<PAGE>
As filed with the Securities and Exchange Commission on September 28, 1999.
Registration No. 333-83619
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 5
TO FORM S-1
REGISTRATION STATEMENT
Under the Securities Act of 1933
---------------
XM SATELLITE RADIO HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 4899 54-1878819
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
1250 23rd Street, N.W., Suite 57
Washington, D.C. 20037-1100
(202) 969-7100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Joseph M. Titlebaum
Senior Vice President, General
Counsel and Secretary
XM Satellite Radio Holdings Inc.
1250 23rd Street, N.W., Suite 57
Washington, D.C. 20037-1100
(202) 969-7100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
With Copies To:
David B.H. Martin, Esq. Gregory A. Ezring, Esq.
Steven M. Kaufman, Esq. LATHAM & WATKINS
HOGAN & HARTSON L.L.P. 885 Third Avenue
555 13th Street, N.W. Suite 1000
Washington, D.C. 20004 New York, New York 10022
(202) 637-5600 (212) 906-1200
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (as defined below), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Title of each Class of Amout maximum maximum
Securities to be being offering price aggregate Amount of
registered registered(1) per share(1) offering price(1) registration fee(2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
$0.01 par value per
share................. 11,500,000 $16.00 $184,000,000 $51,152
</TABLE>
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(1) Includes 1,500,000 shares that may be purchased to cover over-allotments.
(2) Estimated in accordance with Rule 457 under the Securities Act solely for
the purpose of computing the amount of the registration fee. Previously
paid.
---------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this registration statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold nor may any offers to buy be +
+accepted prior to the time this prospectus is delivered in final form. This +
+preliminary prospectus is not an offer to sell these securities and it is not +
+a solicitation of an offer to buy these securities in any jurisdiction where +
+such offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 1999
PRELIMINARY PROSPECTUS
10,000,000 Shares
XM SATELLITE RADIO HOLDINGS INC.
[Satellite Radio Logo appears here]
Class A Common Stock
This is an initial public offering of our Class A common stock. We anticipate
that the initial public offering price for the Class A common stock will be
between $14.00 and $16.00 per share.
We have applied to have our Class A common stock approved for listing on the
Nasdaq National Market under the symbol "XMSR."
See "Risk Factors" beginning on page 6 of this prospectus to read about certain
risks that you should consider before buying shares of our common stock.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Per
Share Total
------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to XM Radio:
</TABLE>
--------------------------------------------
The underwriters may, under certain circumstances, purchase up to an
additional 1,500,000 shares of our Class A common stock from us at the initial
public offering price less the underwriting discount.
Joint Book-Running Managers
Bear, Stearns & Co. Inc. Donaldson, Lufkin & Jenrette
-----------
Deutsche Banc Alex. Brown Merrill Lynch & Co.
The date of this prospectus is , 1999.
<PAGE>
[The artwork on the inside cover of the prospectus depicts two vertical,
overlapping sine-wave patterns connecting a car resting on a silhouette of the
earth with a satellite above the earth. On the left side of the page is an
illustration of a radio displaying "CHANNEL 83, CLASSIC ROCK," and underneath,
"LOU REED, SATELLITE OF LOVE." The radio has AM and FM buttons, a dial, and the
XM Radio logo. On the right of the page is the phrase "RADIO WILL NEVER BE THE
SAME!" At the bottom of the page appears "Song title and artist for illustrative
purposes only. The artist is not affiliated with nor endorses XM Satellite Radio
or this offering."]
[The two-page foldout of the cover page of the prospectus depicts a number of
pictures of well-known musical artists and lists several radio formats, such as
"Top 20", "Classical" and "Sports". These pictures and text appear to be
emanating from a satellite and broadcast to a car. There are additional pictures
of cars, houses and enthusiastic people at the bottom of the page beneath the
caption: "MUSIC NEWS INFORMATION".]
<PAGE>
PROSPECTUS SUMMARY
This summary does not contain all the information you should consider before
investing in our common stock. Please read the entire prospectus carefully,
including the section entitled "Risk Factors."
Our Business
We seek to become a premier nationwide provider of audio entertainment and
information programming. We will transmit our service, which we will call "XM
Radio," from our satellites to vehicle, home and portable radios. XM Radio
plans to offer up to 100 channels of music, news, talk, sports and children's
programming developed by us or third parties for a monthly subscription price
of $9.95. We believe XM Radio will appeal to consumers because of our clear
sound quality from digital radio signals, variety of programming and nationwide
coverage. We will build a subscriber base for XM Radio through multiple
distribution channels, including an exclusive distribution arrangement with
General Motors, other automotive manufacturers, car audio dealers and national
electronics retailers. We are presently a development stage company with no
revenue-generating operations, and we expect to commence full commercial
operation of our service in the second quarter of 2001.
We hold one of only two licenses issued by the Federal Communications
Commission to provide satellite digital audio radio service in the United
States. We will broadcast XM Radio throughout the continental United States
from two of the most powerful commercial satellites available and will have a
ground spare in reserve. A network of terrestrial repeaters, which are ground-
based electronics equipment, will receive and re-transmit the satellite signals
to augment our satellite signal coverage.
We have contracts to develop, manufacture and distribute XM automobile
radios with Delco Electronics Corporation, Motorola Inc., Pioneer Electronics
Corporation and Alpine Electronics; XM home and portable radios with SHARP
Corporation; and chipsets for XM radios with STMicroelectronics. Our radios
will be capable of receiving both XM Radio and traditional AM/FM stations.
We will offer our consumers a unique listening experience by providing up to
100 channels of programming, coast-to-coast coverage and clear sound with our
digital signals. We will have original music and talk channels created by XM
Originals, our in-house programming unit, and channels created by well-known
providers of brand name programming. We have a team of programming
professionals with a proven record of introducing new radio formats and
building local and national listenership. Our programming providers will
include the following:
<TABLE>
<CAPTION>
Media Radio
- ----- -----
<S> <C>
- - Bloomberg News Radio - Hispanic Broadcasting Corporation (formerly Heftel)
- - USA Today - Clear Channel Communications
- - CNNfn, CNN en Espanol, - Radio One
CNN Sports Illustrated
- - C-SPAN Radio - Salem Communications
- - Black Entertainment
Television - AsiaOne
- - DIRECTV - One-On-One Sports
- - Weather Channel - BBC World Service
- - Sporting News
</TABLE>
In addition to our subscription fee, we expect revenues from sales of
limited advertising time on a number of channels. XM Radio offers a new
national radio platform for advertisers that solves many of the problems
associated with buying radio advertising nationally on a spot or syndicated
basis. Through affinity and niche programming, we will give advertisers an
effective way to market products and services to geographically disparate
groups.
1
<PAGE>
We have raised $330.8 million in financing, net of expenses and repayment of
debt, from investors and strategic partners. Our strategic investor companies
include General Motors, DIRECTV, Clear Channel Communications, and our parent
company, American Mobile Satellite Corporation.
We believe that there is a significant market for XM Radio. Market data show
strong demand for radio service. Over 75% of the entire United States
population age 12 and older listens to the radio daily, and over 95% listens to
the radio weekly. A market study conducted for us projects that between 34
million and 43 million customers would be willing to pay between $200 and $400
for a satellite radio and $10.00 per month for satellite radio service.
Our strategy includes offering diverse programming designed to appeal to a
large audience, including urban and rural listeners of virtually all ages,
ethnicities, economic groups and specialty interests. We will tailor our
programming and marketing to appeal to specific groups that our research has
shown are most likely to subscribe to our service. We have several planned
distribution channels, including through major car and radio manufacturers.
----------------
Our executive offices are at 1250 23rd Street, N.W., Washington, D.C. 20037-
1100, and our telephone number is (202) 969-7100. We maintain an Internet site
on the World Wide Web at www.xmradio.com. Information at our web site is not,
and should not be deemed to be, part of this prospectus.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Class A common stock
offered................ 10,000,000 shares
Common stock to be outstanding
after the offering:
Class A............... 26,087,678 shares (1)
Class B .............. 17,774,894 shares (2)
---------------------
Total............... 43,862,572 shares
=====================
</TABLE>
Proposed Nasdaq National
Market symbol..............
XMSR
- --------
(1) The Class A common stock outstanding after this offering is based on the
number of shares expected to be outstanding as of September 15, 1999, and
includes 16,072,962 shares of Class A common stock issuable upon conversion
of notes which convert automatically into such common stock at the closing
of this offering. It excludes
. 1,424,917 shares of Class A common stock issuable upon exercise of
outstanding options exercisable at an exercise price of $9.52 per share
and 679,000 shares of Class A common stock under options exercisable at
the initial public offering price;
. 10,715,310 shares of Class A common stock issuable upon conversion of
Series A convertible preferred stock which will be issued upon
conversion of notes that convert automatically at the closing of this
offering; and
. 17,774,894 shares of Class A common stock issuable upon conversion of
Class B common stock, which convert on a one-for-one basis.
(2) The Class B common stock outstanding after this offering is based on the
number of shares expected to be outstanding as of September 15, 1999, and
includes 11,085,644 shares of Class B common stock issuable upon conversion
of notes which convert automatically into such common stock at the closing
of this offering. The Class B common stock is substantially identical to
Class A common stock, except that it has three votes per share as compared
to one vote per share for Class A common stock.
----------------
All numbers in this prospectus have been adjusted to reflect a 53,514 for 1
stock split which will occur prior to completion of this offering. Unless
stated otherwise, all information in this prospectus assumes conversion of our
outstanding convertible notes into common and preferred stock and no exercise
of the underwriters' over-allotment option.
3
<PAGE>
Summary Consolidated Financial Data
The pro forma information in the following statements of operations table
gives effect to the following as if each had occurred on January 1, 1998:
. the amortization of goodwill and other intangibles arising from American
Mobile's acquisition of debt and equity interests in our company from
WorldSpace;
. the amortization of $11.3 million deferred financing fees; and
. interest in excess of amounts that would be capitalized arising from the
issuance of $250.0 million Series A subordinated convertible notes.
