,837 shares of our common stock to Oppenheimer for an aggregate of
$150,000. We received net proceeds of $197,112 in connection with these sales.
In January 2002, we sold 16,000,000 shares of our common stock in a public
offering for net proceeds of $147,500. In February 2001, we sold 11,500,000
shares of our common stock in a public offering for net proceeds of $229,300.

In March 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.

F-23

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

PREFERRED STOCK

In December 1998, we sold Apollo, 1,350,000 shares of our 9.2% Series A
Junior Cumulative Convertible Preferred Stock, par value $.001 per share, for an
aggregate purchase price of $135,000. Each share of our 9.2% Series A Junior
Cumulative Convertible Preferred Stock was convertible into a number of shares
of our common stock calculated by dividing the $100.00 per share liquidation
preference by a conversion price of $30.00. This conversion price was subject to
adjustment for certain corporate events. Dividends on our 9.2% Series A Junior
Cumulative Convertible Preferred Stock were payable annually in cash or
additional shares of our 9.2% Series A Junior Cumulative Convertible Preferred
Stock, at our option.

In December 1998, Apollo granted to us an option to sell to Apollo 650,000
shares of our 9.2% Series B Junior Cumulative Convertible Preferred Stock, par
value $.001 per share, for an aggregate purchase price of $65,000. We exercised
this option on December 23, 1999. The terms of our 9.2% Series B Junior
Cumulative Convertible Preferred Stock were similar to those of our 9.2% Series
A Junior Cumulative Convertible Preferred Stock.

In January 2000, we sold Blackstone 2,000,000 shares of our 9.2% Series D
Junior Cumulative Convertible Preferred Stock, par value $.001 per share, for an
aggregate purchase price of $200,000. Each share of our 9.2% Series D Junior
Cumulative Convertible Preferred Stock was convertible into a number of shares
of our common stock calculated by dividing the $100.00 per share liquidation
preference by a conversion price of $34.00. This conversion price was subject to
adjustment for certain corporate events. Dividends on our 9.2% Series D Junior
Cumulative Convertible Preferred Stock were payable annually in cash or
additional shares of our 9.2% Series D Junior Cumulative Convertible Preferred
Stock, at our option.

In March 2003, we issued 39,927,796 shares of our common stock to Apollo in
exchange for all of our outstanding 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 to Blackstone in exchange for all of
our outstanding 9.2% Series D Junior Cumulative Convertible Preferred Stock,
including, in each case, accrued dividends. In March 2003, we recorded a deemed
dividend of $79,510 as a result of these exchange transactions.

WARRANTS

In March 2003, we issued warrants to purchase 45,416,690 shares of our
common stock in exchange for all our outstanding 9.2% Series A Junior Cumulative
Convertible Preferred Stock and 9.2% Series B Junior Cumulative Convertible
Preferred Stock held by Apollo. Warrants to purchase 27,250,013 shares of our
common stock have an exercise price of $1.04 per share, and warrants to purchase
18,166,677 shares of our common stock have an exercise price of $0.92 per share.
These warrants are exercisable and expire on March 7, 2005.

In March 2003, we issued warrants to purchase 42,160,424 shares of our
common stock in exchange for all our outstanding 9.2% Series D Junior Cumulative
Convertible Preferred Stock held by Blackstone. Warrants to purchase 25,296,255
shares of our common stock have an exercise price of $1.04 per share, and
warrants to purchase 16,864,169 shares of our common stock have an exercise
price of $0.92 per share. These warrants are exercisable and expire on September
7, 2004. In November 2003, Blackstone exercised 21,027,512 warrants, each with
an exercise price of $1.04 per share, through a cashless exercise. In connection
with this exercise, we issued 11,531,805 shares of our common stock to
Blackstone.

In January 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. In October
2002, we cancelled the warrant previously issued to DaimlerChrysler and issued a
new warrant which entitles DaimlerChrysler to

F-24

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

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 3,200,000 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 agreement. We record
warrant expense based upon the satisfaction of certain performance criteria and
the fair value of the warrants at each reporting date. The final measurement
date of these warrants will be the date that each performance commitment for
such warrants is satisfied. We recorded $205 associated with these warrants
during the year ended December 31, 2003. We did not recognize any costs
associated with these warrants during the years ended December 31, 2002 and
2001.

In June 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. In October 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 agreement. We recorded $240 associated with these warrants during the year
ended December 31, 2003. We did not recognize any costs associated with these
warrants during the years ended December 31, 2002 and 2001.