The pro forma "as adjusted" information further gives effect to the
following as if each had occurred on January 1, 1998:
. the elimination of the amortization of $11.3 million deferred financing
fees;
. the elimination of interest expense related to the $250.0 million Series
A subordinated convertible notes upon the mandatory conversion of the
notes into 10,498,890 shares of Series A convertible preferred stock and
15,748,333 shares of Class A common stock; and
. our sale of 10,000,000 shares of Class A common stock in this offering
at an assumed offering price of $15.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses.
The pro forma information in the following balance sheet table gives effect
to the following as if each had occurred on June 30, 1999:
. American Mobile's acquisition of debt and equity interests in our
company from WorldSpace;
. our issuance of $250.0 million Series A subordinated convertible notes,
net of repayment of $75.0 million of debt and related fees and expenses
of $11.3 million;
. payments to vendors of $68.0 million; and
. the exchange of the outstanding options and debt held by American Mobile
for a new convertible note, which is convertible into Class B common
stock at a rate of $8.65 per share.
The pro forma "as adjusted" information further gives effect to the
following as if each had occurred on June 30, 1999:
. the mandatory conversion of $250.0 million Series A subordinated
convertible notes into 10,498,890 shares of Series A convertible
preferred stock and 15,748,333 shares of Class A common stock and the
mandatory conversion of an aggregate of $103.8 million of American
Mobile convertible notes and the related accrued interest into
10,825,201 shares of Class B common stock concurrently with this
offering; and
. our sale of 10,000,000 shares of Class A common stock in this offering
at an assumed offering price of $15.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses.
(tables appear on the following page)
4
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30, December 15,
------------------------------------------- ------------------------------------------- 1992
1998 1999 (Date of
1998 Pro 1999 Pro Inception)
1997 1998 Pro Forma As 1998 1999 Pro Forma As to June 30,
Actual Actual Forma Adjusted Actual Actual Forma Adjusted 1999 (1)
--------- --------- --------- ---------- --------- --------- --------- ---------- ------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of
Operations Data:
Revenue.......... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
--------- --------- --------- ---------- --------- --------- --------- ---------- --------
Operating
expenses:
Research and
development.... -- 6,941 6,941 6,941 3,867 1,378 1,378 1,378 8,319
Professional
fees........... 1,090 5,242 5,242 5,242 3,723 2,560 2,560 2,560 8,892
General and
administrative.. 20 4,010 7,452 7,452 542 4,503 6,224 6,224 8,533
--------- --------- --------- ---------- --------- --------- --------- ---------- --------
Total operating
expenses....... 1,110 16,193 19,635 19,635 8,132 8,441 10,162 10,162 25,744
--------- --------- --------- ---------- --------- --------- --------- ---------- --------
Operating loss... (1,110) (16,193) (19,635) (19,635) (8,132) (8,441) (10,162) (10,162) (25,744)
Other expense--
interest income
(expense), net.. (549) 26 (18,218) 26 -- 76 (8,017) 76 (447)
--------- --------- --------- ---------- --------- --------- --------- ---------- --------
Net loss......... $ (1,659) $ (16,167) $ (37,853) $ (19,609) $ (8,132) $ (8,365) $ (18,179) $ (10,086) $(26,191)
========= ========= ========= ========== ========= ========= ========= ========== ========
Net loss per
share--basic and
diluted......... $ (0.26) $ (2.42) $(5.66) $ (0.45) $ (1.22) $ (1.25) $ (2.72) $ (0.23)
========= ========= ========= ========== ========= ========= ========= ==========
Weighted average
shares used in
computing net
loss per share--
basic and
diluted......... 6,368,166 6,689,250 6,689,250 43,262,784 6,689,250 6,689,250 6,689,250 43,262,784
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
-------------------------------
December 31, Pro Pro Forma
1998 Actual Forma As Adjusted
------------ -------- -------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheets Data:
Cash and cash equivalents......... $ 310 $ 163 $ 96,763 $235,513
System under construction......... 169,029 261,653 261,653 261,653
Total assets...................... 170,485 263,901 422,525 550,025
Total debt........................ 140,332 179,168 354,168 382
Total liabilities................. 177,668 279,449 386,449 32,663
Stockholders' equity (deficit).... (7,183) (15,548) 36,076 517,362
</TABLE>
- --------
(1) Business activity for the period from December 15, 1992, which was our date
of inception, through December 31, 1996 was insignificant.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision.
You could lose money on your investment because we have not started operations
or generated any revenues.
We are a development stage company and still need to develop the planned XM
Radio service significantly before we can offer it to consumers. We have not
yet generated any revenues and will not do so until we can start commercial
operation of our service. Unless we generate significant revenues, we will not
become profitable, and you could lose money on your investment. Our ability to
generate revenues and ultimately to become profitable will depend upon several
factors, including
. whether we create and implement the XM Radio system in a timely fashion;
. whether consumer electronics manufacturers successfully develop and
manufacture XM radios;
. whether we can attract and retain enough subscribers and advertisers to
XM Radio;
. whether we compete successfully; and
. whether the FCC grants us all additional necessary authorizations in a
timely manner.
Our expenditures and losses have been significant and are expected to grow.
As of June 30, 1999, we had incurred significant costs, aggregating
approximately $261.7 million, in connection with the development of the XM
Radio system. We incurred net aggregate losses approximating $1.7 million from
our inception through December 31, 1997, and an additional $24.5 million in the
18-month period ended June 30, 1999. We expect our net losses and negative cash
flow to grow as we build the XM Radio system, make payments under our various
contracts and begin to incur marketing costs.
We need substantial further financing but such financing might not be
available.
We estimate that we will need approximately $610.6 million, after giving
effect to the proceeds from this offering, to meet our needs until we begin
commercial operation of our services. Even after we commence commercial
service, we will require significant additional funds before we generate
positive cash flow. In addition, we have substantial payment obligations under
a distribution agreement with General Motors, as described under the caption
"Certain Relationships and Related Party Transactions--Distribution Agreement
with General Motors and OnStar." Our actual funding requirements could vary
materially from our projections.We may have to raise more funds than expected
to remain in business and to continue to develop and market the XM Radio
system.
We plan to raise future funds by selling debt or equity securities, or both,
publicly and/or privately and by obtaining loans or other credit lines from
banks or other financial institutions. We may not be able to raise sufficient
funds on favorable terms or at all. If we are successful in raising additional
financing, we anticipate that a significant portion of the financing will
consist of debt securities. As a result, we may be highly leveraged. If we fail
to obtain any necessary financing on a timely basis, then
. our satellite construction, launch, or other events necessary to our
business could be materially delayed, or their costs could materially
increase;
. we could default on our commitments to our satellite construction or
launch contractors, creditors or others, leading to termination of
construction or inability to launch our satellites; and
6
<PAGE>
. we may not be able to launch our satellite radio service as planned and
may have to discontinue operations or seek a purchaser for our business
or assets.
Our satellites could be damaged or destroyed during launch.
A significant percentage of satellites never become operational because of
launch failure, satellite destruction or damage during launch, or improper
orbital placement. Launch failure rates vary depending on the particular launch
vehicle and contractor. There is virtually no track record for the specific
rocket that will be used for the launch of our satellites, and even launch
vehicles with good track records experience some launch failures. If one or
more of our launches fail, we will suffer significant delay that will be very
damaging to our business, and we will incur significant additional costs
associated with the delay in revenue generating activities.
Premature failure of our satellites would damage our business.
If one of our satellites were to fail prematurely, it likely would affect
the quality of our service, substantially delay the commencement or interrupt
the continuation of our service and harm our business. This harm to our
business would continue until we either launched our ground spare satellite or
had additional satellites built or launched. A number of factors may decrease
the useful lives of our satellites to less than the expected approximately 15
years, including
. defects in construction;
. faster than expected degradation of solar panels;
. loss of fuel on board;
. random failure of satellite components that are not protected by back-up
units;
. electrostatic storms; and
. collisions with other objects in space.
In addition, our network of terrestrial repeaters will communicate principally
with one satellite. If the satellite communicating with the repeater network
fails, we would have to repoint all of the repeaters to communicate with the
other satellite. This would result in an interruption of service that could
last from a few hours to several days and could harm our business.
Damage to our satellites will not be fully covered by insurance.
We intend to purchase standard launch and in-orbit insurance policies from
global space insurance underwriters. Any adverse change in insurance market
conditions may substantially increase the premiums we would have to pay for
such insurance. If the launch of either satellite is a total or partial
failure, our insurance may not fully cover our losses. We do not expect to buy
insurance to cover and would not have protection against business interruption,
loss of business or similar losses. Also, any insurance we obtain will likely
contain certain customary exclusions and material change conditions which would
limit our coverage.
Our system depends on development and integration of complex technologies in a
novel configuration that might not work.
Our system will involve new applications of existing technology and the
complex integration of different technologies, which may not work as planned.
In addition, we may not be able to successfully develop the new technologies
required for our planned XM Radio system.
The use of terrestrial repeaters with a satellite system is untested and may
not provide the expected transmission quality. Our system will rely on a
network of terrestrial repeaters to retransmit satellite signals in areas where
blockages occur from high concentrations of tall buildings and other
obstructions. Satellites and terrestrial repeater networks have not been
integrated and used together on the scale we contemplate. We
7
<PAGE>
cannot be certain that what we plan will work. Failure to integrate these
technologies may result in areas with impediments to satellite line of sight
experiencing dead zones where our signals cannot be received clearly or are of
low quality.
Our business plan relies on the timely development of XM radios. Our service
is to be received by specially designed receivers that have not yet been
developed. They will require a unique integration of existing technologies,
which may take longer than expected.
Integration of components of our system may encounter technical
difficulties. We will have to integrate a number of sophisticated satellite and
other wireless technologies never integrated in the past before we can begin
offering our service. If the technological integration of the XM Radio system
is not completed in a timely and effective manner, our business will be harmed.
We cannot ultimately confirm the ability of the system to function until we
have actually deployed and tested a substantial portion of the system. Hardware
or software errors in space or on the ground may limit or delay the XM Radio
service and therefore reduce anticipated revenues.
Performance failures by our satellite and launch contractors would damage our
business, and we may not have adequate remedies.
We will rely on Hughes Space and Communications International, Inc., our
satellite manufacturer, to build and deliver our satellites in a timely manner.
If Hughes fails to deliver functioning satellites in a timely manner, the
introduction of our service would likely be delayed. If Hughes were to deliver
a satellite late or otherwise default, the remedies we have will not adequately
compensate us for any damage caused to our business. Hughes will not be liable
for indirect or consequential damages, or lost revenues or profits, from late
delivery or other defaults. Also, our satellite contract entitles Hughes to
certain excusable delays for which we have no remedy. If Hughes breaches its
performance warranty, our only remedy is not to pay Hughes in-orbit performance
incentive payments of up to a total of $12.5 million for each satellite. This
remedy likely will not adequately compensate us for the damage such breach
would cause to our business.
We are depending on our satellite launch services provider to build our
launch vehicles and to launch the satellites. If the satellite launch services
provider fails to launch the satellites in a timely manner, we may be unable to
meet our business plan timetable. Neither Hughes nor the satellite launch
services provider will be liable to us for any delay in delivery of the
satellites up to 180 days caused by our scheduled launch services provider. A
delay of more than six months beyond the launch period for either satellite may
allow us to select an alternative launch system. This remedy, however, likely
would not adequately compensate us for the damage such delay would cause to our
business. Although we may be able to use another satellite launch services
provider, switching to another provider could involve significant delay and a
significant increase in cost.
Failure of third party vendors to supply radios to customers in a timely manner
would delay our revenues.
We will rely on third party manufacturers and their distributors to
manufacture and distribute XM radios. If one or more manufacturers fails to
develop XM radios for timely commercial sale, at an affordable price and with
mass market nationwide distribution, the launch of our service would be
delayed, our revenues would be less than expected and our business would
suffer. We will rely on Pioneer, Alpine, Motorola and Delphi-Delco to develop,
manufacture and market XM radios for use in the car, and on SHARP to develop,
manufacture and market XM radios for home and portable use. XM radios are not
yet available, and our agreements with third party vendors may not result in
the timely production of enough affordable XM radios to permit the widespread
introduction of our service.
8
<PAGE>
Competition from CD Radio and traditional and emerging audio entertainment
providers could adversely affect our revenues.
In seeking market acceptance, we will encounter competition for both
listeners and advertising revenues from many sources, including
. CD Radio, the other satellite radio licensee;
. traditional and, when available, digital AM/FM radio;
. Internet based audio providers;
. direct broadcast satellite television audio service; and
. cable systems that carry audio service.
CD Radio has announced that it has arrangements for the construction,
implementation and distribution of its service and that it expects to begin
receiving revenue from commercial operations in the first quarter of 2001,
which is slightly ahead of our timetable. If CD Radio begins commercial
operations significantly before we do, it may gain a competitive advantage over
us.
Unlike XM Radio, traditional AM/FM radio already has a well established
market for its services and generally offers free broadcast reception supported
by commercial advertising rather than by a subscription fee. Also, many radio
stations offer information programming of a local nature, such as traffic and
weather reports, which XM Radio is not expected to offer as effectively as
local radio, or at all. To the extent that consumers place a high value on
these features of traditional AM/FM radio, we will be at a competitive
disadvantage.
Demand for our service may be insufficient for us to become profitable.
There is currently no mobile satellite digital audio radio service in
commercial operation in the United States. As a result, we cannot estimate with
any certainty the potential consumer demand for such a service or the degree to
which we will meet that demand. Among other things, consumer acceptance of XM
Radio 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
satellite radio service;
. the cost and availability of XM radios; and
. XM Radio's and our competitors' marketing and pricing strategy.
If demand for our service does not develop as expected, we may not be able
to generate enough revenues to become profitable. Although we have commissioned
market studies which attempt to measure market demand, these studies are based
upon statistical sampling methods and reflect responses to hypothetical
questions. Consequently, the data may not be accurate. We caution you not to
place undue reliance on this data.
Because we expect to derive a significant part of our revenues from
advertisers as well as subscription revenues, advertiser acceptance also will
be critical to the success of our business. Our ability to generate revenues
from advertisers will depend on several factors, including the level and type
of market penetration of our service, competition for advertising dollars from
other media, and changes in the advertising industry. FCC regulations limit our
ability to offer our radio service to non-subscribers. These factors may reduce
our potential revenue from advertising.
Large payment obligations under our distribution agreement with General Motors
may prevent us from becoming profitable.
We have significant payment obligations under our long-term agreement with
General Motors for the installation of XM radios in General Motors vehicles and
the distribution of our service to the exclusion of other satellite radio
services. These payment obligations, which could total several hundred million
dollars over
9
<PAGE>
the life of the contract, may prevent us from becoming profitable. A
significant portion of these payments are fixed in amount, and we must pay
these amounts even if General Motors does not meet performance targets in the
contract. Although this agreement is subject to renegotiation if General Motors
does not achieve and maintain specified installation levels, we cannot predict
the outcome of any such renegotiation. This agreement is described more fully
under the caption "Certain Relationships and Related Party Transactions--
Distribution Agreement with General Motors and OnStar."
CD Radio's patent infringement suit against us could impair our business.
On January, 12, 1999, CD Radio, the only other owner of an FCC license for
satellite radio service, sued us, claiming that we are infringing or will
infringe three CD Radio patents. The CD Radio patents involved in this
litigation relate to certain aspects of signal and reception methodologies that
may be employed by a satellite radio system. In its complaint, CD Radio seeks
money damages to the extent we have manufactured, used or sold any product or
method claimed in CD Radio's patents, and an injunction. Based on the planned
design of our system, our knowledge of the differences between the XM Radio
system and the claims of the CD Radio patents and on advice we have received
from our patent counsel, we believe that we have not infringed and will not
infringe any CD Radio patents. However, the litigation could harm us, even if
we prevail. It may divert management's attention and may make it more difficult
for us to raise financing or enter other agreements with third parties. It may
also impede our ability to move forward with the development of our system in a
timely manner. If we do not prevail in this litigation, we could become liable
to CD Radio for substantial money damages or be subject to an injunction
preventing us from using certain technology in our satellite radio system, or
both. Any such injunction could force us to develop new technology which would
not be subject to the injunction. Alternatively, we could be required to
license alternative technology from a third party, or seek a license from, and
pay royalties to, CD Radio to use its technology. Any of the foregoing could
delay or increase the costs of deploying the XM Radio system.
Our business may be impaired by third party intellectual property rights.
Development of the XM Radio system will depend largely upon the intellectual
property that we will develop and license from third parties. If the
intellectual property that we may develop or use is not adequately protected,
others will be permitted to and may duplicate the XM Radio system or service
without liability. In addition, others may challenge, invalidate or circumvent
our intellectual property rights, patents or existing sublicenses. Some of the
know-how and technology we have developed and plan to develop will not be
covered by United States patents. Trade secret protection and contractual
agreements may not provide adequate protection if there is any unauthorized use
or disclosure. The loss of necessary technologies could require us to obtain
substitute technology of lower quality performance standards, at greater cost
or on a delayed basis, which could harm our business.
Other parties may have patents or pending patent applications which will
later mature into patents or inventions which may block our ability to operate
our system or license our technology. We may have to resort to litigation to
enforce our rights under license agreements or to determine the scope and
validity of other parties' proprietary rights in the subject matter of those
licenses. This may be expensive. Also, we may not succeed in any such
litigation.
Third parties may bring suit against us for patent or other infringement of
intellectual property rights. Any such litigation could result in substantial
cost to, and diversion of effort by, our company, and adverse findings in any
proceeding could
. subject us to significant liabilities to third parties;
. require us to seek licenses from third parties;
. block our ability to operate the XM Radio system or license its
technology; or
. otherwise adversely affect our ability to successfully develop and market
the XM Radio system.
10
<PAGE>
Failure to comply with FCC requirements could damage our business.
As an owner of one of two FCC licenses to operate a commercial satellite
radio service in the United States, we are subject to FCC rules and
regulations, and the terms of our license, which require us to meet certain
conditions such as
. milestone dates, including the requirement that we begin full operation
of our system by October 2003;
. interoperability of our system with the other licensed satellite radio
system;
. coordination of XM Radio's 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. In addition, the FCC has not yet issued rules permitting XM Radio to
deploy terrestrial repeaters to fill gaps in satellite coverage. XM Radio's
plans to deploy terrestrial repeaters may be impacted by the FCC's rules, when
issued.
Some of our vendors are subject to United States export regulations and
will need approval from the State Department under technology export statutes
and regulations for the launch of our satellites. Failure to receive such
approval or any change in applicable law or policy may delay our satellite
launch.
If the challenge to our FCC license is successful, our business could be
harmed.
The award of our FCC license was challenged by one of the losing bidders in
the initial FCC licensing procedure. The challenge was denied by the FCC, but
the losing bidder filed with the FCC for reconsideration of the license award.
If this challenge is successful, the FCC could take a range of actions, any of
which could harm our ability to proceed with our planned satellite radio
service.
Our service network or other ground facilities could be damaged by natural
catastrophes.
Since our ground-based network will be attached to buildings, towers and
other structures around the country, an earthquake, tornado, flood or other
catastrophic event anywhere in the United States could damage our network,
interrupt our service and harm our business in the affected area. We will not
have replacement or redundant facilities that can be used to assume the
functions of our repeater network, or of our planned central production and
broadcast facility, in the event of a catastrophic event. Any damage to our
repeater network would likely result in degradation of our service for some
subscribers and could result in complete loss of service in affected areas.