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. In March 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 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 of December 31, 2003,
these 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, 2003, 578,990 of these
warrants were outstanding.

We granted 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, 2003, all of these
warrants were outstanding.

12. 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'). In March 2003, we adopted the Sirius Satellite Radio 2003 Long-Term
Stock Incentive Plan (the '2003 Plan'). As of December 31, 2003, approximately
114,206,000 shares of our common stock were available for grant under these
plans. Employees and consultants are eligible to receive awards under the 2003
Plan.

F-25

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

The 2003 Plan provides for the grant of stock options, restricted stock,
restricted stock units and other stock-based awards that the compensation
committee of our board of directors may deem appropriate. Vesting and other
terms of stock-based awards are set forth in the agreements with the individuals
receiving the awards. Stock-based awards granted under the 2003 Plan generally
vest over three to five years from the date of grant and expire in ten years.

During the year ended December 31, 2003, we granted a total of 47,707,250
nonqualified stock options to employees and consultants with an exercise price
of $1.04 per share. Since the exercise price of these stock-based awards was
less than the fair market value of the underlying common stock on the date of
grant, we recorded deferred compensation, a component of stockholders' equity,
of $30,299 during the year ended December 31, 2003. This deferred compensation
is amortized to non-cash stock compensation expense over the vesting period.
Approximately 42% of these options vest ratably over three years, 25% vest in
July 2008 with acceleration to March 2004 if performance criteria are satisfied
in 2003 and 33% vest in July 2008 with acceleration to March 2005 if performance
criteria are satisfied in 2004. During the year ended December 31, 2003, we
recognized non-cash stock compensation associated with these stock options of
$8,569, including $5,251 of non-cash stock compensation expense related to the
accelerated vesting of stock options as result of the satisfaction of
performance criteria in 2003.

The following table summarizes the stock option activity under all of our
plans (shares in 000's):

FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2003 2002 2001
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----

Outstanding at beginning of year......... 13,341 $12.16 11,117 $13.58 7,510 $29.12
Granted.................................. 53,379 1.17 3,240 5.78 4,233 9.23
Exercised................................ -- -- (3) 7.50 (185) 3.30
Cancelled................................ (1,989) 6.27 (1,013) 7.34 (441) 17.35
Cancelled under repricing................ -- -- -- -- (3,982) 32.24
Granted under repricing.................. -- -- -- -- 3,982 7.50
------ ------ ------
Outstanding at end of year............... 64,731 $ 3.28 13,341 $12.16 11,117 $13.58
------ ------ ------
------ ------ ------

Exercise prices for stock options outstanding as of December 31, 2003 ranged
from $0.49 to $57.00 per share. The weighted average grant date fair value of
stock options granted during the years ended December 31, 2003, 2002 and 2001,
was $1.49, $3.74 and $5.33 per share, respectively. The following table provides
certain information with respect to stock options outstanding and exercisable at
December 31, 2003:

STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
------------------------------------------- -----------------------
AVERAGE REMAINING WEIGHTED WEIGHTED
RANGE OF EXERCISE CONTRACTUAL LIFE AVERAGE AVERAGE
PRICE PER SHARE SHARES (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
--------------- ------ ------- -------------- ------ --------------

$0.49 - $1.00..................... 97 9.0 $ 0.78 9 $ 0.95
$1.01 - $4.99..................... 53,633 9.6 1.18 754 3.48
$5.00 - $14.99.................... 8,377 6.8 7.90 7,389 7.89
$15.00 - $34.99................... 2,526 4.3 31.01 2,526 31.01
$35.00 - $57.00................... 98 6.5 45.89 87 45.68
------ ------
Total............................. 64,731 9.0 $ 3.28 10,765 $13.31
------ ------
------ ------

F-26

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

RESTRICTED STOCK UNITS

We granted 16,860,000 restricted stock units, with a weighted average grant
date fair value of $1.65 per share to certain employees during the year ended
December 31, 2003. Each restricted stock unit entitles the holder to receive one
share of common stock upon vesting in July 2008 with acceleration to March 2006
if performance criteria are satisfied with respect to the year ending December
31, 2005. We recorded deferred compensation of $27,811 during the year ended
December 31, 2003 in connection with these restricted stock units, which will be
amortized to non-cash stock compensation expense over the vesting period. During
the year ended December 31, 2003, we recognized non-cash stock compensation
expense associated with these restricted stock units of $2,211.