Damage to our central production and broadcast facility would restrict our
production of programming and require us to obtain programming from third
parties to continue our service.
Consumers could steal our service.
Like all radio transmissions, the XM Radio signal will be subject to
interception. Pirates may be able to obtain or rebroadcast XM Radio without
paying the subscription fee. Although we plan to use encryption technology to
mitigate the risk of signal theft, such technology may not be adequate to
prevent theft of the XM Radio signal. If widespread, signal theft could harm
our business.
We need to obtain rights to programming, which could be more costly than
anticipated.
We must negotiate and enter into music programming royalty arrangements
with performing rights societies such as the American Society of Composers,
Authors and Publishers, Broadcast Music, Inc., and SESAC, Inc. We expect to
negotiate or establish by arbitration royalty arrangements with these
organizations, but such royalty
11
<PAGE>
arrangements may be more costly than anticipated or unavailable. We also have
to negotiate royalty arrangements with the owners of the sound recordings.
Cable audio services currently pay a royalty rate of 6.5% of gross subscriber
revenue set by the Librarian of Congress. Although we believe we can
distinguish XM Radio sufficiently from the cable audio services in order to
negotiate a lower statutory rate, we may not be able to do so.
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 when developing the XM Radio system which could harm our
business. Because we will depend on third parties to develop technologies used
in key elements of the XM Radio system, more advanced technologies which we may
wish to use may not be available to us on reasonable terms or in a timely
manner. Further, our competitors may have access to technologies not available
to us, which may enable them to produce entertainment products of greater
interest to consumers, or at a more competitive cost.
There may not be an active market for our common stock.
Our stock may not be actively traded. This may result in price volatility
and poor execution of buy and sell orders for investors. The initial public
offering price may bear no relationship to the price at which the common stock
will trade upon completion of this offering. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
The market price of our stock could be hurt by substantial price and volume
fluctuations.
Historically, stock prices and trading volumes for emerging companies
fluctuate widely for a number of reasons, including some reasons which may be
unrelated to their businesses or results of operations. This market volatility
could depress the price of our common stock without regard to our operating
performance. In addition, our operating results may be below the expectations
of public market analysts and investors. If this were to occur, the market
price of our common stock would likely significantly decrease.
Problems related to the Year 2000 issue could disrupt our operations and harm
our business.
Year 2000 could require us to incur delays and unanticipated expenses. Many
currently installed computer systems and software products are not able to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software that fail to recognize the proper date at the end of this
year may suffer major system failures or miscalculations. If we are unable to
identify and resolve a problem related to the Year 2000 in time to avoid
adverse consequences, there could be an interruption in, or a failure of,
certain of our normal business activities and operations, harming our business
and financial results.
A small number of principal stockholders own approximately 79% of our stock and
effectively control us. Their interests may conflict with yours as a
stockholder.
After this offering our principal stockholders will hold in aggregate
approximately 79% of our common stock on a fully diluted basis with total
voting power of 97%. We have entered into material contracts and transactions
with our principal stockholders and their affiliates, and we may enter into
additional contracts in the future. The composition of our board of directors
is governed by a shareholders' agreement among our principal stockholders,
which grants them effective management control of XM Radio. These stockholders
could use their position as principal stockholders and their management control
to cause us to take actions that might not be in our interests or your
interests as a stockholder.
12
<PAGE>
We need people with special skills to develop, launch and maintain our new
service. If we cannot find and keep these people, our business and stock price
could suffer.
We depend on the continued efforts of our executive officers and key
employees who have specialized technical knowledge regarding our satellite and
radio systems and business knowledge regarding the radio industry and
subscription services. If we lose the services of one or more of these
employees, or fail to attract qualified replacement personnel, it could harm
our business and our future prospects.
It may be hard for a third party to acquire us, and this could depress our
stock price.
We are a Delaware company with unissued preferred stock, the terms of which
can be set by our board of directors. Antitakeover provisions in Delaware law
and our ability to adopt a shareholder rights plan using our preferred stock
could make it difficult for a third party to acquire us, even if doing so would
benefit our stockholders. This could depress our stock price.
Shares eligible for future sale in the open market could depress our stock
price.
Sales of substantial amounts of our common stock in the public market
following this offering could depress its market price. Even the appearance
that a large number of shares is available for sale could have this effect. The
number of shares available for sale in the public market will be limited by
agreements under which we and our executive officers, directors and the holders
of substantially all of our outstanding shares of common stock and options and
warrants to purchase common stock have agreed not to sell or otherwise dispose
of any portion of their shares for a period of 180 days after the date of this
prospectus. Bear, Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation may release all or any portion of the shares subject to
such agreements. In addition to the adverse effect a price decline could have
on holders of our common stock, that decline would likely impede our ability to
raise capital through the issuance of additional shares of common stock or
other securities. In addition, approximately 44,562,762 restricted shares of
our stock are entitled to certain registration rights for sale in the public
market. If the holders of these shares sell in the public market, such sales
could harm the market price of our common stock.
You would lose part of your investment if our assets were sold for their book
value.
The initial offering price per share will significantly exceed the net
tangible book value of your shares because of our intangible assets, operating
losses and other factors. In the event of a liquidation of our assets for their
book value, you would not receive back a portion of your investment. See
"Dilution" for the calculations of these figures. If we issue debt securities
with warrants to purchase our common stock as part of future financings, such
warrants might be exercisable for less than the initial public offering price
which may result in further dilution. The amount of stock subject to such
warrants would depend on market conditions at the time. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Our forward-looking statements are speculative and may prove to be wrong.
Much of the information in this prospectus consists of forward-looking
statements based on our current expectations. These statements are inherently
predictive and speculative, and you must not assume that they will prove to be
correct. You can often identify these statements by forward-looking words such
as
. ""may'';
. ""will," "intend," "plan to";
. ""expect," "anticipate," "project," "believe," "estimate";
. ""continue'' or similar words.
13
<PAGE>
You should read such statements very carefully because they
. discuss our future plans or expectations;
. contain projections of our future financial condition or results of
operations; or
. state other forward-looking information.
When you consider such forward-looking statements, you should keep in mind
the risk factors above and the other cautionary statements in this prospectus
because they provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in
our forward-looking statements.
14
<PAGE>
USE OF PROCEEDS
The net proceeds from this offering, at an assumed initial public offering
price of $15.00 per share, are estimated to be $138.7 million, after deducting
estimated underwriting discounts and commissions and offering expenses payable
by us of $11.3 million. The net proceeds are estimated to be $159.9 million if
the underwriters' over-allotment option is exercised in full, after deducting
estimated underwriting discounts and commissions and offering expenses payable
by us of $12.6 million. The net proceeds from this offering will be used as set
forth below.
<TABLE>
<CAPTION>
Amount
--------------
(In thousands)
<S> <C>
Payments under satellite contract........................... $ 91,500
Payments under terrestrial repeater contracts............... 33,400
Working capital, operating losses and general corporate
expenses................................................... 13,800
--------
Total uses................................................ $138,700
========
</TABLE>
We may re-allocate the proceeds among these categories depending upon the
timing of our funding requirements. In addition, these uses assume that the net
proceeds are the first funds used. To the extent we use cash on hand or from
other financings to meet these funding needs, we may reallocate the proceeds to
other matters. Pending these uses, the net proceeds from this offering may be
temporarily invested in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
We have not declared or paid any dividends since our date of inception.
Currently, our Series A subordinated convertible notes restrict us from paying
dividends. These restrictions will terminate upon conversion of these notes
which will occur concurrently with this offering. We do not intend to pay cash
dividends on our capital stock in the foreseeable future. We anticipate we will
retain any earnings for use in our operations and the expansion of our
business.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1999 our capitalization on
. an actual basis;
. on a pro forma basis, which reflects the July 1999 transactions in which
we raised $250.0 million through the sale of Series A subordinated
convertible notes, repaid $75.0 million of debt, exchanged the options
and debt held by American Mobile for a new convertible note, paid $68.0
million under the Hughes contract, and amended our authorized capital
structure; and
. on a pro forma as adjusted basis, which additionally reflects the sale
of 10,000,000 shares of Class A common stock at an assumed offering
price of $15.00 per share after deducting underwriting discounts and
commissions and estimated offering expenses and the mandatory conversion
of the $250.0 million Series A subordinated convertible notes and the
$103.8 million of American Mobile convertible notes.
These adjustments are described more fully in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Pro Forma
Financial Information."
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 163 $ 96,763 $235,513
======== ======== ========
Notes payable due to related party............. 98,038 -- --
Convertible notes payable due to related par-
ty............................................ 58,352 -- --
Series A subordinated convertible notes........ -- 250,000 --
American Mobile convertible note............... 22,396 22,396 --
American Mobile convertible note--new.......... -- 81,390 --
Capital lease.................................. 309 309 309
Term loan...................................... 39 39 39
-------- -------- --------
Total debt................................... $179,134 $354,134 $ 348
======== ======== ========
Stockholders' equity (deficit)
Preferred stock, par value $0.01; 60,000,000
shares authorized, 15,000,000 shares
designated for Series A convertible preferred
stock, no shares issued and outstanding
actual and pro forma; and 10,498,890 issued
pro forma as adjusted........................ -- -- 105
Common stock--old, par value $0.10;
160,542,000 shares authorized, 6,689,250
shares issued and outstanding actual and pro
forma; no shares issued pro forma as
adjusted..................................... 669 669 --
Class A common stock, par value $0.01;
180,000,000 shares authorized, no shares
issued and outstanding actual and pro forma;
and 25,748,333 shares issued and outstanding
pro forma as adjusted........................ -- -- 257
Class B common stock, par value $0.01;
30,000,000 shares authorized; no shares
issued and outstanding actual and pro forma;
and 17,514,451 issued pro forma as adjusted
............................................. -- -- 175
Class C non-voting common stock, par value
$0.01; 30,000,000 shares authorized, no
shares issued and outstanding actual, pro
forma and pro forma as adjusted.............. -- -- --
Additional paid-in capital..................... 9,974 61,598 543,016
Accumulated deficit............................ (26,191) (26,191) (26,191)
-------- -------- --------
Total stockholders' equity (deficit)......... (15,548) 36,076 517,362
-------- -------- --------
Total capitalization........................... $163,586 $390,210 $517,710
======== ======== ========
</TABLE>
16
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $(5,316), or
$(0.24) per share. The per share amount results from dividing total tangible
assets less total actual liabilities by the number of our common shares
outstanding as of June 30, 1999, assuming the mandatory conversion of the
$250.0 million Series A subordinated convertible notes and the $103.8 million
in American Mobile convertible notes into various classes of common stock.