401(k) SAVINGS PLAN

We sponsor the Sirius Satellite Radio 401(k) Savings Plan (the 'Plan') for
eligible employees. The Plan allows eligible employees to voluntarily contribute
from 1% to 16% of their pre-tax salary subject to certain defined limits.
Currently we match 50% of employee voluntary contributions, up to 6% of an
employee's pre-tax salary, in the form of shares 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 of employment. Contribution expense resulting
from our matching contribution to the Plan was $801, $1,231, and $1,224 for the
years ended December 31, 2003, 2002 and 2001, respectively.

We may also elect to contribute to the profit sharing portion of the Plan
based upon the total compensation of all participants eligible to receive an
allocation. These additional contributions, referred to as regular employer
contributions, will be determined by the compensation committee of our board of
directors. Employees are only eligible to share in regular employer
contributions during any year in which they are employed on the last day of the
year. Profit sharing contribution expense was approximately $913 for the year
ended December 31, 2003. There was no profit sharing contribution expense for
the years ended December 31, 2002 and 2001, respectively.

13. INCOME TAXES

Our income tax provision (benefit) consists of the following:

FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
2003 2002 2001
---- ---- ----

Current taxes:
Federal................................................. $ -- $ -- $ --
State................................................... -- -- --
--------- --------- ---------
Total current taxes................................. $ -- $ -- $ --
--------- --------- ---------
Deferred taxes:
Federal................................................. $ -- $ -- $ --
State................................................... -- -- --
--------- --------- ---------
Total deferred taxes................................ $ -- $ -- $ --
--------- --------- ---------
Total income tax provision (benefit)........................ $ -- $ -- $ -
--------- --------- ---------
--------- --------- ---------

F-27

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

The following table indicates the significant elements contributing to the
difference between the federal tax provision (benefit) at the statutory rate and
at our effective rate:

FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2003 2002 2001
---- ---- ----

Federal tax benefit at statutory rate....................... 79,175 147,868 82,517
State income taxes, net of federal benefit.................. 11,644 21,747 13,439
Increase in taxes resulting from permanent differences,
net....................................................... (9,162) (3,508) (9,797)
Other....................................................... -- (2,571) --
Change in valuation allowance............................... (81,657) (163,536) (86,159)
-------- --------- --------
Income tax provision (benefit).......................... $ -- $ -- $ --
-------- --------- --------
-------- --------- --------

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

DECEMBER 31,
---------------------
2003 2002
---- ----

Deferred tax assets:
Start-up costs capitalized for tax purposes....... $ 73,903 $ 95,547
Net operating loss carryforwards.................. 449,942 277,761
Capitalized interest expense...................... 10,032 28,389
Other............................................. 14,365 2,221
--------- ---------
Total deferred tax asset...................... 548,242 403,918
Deferred tax liabilities:
Depreciation and amortization..................... (60,244) (51,086)
Other............................................. (2,237) (2,281)
--------- ---------
Total deferred tax liabilities................ (62,481) (53,367)
Net deferred tax assets before valuation
allowance....................................... 485,761 350,551
Valuation allowance............................... (487,998) (352,788)
--------- ---------
Net deferred tax liability.................... $ (2,237) $ (2,237)
--------- ---------
--------- ---------

A significant portion of our costs incurred to date have 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, 2003 were $184,081. These
capitalized costs are being amortized over 60 months. The total deferred tax
asset includes approximately $8,107, which, if realized, would not affect
financial statement income but would be recorded directly to stockholders'
equity.

At December 31, 2003, we had net operating loss ('NOL') carryforwards of
approximately $1,120,731 for federal and state income tax purposes available to
offset future taxable income. These NOL carryforwards expire on various dates
beginning in 2008. We have had several ownership changes under Section 382 of
the Internal Revenue Code which may limit our ability to utilize tax deductions.
Furthermore, future changes in our ownership may limit our ability to utilize
our deferred tax asset. Realization of deferred tax assets is dependent upon
future earnings; accordingly, a full valuation allowance was recorded against
the assets.

14. RELATED PARTIES

During the year ended December 31, 2001, we made payments of $200 to a
financial advisory firm, of which a related party was a partner. There were no
related party transactions during the years ended December 31, 2003 and 2002,
respectively.

F-28

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

15. LEASE OBLIGATIONS

We have entered into non-cancelable operating leases for office space,
equipment and terrestrial repeater sites. These leases provide for minimum lease
payments, additional operating expense charges, have initial terms ranging from
one to fifteen years, and certain leases have options to renew. Total rent
expense recognized in connection with these leases for the years ended December
31, 2003, 2002 and 2001 was $12,275, $12,792, and $10,972, respectively. In
addition, we have entered into non-cancelable capital leases for equipment.
These leases have been capitalized using interest rates of approximately 16% and
expire on various dates through 2005. Depreciation on the capitalized assets
acquired pursuant to capital leases has been included in depreciation expense in
the accompanying statements of operations.