After giving effect to the sale of 10,000,000 shares of Class A common stock at
an assumed offering price of $15.00 per share, and after deducting the
underwriting discounts and commissions and estimated offering expenses, our
adjusted net tangible book value as of June 30, 1999 would have been $253,701,
or $7.82 per share. This represents an immediate increase in as adjusted net
tangible book value of $15.24 per share to existing stockholders and an
immediate dilution of $7.18 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C>
Public offering price per share...................................... $15.00
Pro forma net tangible book value per share as of June 30, 1999...... (0.24)
------
Increase per share attributable to new investors..................... 15.24
------
Pro forma net tangible book value per share after the offering....... 7.82
------
Dilution per share to new investors.................................. $ 7.18
======
</TABLE>
The following table sets forth the difference between existing stockholders
and new investors with respect to the number of shares purchased from us, the
total consideration paid and the average price per share paid, all as of June
30, 1999, and before deducting the underwriting discounts and commissions and
estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -----------------------
Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 33,262,784 77% $ 316,053 68% $ 9.50
New investors........... 10,000,000 23 150,000 32 $15.00
---------- --- ------------ -------
Total................... 43,262,784 100% $466,053 100% $10.77
========== === ============ =======
</TABLE>
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
In considering the following selected consolidated financial data, you
should also read our consolidated financial statements and notes and the
section captioned "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The consolidated statements of operations data for
the years ended December 31, 1997 and 1998, and the consolidated balance
sheets data as of December 31, 1997 and 1998, are derived from our
consolidated financial statements. These statements have been audited by KPMG
LLP, independent certified public accountants. KPMG's report contains a
paragraph stating that we have not begun operations, have negative working
capital and are dependent upon additional debt and equity financings, and that
these factors raise substantial doubt about our ability to continue as a going
concern. The selected consolidated financial data do not include any
adjustments that might result from the outcome of that uncertainty. The
consolidated statements of operations data for the six months ended June 30,
1998 and 1999, and for the period from December 15, 1992, which was our date
of inception, through June 30, 1999, and the consolidated balance sheet data
as of June 30, 1999, are derived from our unaudited consolidated financial
statements. The unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and, in the
opinion of our management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information.
You should not assume that our results of operations for the six months ended
June 30, 1998 and 1999 indicate what our results will be for the full year.
The pro forma information in the following statements of operations table
gives effect to the following as if each had occurred on January 1, 1998:
. the amortization of goodwill and other intangibles arising from American
Mobile's acquisition of debt and equity interests in our company from
WorldSpace;
. the amortization of $11.3 million deferred financing fees; and
. interest in excess of amounts that would be capitalized arising from the
issuance of $250.0 million Series A subordinated convertible notes.
The pro forma "as adjusted" information further gives effect to the
following as if each had occurred on January 1, 1998:
. the elimination of the amortization of $11.3 million deferred financing
fees;
. the elimination of interest expense related to the $250.0 million Series
A subordinated convertible notes upon the mandatory conversion of the
notes into 10,498,890 shares of Series A convertible preferred stock and
15,748,333 shares of Class A common stock; and
. our sale of 10,000,000 shares of Class A common stock in this offering at
an assumed offering price of $15.00 per share, after deducting
underwriting discounts and commissions and offering expenses.
The pro forma information in the following balance sheets table gives
effect to the following as if each had occurred on June 30, 1999:
. American Mobile's acquisition of debt and equity interests in our company
from WorldSpace;
. our issuance of $250.0 million Series A subordinated convertible notes,
net of repayment of $75.0 million of debt in July 1999 and related fees
and expenses of $11.3 million;
. payments to vendors of $68.0 million; and
. the exchange of the outstanding options and debt held by American Mobile
for a new convertible note, which is convertible into Class B common
stock at a rate of $8.65 per share.
18
<PAGE>
The pro forma "as adjusted" information further gives effect to the
following as if each had occurred on June 30, 1999:
. the mandatory conversion of $250.0 million Series A subordinated
convertible notes into 10,498,890 shares of Series A convertible
preferred stock and 15,748,333 shares of Class A common stock and the
mandatory conversion of an aggregate of $103.8 million of American Mobile
convertible notes and the related accrued interest into 10,825,201 shares
of Class B common stock concurrently with this offering; and
. our sale of 10,000,000 shares of Class A common stock in this offering at
an assumed offering price of $15.00 per share, after deducting
underwriting discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30, December 15,
------------------------------------------- ------------------------------------------- 1992
1998 1999 (Date of
Pro 1999 Pro Inception)
1997 1998 1998 Forma As 1998 1999 Pro Forma As to June 30,
Actual Actual Pro Forma Adjusted Actual Actual Forma Adjusted 1999 (1)
--------- --------- --------- ---------- --------- --------- --------- ---------- -------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue.......... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
--------- --------- --------- ---------- --------- --------- --------- ---------- --------
Operating
expenses:
Research and
development.... -- 6,941 6,941 6,941 3,867 1,378 1,378 1,378 8,319
Professional
fees........... 1,090 5,242 5,242 5,242 3,723 2,560 2,560 2,560 8,892
General and
administrative.. 20 4,010 7,452 7,452 542 4,503 6,224 6,224 8,533
--------- --------- --------- ---------- --------- --------- --------- ---------- --------
Total operating
expenses....... 1,110 16,193 19,635 19,635 8,132 8,441 10,162 10,162 25,744
--------- --------- --------- ---------- --------- --------- --------- ---------- --------
Operating loss... (1,110) (16,193) (19,635) (19,635) (8,132) (8,441) (10,162) (10,162) (25,744)
Other expense-
interest income
(expense), net.. (549) 26 (18,218) 26 -- 76 (8,017) 76 (447)
--------- --------- --------- ---------- --------- --------- --------- ---------- --------
Net loss......... $ (1,659) $ (16,167) $ (37,853) $ (19,609) $ (8,132) $ (8,365) $ (18,179) $ (10,086) $(26,191)
========= ========= ========= ========== ========= ========= ========= ========== ========
Net loss per
share--basic and
diluted......... $ (0.26) $ (2.42) $ (5.66) $ (0.45) $ (1.22) $ (1.25) $ (2.72) $ (0.23)
========= ========= ========= ========== ========= ========= ========= ==========
Weighted average
shares used in
computing net
loss per share--
basic and
diluted......... 6,368,166 6,689,250 6,689,250 43,262,784 6,689,250 6,689,250 6,689,250 43,262,784
<CAPTION>
December 31, June 30, 1999
-------------------- ------------------------------------
Pro Pro Forma As
1997 1998 Actual Forma Adjusted
--------- --------- --------- ---------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheets Data:
Cash and cash equivalents.................................. $ 1 $ 310 $ 163 $ 96,763 $235,513
System under construction.................................. 91,932 169,029 261,653 261,653 261,653
Total assets............................................... 91,933 170,485 263,901 422,525 550,025
Total debt................................................. 82,504 140,332 179,168 354,168 382
Total liabilities.......................................... 82,949 177,668 279,449 386,449 32,663
Stockholders' equity (deficit)............................. 8,984 (7,183) (15,548) 36,076 517,362
</TABLE>
- --------
(1) Business activity for the period from December 15, 1992, which was our
date of inception, through December 31, 1996 was insignificant.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which we believe
is relevant to an assessment and understanding of our financial condition and
consolidated results of operations. This discussion should be read together
with our consolidated financial statements, pro forma financial information and
related notes beginning on page F-1 of this prospectus.
Introduction
XM Satellite Radio Inc. was incorporated in Delaware in 1992 as a wholly-
owned subsidiary of American Mobile. XM Satellite Radio Holdings Inc. became a
holding company for XM Satellite Radio Inc. in connection with a strategic
investment by WorldSpace in early 1997. In July 1999, following our repayment
of $75.0 million in debt owed to WorldSpace, WorldSpace conveyed all of its
interest in us to a trust. American Mobile then acquired all of that interest
from the trust, making American Mobile our only current stockholder. Also, in
July, we issued $250.0 million of Series A subordinated convertible notes.
We are in the development stage. Since our inception in December 1992, we
have devoted our efforts to establishing and commercializing the XM Radio
system. Our activities were fairly limited until 1997, when we pursued and
obtained regulatory approval from the FCC to provide satellite radio service.
Our principal activities to date have included
. designing and developing the XM Radio system;
. negotiating contracts with satellite and launch vehicle operators,
specialty programmers, radio manufacturers and car manufacturers;
. developing technical standards and specifications;
. conducting market research; and
. securing financing for working capital and capital expenditures.
We have incurred substantial losses to date and expect to continue to incur
significant losses for the foreseeable future as we continue to design, develop
and deploy the XM Radio system and for some period following our commencement
of commercial operations.
We intend to capitalize all costs related to our satellite contract and our
FCC license, including all applicable interest. These capitalized costs will be
depreciated over the estimated useful lives of the satellites and ground
control stations. Depreciation of our satellites will commence upon in-orbit
delivery. Depreciation of our satellite control facilities and terrestrial
repeaters and the amortization of our FCC license will commence upon commercial
operations.
After we begin commercial operations, which we are targeting for the second
quarter of 2001, we anticipate that our revenues will consist primarily of
customers' subscription fees and advertising revenues.
Results of Operations
Six Months Ended June 30, 1999 Compared with Six Months Ended June 30, 1998
Research and Development. Research and development expenses declined to
approximately $1.4 million for the six months ended June 30, 1999, compared
with approximately $3.9 million for the six months ended June 30, 1998. The
reduction in the research and development expenses primarily resulted from the
completion of development of some of our system technology during the second
half of 1998.
20
<PAGE>
Professional Fees. Professional fees declined to approximately $2.6 million
for the six months ended June 30, 1999, compared with $3.7 million for the six
months ended June 30, 1998. Professional fees for the six months ended June 30,
1999 primarily reflect legal, regulatory and marketing expenses. Professional
fees for the six months ended June 30, 1998 reflect regulatory and consulting
activities. The professional fees decreased as we replaced consultants with
permanent employees. We expect the professional fees to trend upward as we
continue to develop the system and our market position.
General and Administrative. General and administrative expenses increased to
$4.5 million for the six months ended June 30, 1999, compared with $0.5 million
for the six months ended June 30, 1998. The increase primarily reflects
increased headcount and facility expenses which are anticipated to continue to
increase through commercial operations.
Interest Expense. As of June 30, 1999 and 1998, we owed $178.8 million and
$93.5 million, respectively, under various debt agreements which we entered
into for the purpose of financing the XM Radio system. We capitalized interest
costs of $8.2 million and $4.6 million associated with our FCC license and the
XM Radio system during the six months ended June 30, 1999 and 1998,
respectively. No interest costs were expensed during this period.
Depreciation Expense. Depreciation expense of computers and related
facilities amounted to $0.1 million during the six months ended June 30, 1999.
We had no significant fixed assets in service during the six months ended June
30, 1998.
Net Loss. The net loss for the six-month periods ended June 30, 1999 and
1998 was $8.4 million and $8.1 million, respectively. The increase in net
losses for June 30, 1999, compared with June 30, 1998, reflects additional
general and administration expenses, primarily increased headcount and facility
expenses, in preparation for commercial operations.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Research and Development. Research and development expenses amounted to
approximately $6.9 million for the year ended December 31, 1998. Research and
development expenses for the year ended December 31, 1997 were insignificant.
The increase in research and development expenses resulted from the completion
of development of some of our system technology during 1998.
Professional Fees. Professional fees increased to approximately $5.2 million
for the year ended December 31, 1998, compared with $1.1 million for the year
ended December 31, 1997. The increase primarily reflects legal, regulatory and
marketing expenses.
General and Administrative. General and administrative expenses increased to
$4.0 million for the year ended December 31, 1998, compared with $20,000 for
the year ended December 31, 1997. The increase primarily reflects increased
headcount and facility expenses to begin program management and operations.
Interest Expense. As of December 31, 1998 and 1997, we owed $140.2 million
and $82.5 million, respectively, under various debt agreements which we entered
into for the purpose of financing the XM Radio system. We capitalized interest
costs of $11.8 million and $1.9 million associated with our FCC license and the
XM Radio system during the year ended December 31, 1998 and 1997, respectively.
We expensed interest costs of $0.5 million during the year ended December 31,
1997.
Depreciation Expense. Depreciation expense of computers and related
facilities amounted to $57,000 during the year ended December 31, 1998. We had
no significant fixed assets in service during the year ended December 31, 1997.
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Net Loss. The net loss for the years ended December 31, 1998 and 1997 was
$16.2 million and $1.7 million, respectively, primarily reflecting research
and development activities, professional fees and general and administrative
expenses.
Liquidity and Capital Resources
Funds Required for XM Radio Through Commencement of Commercial Operations
We estimate that we will require approximately $1.1 billion to develop and
implement the XM Radio system from our inception through the commencement of
commercial operations, which we are targeting for the second quarter of 2001.
After we receive the estimated proceeds from this offering, we will have
raised an aggregate of $469.5 million since our inception net of expense and
repayment of debt. We will require substantial additional funding,
approximately $610.6 million, to finish building the XM Radio system and to
provide working capital until we commence commercial operations. The funds
raised in this offering are expected to be sufficient in the absence of
additional financing to cover our funding needs into the first quarter of
2000.
We currently expect to satisfy our funding requirements by selling debt or
equity securities and by obtaining loans or other credit lines from banks or
other financial institutions. In addition, we plan to raise funds through
vendor financing arrangements associated with our terrestrial repeater
project. If we are successful in raising additional financing, we anticipate
that a significant portion of the financing will consist of debt securities.
We are actively considering possible financings, and because of our
substantial capital needs we may consummate one or more financings at any
time.
We may offer debt securities in a private placement at the time of or
shortly after this offering, or at other times in the near future. Often, high
yield debt securities are issued as part of units with warrants to purchase
common stock. If warrants were issued in any debt placement by us, the amount
of common stock that may be purchased and the price at which stock would be
purchased under the warrants would depend upon market conditions at that time.
We may not be able to raise any funds or obtain loans on favorable terms or
at all. Our ability to obtain the required financing depends on several
factors, including future market conditions; our success or lack of success in
developing, implementing and marketing our satellite radio service; our future
creditworthiness; and restrictions contained in agreements with our investors
or lenders. If we fail to obtain any necessary financing on a timely basis, a
number of adverse effects could occur. Our satellite construction and launch
and other events necessary to our business could be materially delayed or
their costs could materially increase. We could default on our commitments to
our satellite construction or launch contractors, creditors or others, leading
to termination of construction or inability to launch our satellites. Finally,
we may not be able to launch our satellite radio service as planned and may
have to discontinue operations or seek a purchaser for our business or assets.
Our expected sources and uses of funds through commencement of commercial
operations are as follows:
Inception Through Commercial Launch
(in millions)
<TABLE>
<CAPTION>
Sources of Funds
- ----------------
<S> <C>
Total funds raised to
date.................... $ 330.8
Net proceeds from this
offering................ 138.7
--------
Total capital raised... 469.5
Future capital
requirements............ 610.6
--------
Total sources.......... $1,080.1
========
</TABLE>
<TABLE>
<CAPTION>
Uses of Funds
- -------------
<S> <C>
Satellites and launch.... $ 472.6
Launch insurance......... 50.0
Terrestrial repeater
system.................. 263.3
Ground segment........... 65.9
--------
Total system........... 851.8
FCC license.............. 90.0
Operating expenses and
working capital
requirements............ 138.3
--------
Total uses............. $1,080.1
========
</TABLE>
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<PAGE>
The sources and uses chart for inception through commercial launch assumes
that we will commence full commercial operations in the second quarter of 2001
and does not include net interest income or expense of any future offerings or
other financings. We anticipate that we will need further funding after
commencement of operations to cover our cash requirements before we generate
positive cash flow from operations. Many factors, including our ability to
generate significant revenues, could affect this estimate. See "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Total funds raised to date in the chart above include proceeds of
. $1.7 million from an equity contribution from American Mobile;
. $7.5 million from common stock we issued to WorldSpace;
. $81.9 million from loans made by WorldSpace;
. $54.5 million from the WorldSpace convertible note;
. $21.4 million from the American Mobile subordinated convertible notes;
and
. $250.0 million from the subordinated convertible notes sold to General
Motors, Clear Channel, DIRECTV, Telcom Ventures, Columbia Capital and
Madison Dearborn Partners, less $11.3 million in fees and expenses in
connection with financing transactions and $75.0 million debt repayment
to WorldSpace.
Net proceeds from the offering in the chart above reflects the expected
gross proceeds of this offering of $150.0 million less $11.3 million in
underwriting discounts and commissions and estimated offering expenses payable
by us.
The use of funds for satellites and launch in the chart above includes
$472.6 million for satellites, launch and long-lead items, including certain
financing costs associated with the satellites, and for an option to complete
the ground spare satellite under our satellite contract with Hughes. As of June
30, 1999, $58.3 million has been paid under the satellite contract.
The anticipated $65.9 million in costs for ground segment are intended to
cover the satellite control facilities, programming production studios and
various other equipment and facilities. As of June 30, 1999, we had not
incurred any costs in deploying the ground segment.
Other operating expenses and working capital requirements in the chart above
include cumulative historical operating losses through June 30, 1999 of $26.2
million.
Sources of Funds. To date, we have raised approximately $330.8 million of
capital, net of expenses and repayment of debt. These funds have been used to
acquire our FCC license, make required payments under our satellite contract
with Hughes, and for working capital and operating expenses. Of the $330.8
million raised to date, approximately $167.0 million has been raised through
the issuance of equity to, and receipt of loans from, our current stockholder,
American Mobile, and former stockholder, WorldSpace. Of this amount,
approximately $90.7 million and $46.0 million was raised in 1997 and 1998,
respectively, and $30.3 million was raised in January 1999.
In July 1999, we issued $250.0 million of Series A subordinated convertible
notes to six strategic and financial investors--General Motors, $50.0 million;
Clear Channel Communications, $75.0 million; DIRECTV, $50.0 million; and
Columbia Capital, Telcom Ventures, L.L.C. and Madison Dearborn Partners, $75.0
million in the aggregate. Using part of the proceeds from the issuance of the
Series A subordinated convertible notes, we paid WorldSpace $75.0 million in
July 1999 to redeem an outstanding loan owed to WorldSpace. We incurred fees
and expenses totalling $11.3 million in connection with these transactions.