Future minimum lease payments under these non-cancelable leases as of
December 31, 2003 were as follows:

OPERATING CAPITAL
--------- -------

2004............................................... $ 7,795 $ 75
2005............................................... 7,185 8
2006............................................... 6,393 --
2007............................................... 6,181 --
2008............................................... 6,121 --
Thereafter......................................... 30,121 --
------- ----
Total minimum lease payments................... $63,796 $ 83
-------
-------

Less amount representing interest.................. (1)
----
Present value of net minimum lease payments........ 82
Less current portion............................... (74)
----
Total long-term capital lease obligations...... $ 8
----
----

16. COMMITMENTS AND CONTINGENCIES

We have entered into various contracts which have resulted in significant
cash obligations in future periods. The following table summarizes our
contractual commitments as of December 31, 2003:

2004 2005 2006 2007 2008 THEREAFTER TOTAL
------- ------- ------- ------ ------ ---------- --------

Satellite and transmission... $ 2,374 $ 2,374 $ 2,374 $2,374 $2,374 $16,621 $ 28,491
Programming and content...... 28,296 32,591 23,750 2,002 1,000 -- 87,639
Customer service and
billing.................... 2,984 1,440 360 -- -- -- 4,784
Sales and marketing.......... 17,190 7,511 6,216 4,500 -- -- 35,417
Research and development..... 13,736 4,129 -- -- -- -- 17,865
Chip set production.......... 14,400 -- -- -- -- -- 14,400
------- ------- ------- ------ ------ ------- --------
Total contractual
commitments................ $78,980 $48,045 $32,700 $8,876 $3,374 $16,621 $188,596
------- ------- ------- ------ ------ ------- --------
------- ------- ------- ------ ------ ------- --------

SATELLITE AND TRANSMISSION

We have entered into an agreement with a provider of satellite services to
operate our off-site satellite telemetry, tracking and control facilities.

F-29

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

PROGRAMMING AND CONTENT

CUSTOMER SERVICE AND BILLING

We have entered into agreements with third parties to provide customer
service, billing and subscriber management services.

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.

RESEARCH AND DEVELOPMENT

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 produce a
minimum quantity of chip sets during each year of the agreement.

JOINT DEVELOPMENT AGREEMENT

OTHER COMMITMENTS

We have agreed to use reasonable efforts to assist certain manufacturers of
SIRIUS radios and components for those radios in the event that production of
such radios and components are greater than sales. In certain circumstances,
these reasonable efforts may include the purchase of unsold SIRIUS radios or
components. In addition, 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.

F-30

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

Through December 31, 2003, we have not entered into any off-balance sheet
arrangements or transactions.

RISKS AND UNCERTAINTIES

We have an agreement with Agere to develop and produce chip sets for use in
SIRIUS radios. Agere is currently the sole supplier of chip sets to our radio
manufacturers. Although there are a limited number of manufacturers of these
chip sets, we believe that other suppliers could provide similar chip sets on
comparable terms. A change of suppliers could cause a delay in manufacturing and
a possible loss of sales, which would adversely affect our operating results.

A significant number of SIRIUS radios are produced by a single vendor due to
technology, availability, price, quality and other considerations. In the event
that supply of these SIRIUS radios were delayed or reduced, the ability of radio
manufacturers to ship SIRIUS radios in the desired quantities and in a timely
manner would adversely affect our operating results.

17. QUARTERLY FINANCIAL DATA (UNAUDITED)

Our quarterly results of operations are summarized below:

FOR THE THREE MONTHS ENDED,
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------

2003:
Revenue................................... $ 1,591 $ 2,073 $ 4,258 $ 4,950
Cost of services.......................... (16,643) (31,647) (17,720) (20,764)
Net income (loss) applicable to common
stockholders(1)......................... 51,880 (111,836) (106,689) (147,778)
Net income (loss) per share applicable to
common stockholders..................... $ 0.16 $ (0.12) $ (0.11) $ (0.14)
2002:
Revenue................................... $ 33 $ 70 $ 17 $ 685
Cost of services.......................... (14,382) (14,457) (14,194) (26,865)
Net loss applicable to common
stockholders............................ (90,124) (124,603) (119,675) (134,064)
Net loss per share applicable to common
stockholders............................ $ (1.22) $ (1.62) $ (1.56) $ (1.74)

---------

(1) Net income for the three months ended March 31, 2003
includes other income of $256,538 related to our debt
restructuring.

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.

18. SUBSEQUENT EVENTS (UNAUDITED)

In January 2004, Blackstone exercised 4,205,503 warrants, with an exercise
price of $1.04 per share, and 16,822,009 warrants, with an exercise price of
$0.92. In connection with these exercises, we issued 21,027,512 shares of our
common stock for $19,850 in net proceeds.

In January 2004, we issued 56,409,853 shares of our common stock in exchange
for $69,000 in aggregate principal amount of our 3 1/2% Convertible Notes due
2008, including accrued interest. Following the exchange, $67,250 in aggregate
principal amount of our 3 1/2% Convertible Notes due 2008 was outstanding. We
incurred debt conversion costs of $21,896 in connection with this transaction.

F-31

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

In January 2004, we signed agreements with Penske Automotive Group, Inc.,
United Auto Group, Inc., Penske Truck Leasing Co. L.P. and Penske Corporation.
We have agreed to pay the Penske companies a commission upon the sale or lease
of a vehicle that includes a one-year or more subscription to our service
bundled with the price of the vehicle; share the costs of our joint marketing
efforts; reimburse the Penske companies for certain costs of purchasing and, if
applicable, installing SIRIUS radios; and issue the Penske companies warrants to
purchase an aggregate of 38 million shares of our common stock at an exercise
price of $2.392 per share. Two million of these warrants vest upon issuance and
the balance of these warrants vest over time and upon achievement of certain
milestones by the Penske companies.

In February 2004, we signed a seven-year agreement with the National
Football League to broadcast NFL games live nationwide, and to become the
Official Satellite Radio Partner of the National Football League, with exclusive
rights to use the NFL 'shield' logo and collective NFL team trademarks. We have
agreed to pay the NFL an aggregate of $188 million in cash during the term of
the agreement. $10 million of this amount was paid in connection with the
announcement and execution of our agreement with the NFL, $85 million was
deposited in escrow, and we are not required to make further payments to the NFL
until August 2009. We have delivered to the NFL 15,173,070 shares of our common
stock and warrants to purchase 50,000,000 shares of our common stock at an
exercise price of $2.50 per share. The shares of common stock are subject to
certain transfer restrictions which lapse over time. The warrants vest and
become exercisable upon satisfaction of performance criteria.

In February 2004, we announced an agreement with RadioShack Corporation, one
of the nation's largest consumer electronics retailers with more than 7,000
outlets nationwide, to distribute, market and sell SIRIUS radios. We have agreed
to pay RadioShack compensation based upon the number of subscribers to our
service that RadioShack activates, reimburse it for costs of certain joint
marketing efforts, and pay it other customary compensation. We have also agreed
to issue RadioShack warrants to purchase up to 10,000,000 shares of our common
stock. All of these warrants will have an exercise price of $5.00 per share and
will vest and become exercisable only if RadioShack achieves specified
activation targets during the five year term of the agreement.

In February 2004, we also announced an agreement with affiliates of EchoStar
Communications Corporation, which serves over nine million satellite television
customers through its DISH Network and is a leading provider of advanced digital
television services. EchoStar has agreed to purchase, distribute, market and
sell SIRIUS radios through its extensive network of satellite television dealers
and through certain other retailers and distributors. In connection with the
purchase, distribution, marketing and sale of SIRIUS radios, we have agreed to
pay EchoStar compensation based upon the number of subscribers to our service
that it activates. EchoStar has also agreed to broadcast on its DISH Network
satellite television service substantially all of our commercial-free music
channels as part of its America's Top 120 and America's Top 180 programming
packages, packages that are received by a majority of DISH Network subscribers.

In February 2004, we issued $250,000 in aggregate principal amount of our
2 1/2% Convertible Notes due 2009 pursuant to Rule 144A under the Securities Act
resulting in net proceeds of $244,625. Our 2 1/2% Convertible Notes due 2009 are
convertible, at the option of the holder, into shares of our common stock at any
time at a conversion rate of 226.7574 shares of common stock for each $1,000.00
principal amount, or $4.41 per share of common stock, subject to certain
adjustments.