Assuming completion of the offering on September 15, 1999, the notes would
automatically convert into 16,072,962 shares of our Class A common stock and
10,715,310 shares of our Series A preferred stock. If not converted, the notes
will mature on December 31, 2004, or, if we issue at least $50.0 million
aggregate
23
<PAGE>
principal amount of high yield debt securities, we will be entitled to extend
the maturity date of the subordinated convertible notes to a date no later than
the six-month anniversary of the stated maturity date of the high yield debt
securities. The notes are senior to all of our existing indebtedness, including
the debt securities issued by us to American Mobile that are convertible into
our Class B common stock. However, the notes are subordinate to any future high
yield debt securities issued by us.
As part of the July 1999 transactions, WorldSpace transferred all of its
rights, title and interests in XM Radio to a trust. These interests included
. 1,337,850 shares of our common stock;
. a $54.5 million note issued to WorldSpace in April 1998 convertible into
3,335,367 shares of our common stock, together with interest accrued and
capitalized thereon;
. an aggregate of $81.9 million of additional indebtedness incurred to
WorldSpace in May 1997, together with interest accrued and capitalized
thereon, other than $75.0 million aggregate principal amount thereof, which
was retained by WorldSpace and repaid and retired by us; and
. options issued to WorldSpace in May 1997 to purchase up to 12,287,933 shares
of our common stock.
The stock, notes, and indebtedness were then acquired from the trust by
American Mobile, and the notes and indebtedness were converted into or
exchanged for additional shares of our common stock. As a result of these
transactions, WorldSpace ceased to have any direct equity or debt interest in
us. Also, American Mobile holds 6,689,250 shares of Class B common stock and
notes, including associated accrued interest convertible into 11,085,644 shares
of Class B common stock as of September 15, 1999.
Uses of Funds. Of the approximately $1.1 billion of funds to be used through
commencement of commercial operations, an estimated $569.4 million are expected
to be incurred under contracts presently in place and for our FCC license,
which has already been paid for in full. Total capital expenditures from our
inception to June 30, 1999, totaled $152.6 million.
Satellite Contract. Under our satellite contract, Hughes will deliver two
satellites in orbit and if we exercise our option, complete construction of a
ground spare satellite. Hughes will also provide ground equipment and software
to be used in the XM Radio system and certain launch and operations support
services. We expect that by commencement of commercial operations in the second
quarter of 2001, we will have had to pay an aggregate amount of approximately
$472.6 million for these items and for Hughes to complete the optional ground
spare satellite. This amount does not include incentive payments, which will
depend in part on projected satellite performance at the acceptance date. Such
payments could total up to an additional $68.7 million over the useful lives of
the satellites. As of June 30, 1999, we had paid approximately $58.3 million
under our satellite contract and have recognized an additional $88.0 million in
accrued milestone payments. On July 7, 1999, we paid $68.0 million to Hughes,
and on July 23, 1999, we paid $20.0 million to Hughes.
Launch Insurance. Based on current industry estimates, we expect that launch
insurance for both satellites will cost approximately $50.0 million. As of June
30, 1999, we had not incurred any costs with respect to launch insurance.
Terrestrial Repeater System. Based on the current design of the XM Radio
system and preliminary bids, we estimate that through our expected commencement
of operations in the second quarter of 2001 we will incur aggregate costs of
approximately $263.3 million for a terrestrial repeater system. We expect these
costs to cover the capital cost of the design, development and installation of
a system of terrestrial repeaters to cover approximately 70 cities and
metropolitan areas. As of June 30, 1999, we had incurred costs with respect to
the terrestrial repeater buildout of $1.7 million. In August 1999, we signed a
contract calling for payments of approximately $115 million for engineering and
site preparation.
Ground Segment. Based on the design of the XM Radio system, available
research, preliminary bids and actual contract costs, we expect to incur
aggregate ground segment costs through the expected commencement
24
<PAGE>
of operations in the second quarter of 2001 of approximately $65.9 million. We
expect these costs will cover the satellite control facilities, programming
production studios and various other equipment and facilities. As of June 30,
1999, we had not incurred any costs with respect to the ground segment.
FCC License. In October 1997, we received one of two satellite radio
licenses issued by the FCC. We have paid approximately $90.0 million for this
license, including the initial bid right. No additional payments have been made
relating to the license.
Operating Expenses and Working Capital Requirements. In addition to the
above capital needs, we will require funds for working capital, operating
expenses and royalty payments currently estimated to be approximately $138.3
million through our targeted commercial launch in the second quarter of 2001.
From our inception through June 30, 1999, we have incurred total operating
expenses of $26.2 million. Total cash used in operating activities was $6.0
million. The difference between the loss incurred to date and cash used in
operations is principally due to $5.8 million in accounts payable and accrued
interest and $13.8 million in amounts due to related parties.
Funds Required for XM Radio Following Commencement of Commercial Operations
Even after commencement of commercial operations, we expect to need
significant additional funds to cover our cash requirements before we generate
sufficient cash flow from operations to cover our expenses. We cannot
accurately estimate the amount of additional funds needed, since it will depend
on business decisions to be made in the future and revenues received from
operations, but we expect the amount to be substantial. Funds will be needed to
cover operating expenses, marketing and promotional expenses including an
extensive marketing campaign in connection with the launch of our service,
distribution expenses, programming costs and any further development of the XM
Radio system that we may undertake after operations commence.
We will have significant payment obligations after commencement of
operations under our distribution agreement with General Motors. We will have a
total of approximately $35 million in required annual payments for the first
four years following commencement of commercial service. After that, through
2009, we will have additional annual payments ranging from less than $35
million to approximately $130 million, aggregating approximately $400 million.
In order to encourage the broad installation of XM radios in General Motors
vehicles, we have also agreed to subsidize a portion of the cost of XM radios
and to make incentive payments to General Motors when the owners of General
Motors vehicles with installed XM radios become subscribers for the XM Radio
service. We must also share with General Motors a percentage of the
subscription revenue attributable to General Motors vehicles with installed XM
radios. This percentage increases until there are more than eight million
General Motors vehicles with installed XM radios. This agreement is subject to
renegotiation if General Motors does not achieve and maintain specified
installation levels, starting with 1.24 million units after four years and
thereafter increasing by the lesser of 600,000 units per year and amounts
proportionate to our share of the satellite digital radio market. The
distribution agreement is described in more detail under the caption "Certain
Relationships and Related Party Transactions--Distribution Agreement with
General Motors and OnStar."
We currently expect to satisfy our funding requirements for the period
following commencement of commercial operations in substantially the same
manner as our requirements prior to commencement of commercial operations.
Year 2000 Readiness
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Many such systems will
need to accept four-digit entries in order to distinguish 20th century dates
from 21st century dates. As a result, before the end of this year, computer
systems and software used by many companies need to be upgraded to comply with
these Year 2000 requirements. Otherwise these systems may cause miscalculations
that will interfere with business activities or simply fail to work. When we
use the terms "Year 2000 Ready" or "Year 2000 Readiness," we mean that
customers will not experience any material difference in performance and
functionality of our networks as a result of the date being prior to, during or
after the Year 2000.
25
<PAGE>
We began to assess our Year 2000 Readiness in mid-1998. We have
substantially completed the identification, necessary modification and testing
of all our current systems, which we believe are Year 2000 compliant. This
required no significant expense. Because we are a development stage company and
do not expect to commence commercial operations until the second quarter of
2001, we do not expect that Year 2000 issues will pose significant operational
or financial problems for our company. Our existing technology development
contracts require Year 2000 Readiness, and we will require Year 2000 Readiness
in all new contracts that we enter.
In addition to our internal review process, we have had initial
communications with certain significant third parties with which we do business
to
. evaluate their Year 2000 Readiness and state of compliance; and
. determine the extent to which our systems may be affected if they fail
to remediate their own Year 2000 issues.
To date, we have not identified any system which presents a material risk of
not being Year 2000 Ready in a timely fashion or for which a suitable
alternative cannot be implemented. However, as we progress with our Year 2000
Readiness review, we may identify systems that present a material risk of Year
2000 disruption. If we determine that our business or a segment thereof is at
material risk of disruption due to Year 2000 issues or anticipate that our Year
2000 Readiness will not be completed in a timely fashion, we will work to
enhance our contingency plan.
Qualitative and Quantitative Discussion of Market Risk
As of December 31, 1998, we had various loans payable to related parties of
$91.5 million. These loans matured in April and May 1999 and were converted
into demand notes. Interest on the loans payable to related parties accrues at
variable rates based upon the six-month LIBOR rate plus 5% per annum and is
payable semi-annually or may be capitalized into the loan balance if renewed.
Additionally, we have a $45.6 million convertible note payable to a related
party. This note bears interest at a variable interest rate based upon the six-
month LIBOR rate plus 5% per annum. This note matures September 30, 2006.
We do not have any derivative financial instruments as of December 31, 1998,
and we believe that the interest rate risk associated with our indebtedness is
not material to the results of operations. On July 7, 1999, all of the amounts
outstanding under loans and convertible subordinated notes payable to related
parties, with the exception of $75.0 million which was repaid in cash, were
converted into a new convertible note. This note has a face value of $81.7
million and bears interest at the six-month LIBOR plus 5% per year. It matures
on December 31, 2004, but will be extended in certain circumstances if we issue
high yield debt securities.
Substantially all of our indebtedness will automatically convert into equity
upon the completion of this offering.
26
<PAGE>
BUSINESS
Overview
We seek to become a premier nationwide provider of audio entertainment and
information programming. We will transmit our XM Radio service by satellites to
vehicle, home and portable radios. We own one of two FCC licenses to provide a
satellite digital radio service in the United States. We will offer a wide
variety of music, news, talk, sports and other specialty programming on up to
100 distinct channels. We believe that customers will be attracted to our
service because of its wide variety of formats, digital quality sound and
coast-to-coast coverage.