F-32

SIRIUS SATELLITE RADIO INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)

SCHEDULE II -- SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

BALANCE AT CHARGE TO BALANCE AT
BEGINNING OF YEAR EXPENSE END OF YEAR
----------------- ------- -----------

For the year ended December 31, 2002...................
Deferred Tax Assets -- Valuation Allowance......... $189,252 $163,536 $352,788
For the year ended December 31, 2003...................
Deferred Tax Assets -- Valuation Allowance......... $352,788 $135,210 $487,998

F-33

EXHIBIT INDEX

EXHIBIT DESCRIPTION
------- -----------

3.1 --Amended and Restated Certificate of Incorporation dated
March 4, 2003 (incorporated by reference to Exhibit 3.1 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 2002).

3.2 --Amended and Restated By-Laws (incorporated by reference
to Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001).

3.3 --Form of Certificate of Designations of Series B Preferred
Stock (incorporated by reference to Exhibit A to Exhibit 1
to the Company's Registration Statement on Form 8-A filed
on October 30, 1997 (the 'Form 8-A')).

4.1 --Form of certificate for shares of Common Stock
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-1 (File No. 33-74782)
(the 'S-1 Registration Statement')).

4.2.1 --Rights Agreement, dated as of October 22, 1997 (the
'Rights Agreement'), between the Company and Continental
Stock Transfer & Trust Company, as rights agent
(incorporated by reference to Exhibit 1 to the Form 8-A).

4.2.2 --Form of Right Certificate (incorporated by reference to
Exhibit B to Exhibit 1 to the Form 8-A).

4.2.3 --Amendment to the Rights Agreement dated as of October 13,
1998 (incorporated by reference to Exhibit 99.2 to the
Company's Current Report on Form 8-K dated October 13,
1998).

4.2.4 --Amendment to the Rights Agreement dated as of November
13, 1998 (incorporated by reference to Exhibit 99.7 to the
Company's Current Report on Form 8-K dated November 17,
1998).

4.2.5 --Amended and Restated Amendment to the Rights Agreement
dated as of December 22, 1998 (incorporated by reference
to Exhibit 6 to Amendment No. 1 to the Form 8-A filed on
January 6, 1999).

4.2.6 --Amendment to the Rights Agreement dated as of June 11,
1999 (incorporated by reference to Exhibit 4.1.8 to the
Company's Registration Statement on Form S-4 (File No.
333-82303) (the '1999 Units Registration Statement')).

4.2.7 --Amendment to the Rights Agreement dated as of September
29, 1999 (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on October 13,
1999).

4.2.8 --Amendment to the Rights Agreement dated as of December
23, 1999 (incorporated by reference to Exhibit 99.4 to the
Company's Current Report on Form 8-K filed on December 29,
1999).

4.2.9 --Amendment to the Rights Agreement dated as of January 28,
2000 (incorporated by reference to Exhibit 4.6.9 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (the '1999 Form 10-K')).

4.2.10 --Amendment to the Rights Agreement dated as of August 7,
2000 (incorporated by reference to Exhibit 4.6.10 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000).

4.2.11 --Amendment to the Rights Agreement dated as of January 8,
2002 (incorporated by reference to Exhibit 4.6.11 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2001 (the '2001 Form 10-K')).

4.2.12 --Amendment to the Rights Agreement dated as of October 22,
2002 (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K filed on October 24,
2002).

4.2.13 --Amendment to the Rights Agreement dated as of March 6,
2003 (incorporated by reference to Exhibit 4.2.13 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002).

4.2.14 --Amendment to the Rights Agreement dated as of March 31,
2003 (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated March 31,
2003).

4.2.15 --Amendment to the Rights Agreement dated as of July 30,
2003 (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated July 30, 2003).

4.2.16 --Amendment to the Rights Agreement dated as of January 14,
2004 (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated January 15,
2004).

E-1

EXHIBIT DESCRIPTION
------- -----------

4.3 --Indenture, dated as of November 26, 1997, between the
Company and IBJ Schroder Bank & Trust Company, as trustee,
relating to the Company's 15% Senior Secured Discount
Notes due 2007 (incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-3 (File
No. 333-34769) (the '1997 Units Registration Statement')).

4.4 --Supplemental Indenture, dated as of March 7, 2003,
between the Company and The Bank of New York (as successor
to IBJ Schroder Bank & Trust Company), as trustee,
relating to the Company's 15% Senior Secured Discount
Notes due 2007 (incorporated by reference to Exhibit 4.4
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2002).

4.5 --Form of 15% Senior Secured Discount Note due 2007
(incorporated by reference to Exhibit 4.2 to the 1997
Units Registration Statement).

4.6 --Warrant Agreement, dated as of November 26, 1997, between
the Company and IBJ Schroder Bank & Trust Company, as
warrant agent (incorporated by reference to Exhibit 4.3 to
the 1997 Units Registration Statement).

4.7 --Form of Warrant (incorporated by reference to Exhibit 4.4
to the 1997 Units Registration Statement).

4.8 --Form of Common Stock Purchase Warrant granted by the
Company to Everest Capital Master Fund, L.P. and to The
Ravich Revocable Trust of 1989 (incorporated by reference
to Exhibit 4.11 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).

4.9 --Indenture, dated as of May 15, 1999, between the Company
and United States Trust Company of New York, as trustee,
relating to the Company's 14 1/2% Senior Secured Notes due
2009 (incorporated by reference to Exhibit 4.4.2 to the
1999 Units Registration Statement).

4.10 --Supplemental Indenture, dated as of March 7, 2003,
between the Company and The Bank of New York (as successor
to United States Trust Company of New York), as trustee,
relating to the Company's 14 1/2% Senior Secured Notes due
2009 (incorporated by reference to Exhibit 4.10 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002).

4.11 --Form of 14 1/2% Senior Secured Note due 2009
(incorporated by reference to Exhibit 4.4.3 to the 1999
Units Registration Statement).

4.12 --Warrant Agreement, dated as of May 15, 1999, between the
Company and United States Trust Company of New York, as
warrant agent (incorporated by reference to Exhibit 4.4.4
to the 1999 Units Registration Statement).

4.13 --Indenture, dated as of September 29, 1999, between the
Company and United States Trust Company of Texas, N.A., as
trustee, relating to the Company's 8 3/4% Convertible
Subordinated Notes due 2009 (incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K
filed on October 13, 1999).

4.14 --First Supplemental Indenture, dated as of September 29,
1999, between the Company and United States Trust Company
of Texas, N.A., as trustee, relating to the Company's
8 3/4% Convertible Subordinated Notes due 2009
(incorporated by reference to Exhibit 4.01 to the
Company's Current Report on Form 8-K filed on October 1,
1999).

4.15 --Second Supplemental Indenture, dated as of March 4, 2003,
among the Company, The Bank of New York (as successor to
United States Trust Company of Texas, N.A.), as resigning
trustee, and HSBC Bank USA, as successor trustee, relating
to the Company's 8 3/4% Convertible Subordinated Notes due
2009 (incorporated by reference to Exhibit 4.16 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002).

4.16 --Third Supplemental Indenture, dated as of March 7, 2003,
between the Company and HSBC Bank USA, as trustee,
relating to the Company's 8 3/4% Convertible Subordinated
Notes due 2009 (incorporated by reference to Exhibit 4.17
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2002).

4.17 --Form of 8 3/4% Convertible Subordinated Note due 2009
(incorporated by reference to Article VII of Exhibit 4.01
to the Company's Current Report on Form 8-K filed on
October 1, 1999).

4.18 --Indenture, dated as of May 23, 2003, between the Company
and The Bank of New York, as trustee (incorporated by
reference to Exhibit 99.2 to the Company's Current Report
on Form 8-K dated May 30, 2003).

E-2

EXHIBIT DESCRIPTION
------- -----------

4.19 --Supplemental Indenture, dated as of May 23, 2003, between
the Company and The Bank of New York, as trustee, relating
to the Company's 3 1/2% Convertible Notes due 2008
(incorporated by reference to Exhibit 99.3 to the
Company's Current Report on Form 8-K dated May 30, 2003).

4.20 --Second Supplemental Indenture, dated as of February 20,
2004, between the Company and The Bank of New York, as
trustee, relating to the Company's 2 1/2% Convertible
Notes due 2009 (filed herewith).

4.21 --Common Stock Purchase Warrant granted by the Company to
DaimlerChrysler Corporation dated October 25, 2002
(incorporated by reference to Exhibit 4.20 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002).

4.22 --Common Stock Purchase Warrant granted by the Company to
Ford Motor Company dated October 7, 2002 (incorporated by
reference to Exhibit 4.16 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
2002).

4.23 --Form of Series A Common Stock Purchase Warrant dated
March 7, 2003 (incorporated by reference to Exhibit 4.20
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2002).

4.24 --Form of Series B Common Stock Purchase Warrant dated
March 7, 2003 (incorporated by reference to Exhibit 4.21
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2002).

4.25 --Form of Media-Based Incentive Warrant dated February 3,
2004 issued by the Company to National Football
Enterprises LLC (filed herewith).

4.26 --Bounty-Based Incentive Warrant dated February 3, 2004
issued by the Company to National Football Enterprises LLC
(filed herewith).

4.27 --Amended and Restated Warrant Agreement, dated as of
December 27, 2000, between the Company and United States
Trust Company of New York, as warrant agent and escrow
agent (incorporated by reference to Exhibit 4.27 to the
Company's Registration Statement on Form S-3 (File No.
333-65602)).

4.28 --Second Amended and Restated Pledge Agreement, dated as of
March 7, 2001, among the Company, as pledgor, The Bank of
New York, as trustee and collateral agent, United States
Trust Company of New York, as trustee, and Lehman
Commercial Paper Inc., as administrative agent
(incorporated by reference to Exhibit 4.25 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001).

4.29 --Collateral Agreement, dated as of March 7, 2001, between
the Company, as borrower, and The Bank of New York, as
collateral agent (incorporated by reference to Exhibit
4.26 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001).

4.30 --Amended and Restated Intercreditor Agreement, dated as of
March 7, 2001, by and between The Bank of New York, as
trustee and collateral agent, United States Trust Company
of New York, as trustee, and Lehman Commercial Paper Inc.,
as administrative agent (incorporated by reference to
Exhibit 4.27 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001).

10.1.1 --Lease Agreement, dated as of March 31, 1998, between
Rock-McGraw, Inc. and the Company (incorporated by
reference to Exhibit 10.1.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).

10.1.2 --Supplemental Indenture, dated as of March 22, 2000,
between Rock-McGraw, Inc. and the Company (incorporated by
reference to Exhibit 10.1.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000).

10.1.3 --Supplemental Indenture, dated as of November 30, 2001,
between Rock-McGraw, Inc. and the Company (incorporated by
reference to Exhibit 10.1.3 to the 2001 Form 10-K).

*10.2 --Amended and Restated Employment Agreement, dated as of
December 3, 2003, between the Company and Michael S.
Ledford (filed herewith).

*10.3 --Employment Agreement, dated as of November 26, 2001,
between the Company and Joseph P. Clayton (incorporated by
reference to Exhibit 10.6 to the 2001 Form 10-K).

*10.4 --Amended and Restated Employment Agreement, dated as of
October 20, 2003, between the Company and Guy D. Johnson
(incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003).

*10.5 --Employment Agreement, dated as of May 3, 2002, between
the Company and Mary Patricia Ryan (incorporated by
reference to Exhibit 10.8 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002).

E-3

EXHIBIT DESCRIPTION
------- -----------

*10.6 --Employment Agreement, dated as of June 3, 2003, between
the Company and David J. Frear (incorporated by reference
to Exhibit 10.7 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2003).

*10.7 --Agreement, dated as of October 16, 2001, between the
Company and David Margolese (incorporated by reference to
Exhibit 10.7 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001).

*10.8 --1994 Stock Option Plan (incorporated by reference to
Exhibit 10.21 to the S-1 Registration Statement).

*10.9 --Amended and Restated 1994 Directors' Nonqualified Stock
Option Plan (incorporated by reference to Exhibit 10.22 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).

*10.10 --CD Radio Inc. 401(k) Savings Plan (incorporated by
reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-8 (File No. 333-65473)).

*10.11 --Sirius Satellite Radio 2003 Long-Term Stock Incentive
Plan (incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002).

*10.12 --Form of Option Agreement, dated as of December 29, 1997,
between the Company and each Optionee (incorporated by
reference to Exhibit 10.16.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).

'D'10.13 --Joint Development Agreement, dated as of February 16,
2000, between the Company and XM Satellite Radio Inc.
(incorporated by reference to Exhibit 10.28 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000).

21.1 --List of Subsidiaries (filed herewith).

23.1 --Consent of Ernst & Young LLP (filed herewith).

23.2 --Notice Regarding Consent of Arthur Andersen LLP (filed
herewith).

31.1 --Certificate of Joseph P. Clayton, President and Chief
Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).

31.2 --Certificate of David J. Frear, Executive Vice President
and Chief Financial Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1 --Certificate of Joseph P. Clayton, President and Chief
Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith).

32.2 --Certificate of David J. Frear, Executive Vice President
and Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (filed herewith).

99.1 --Financial Statements of Satellite CD Radio, Inc. (filed
herewith).

---------

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

'D' Portions of this exhibit have been omitted pursuant to Applications for
Confidential treatment filed by the Company with the Securities and Exchange
Commission.

E-4

STATEMENT OF DIFFERENCES

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