We are constructing our satellite system and have contracts with third party
programmers, vendors and other partners. Key milestones achieved include the
following:
. $330.8 million of capital raised to date, net of expenses and repayment
of debt, including an offering of subordinated convertible notes to
several strategic and financial investors, including General Motors,
Clear Channel Communications, DIRECTV, Telcom Ventures, Columbia Capital
and Madison Dearborn Partners;
. Contract with Hughes for construction and in-orbit delivery of two high-
powered satellites and long lead items for a ground spare;
. Long-term agreement with the OnStar division of General Motors covering
the installation and exclusive marketing and distribution of XM Radio
service in General Motors vehicles;
. Contracts with Alpine, Pioneer, SHARP, Delphi-Delco Electronics and
Motorola to manufacture and distribute XM radios;
. Agreement with STMicroelectronics, a leading digital audio chipset
manufacturer, for the design and production of chipsets for XM radios;
and
. Agreements with leading specialty programmers, for many of which we will
be the exclusive satellite radio platform, covering at least 24
channels, including AsiaOne, Black Entertainment Television (BET), BBC
World Service, Bloomberg News Radio, Clear Channel, CNN en Espanol,
CNNfn, CNN Sports Illustrated, C-SPAN, DIRECTV, Hispanic Broadcasting
Corporation (formerly Heftel), One-on-One Sports, Radio One, Salem
Communications, Sporting News, Weather Channel and USA Today.
Market Opportunity
We believe that there is a significant market for our satellite radio
service. Market studies show strong demand for radio service, as evidenced by
radio listening trends, data relating to sales and distribution of radios and
the general growth in radio advertising. In addition, we note that in many
markets audio programming choices are limited to mass appeal formats. We
believe our national subscription service will complement traditional local
radio. Moreover, the success of subscription entertainment services in other
media such as cable television and market research further indicate potential
for significant consumer demand for satellite radio services.
Radio Listening
On average, adults listen to the radio 3.2 hours a day, with the amount of
radio listening fairly evenly distributed across gender and age groups. The
percentage of people listening to radio is also high. Market data show that
over 75% of the entire United States population age 12 and older listen to the
radio daily, and over 95% listen on a weekly basis (Radio Marketing Guide and
Factbook, Radio Advertising Bureau, 1998).
In addition, more people listen to radio than to other comparable audio
entertainment formats. The popularity of radio versus these other formats
appears particularly strong in the car, where we will be targeting
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<PAGE>
our service initially. An estimated 69% of consumers chose radio as their most
listened to format in the car as compared to 15% for cassettes and 9% for CDs
(Radio Listening Habits, CEMA 1998).
Radio Sales and Distribution
A large number of radios are sold in the United States on an annual basis.
In 1997, radio manufacturers sold over 23 million car radios, including 15.7
million original equipment automobile radios and 7.4 million aftermarket
automobile radios, as well as 1.2 million aftermarket automobile CD changers.
Original equipment radios are installed in new cars; aftermarket radios are
installed in the automobile after purchase. Based on these statistics, each
additional one million subscribers would represent less than 5% of the new
original equipment manufacturer and aftermarket car radios brought to market
annually and would generate incremental subscription revenues, at $9.95 per
month, of approximately $120 million.
Radio Advertising
The continued popularity of radio is also reflected in the growth of radio
advertising. The Radio Advertising Bureau estimates that radio advertising
revenue in 1998 climbed to $15.4 billion, an increase of 12% over 1997.
Veronis, Suhler & Associates projects a compound annual increase of 9.3%
through 2002. This growth rate exceeds the projected increase in advertising
spending for television, newspapers, magazines, yellow pages and outdoor
advertising (Communications Industry Forecast, 1998).
Current Limitations on Programming Choice
Many consumers have access to a limited number of stations and programming
formats offered by traditional AM/FM radio. Our service is expected to be
attractive to underserved radio listeners who want expanded radio choices.
Limited Number of Radio Stations. The number of radio stations available to
many consumers in their local market is limited in comparison to the up to 100
channels we expect to offer on a nationwide basis. In 1998, there were only 49
AM/FM radio stations as listed by Arbitron broadcasting in New York City, the
largest radio market in the United States. In fact, many metropolitan areas
outside the largest 50 markets, such as Jacksonville, FL, Louisville, KY, and
Oklahoma City, OK, have 30 or fewer AM/FM radio stations as listed by Arbitron
(American Radio, Summer 1998 Ratings Report, Duncan's American Radio, 1998).
We estimate that our coast-to-coast service will reach over 98 million
listeners age 12 and over who are beyond the range of the largest 50 markets as
measured by Arbitron. Of these listeners, over 36 million live beyond the
largest 268 markets (Statistical Abstract of the United States 1998 and Fall
1998 Market Rankings, The Arbitron Company). In addition, there are 22 million
people age 12 and above who receive five or fewer stations (The Satellite
Report 1999, C. E. Unterberg, Towbin).
Limited Programming Formats. We believe that there is significant demand for
a satellite radio service that expands the current programming choices
available to these potential listeners. Over 50% of all commercial radio
stations use one of only three general programming formats--country,
news/talk/sports, and adult contemporary (M Street Radio Directory, 1998). Over
70% of all commercial radio stations use one of only five general formats--the
same three, plus oldies and religion. The small number of available programming
choices means that artists representing niche music formats likely receive
little or no airtime in many markets. Radio stations prefer featuring artists
they believe appeal to the broadest market. However, according to the Recording
Industry Association of America, recorded music sales of niche music formats
such as classical, jazz, movie and Broadway soundtracks, new age, children's
programming and others comprised up to 21% of total recorded music sales in
1998 (1998 Consumer Profile).
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<PAGE>
Demand for Subscription Services and Products
Penetration data relating to cable, satellite television, and premium movie
channels suggest that consumers are willing to pay for services that
dramatically expand programming choice or enhance quality. As of 1998, over 67%
of TV households subscribe to basic cable television at an average monthly cost
of $28, and nearly 9% of TV households subscribe to satellite television at an
average monthly cost of $52 (National Cable Television Association website and
DBSdish.com website). Also in 1998, according to Paul Kagan Associates,
subscribers to cable and satellite services purchased more than 69 million
premium channel units, such as HBO, Showtime, and Cinemax, for which they paid
an extra monthly charge on top of the basic monthly fee.
Demand for Satellite Radio Services
Several studies have been conducted demonstrating the demand for satellite
radio service. In December 1998, we commissioned Strategic Marketing And
Research Techniques, a leading market research company, to conduct a study
based on one-on-one interviews with over 1,000 licensed drivers ages 16 to 64
in ten geographically dispersed markets. The study concluded that approximately
50% of aftermarket radio purchases would be for AM/FM/satellite radio units
with a single-disc CD player. This assumed a radio price point of $399, a $75
installation fee and a $10 monthly subscription fee for the service. The same
study also found that consumers are more likely to buy satellite radio units
that offer at least 80 channels.
In November 1998, we commissioned Yankelovich Partners to gauge consumer
interest in satellite radio. This involved surveying 1,000 people via telephone
and correlating the results with the Yankelovich MONITOR study, which is the
longest standing tracking study of consumer values and attitudes in the United
States. The study indicated that 18% of people age 16 and older were
"definitely" or "probably" willing to pay $9.99 per month to receive satellite
radio and an additional $150 for a satellite radio when buying a new car.
In July 1997, Critical Mass Media, a leading radio research firm, conducted
a demand and segmentation study for us involving telephone surveys of 6,000
people. The study estimated that 34 million consumers would be willing to
subscribe to satellite radio with a $400 equipment price point increasing to 43
million consumers with a $200 equipment price point. The study was based on a
$10 subscription fee and 50 channels. XM Radio plans to have a monthly
subscription fee of $9.95 and up to 100 channels.
The XM Radio Service
We are designing the XM Radio service to address the tastes of each of our
targeted market segments through a combination of niche and broad appeal
programming. We believe that our distinctive approach to programming, combined
with digital quality sound and virtually seamless signal coverage throughout
the continental United States, will position us to become the leading provider
of the next generation in radio.
We Will Differentiate XM Radio from Traditional AM/FM Radio
Local radio stations, even those which are part of national networks, focus
on maximizing listener share within local markets. This limits the types of
programming they can profitably provide to mass appeal formats. In contrast,
our nationwide reach and ability to provide up to 100 channels in each radio
market will allow us to aggregate listeners from markets across the country,
expanding the types of programming we can provide. The following chart
indicates differences between XM Radio and traditional AM/FM radio.
(chart appears on the following page)
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<TABLE>
<CAPTION>
XM Radio Traditional AM/FM Radio
<S> <C> <C>
Convenience: go anywhere Virtually seamless signal Local area coverage
capability coverage in the United
States
Choice: wide Up to 100 channels with a Limited formats in many markets
variety/number of wide variety of programming
stations
Improved audio quality Digital quality sound Analog AM/FM quality sound
Fewer commercials Average 6-7 minutes per Average 13-17 minutes per hour
hour; some channels
commercial free
More information about Text display with title/name No visual display
music of song/artist
</TABLE>
We plan to further differentiate XM Radio from traditional AM/FM radio in
the following ways.
Provide music formats unavailable in many markets. XM Radio will offer many
music formats that are popular but currently unavailable in many markets. More
than 50% of all commercial radio stations in markets measured by Arbitron use
one of only three programming formats: country; news/talk/sports; or adult
contemporary. There are many types of music with significant popularity, as
measured by recorded music sales and concert revenues, that are unavailable in
many traditional AM/FM radio markets. Such music could include classical
recordings or popular blues and rap music that have retail appeal but are not
commonly played on traditional AM/FM radio. This music also includes special
recordings such as the Irish dance soundtrack "Riverdance" and the "Three
Tenors" concerts which generate millions of CD sales, yet are not typically
played on today's AM/FM stations. Additionally, heavy metal and dance are two
of the more popular musical styles not currently broadcast in many small and
medium sized markets. Even major markets do not always offer a full complement
of formats.
Superserve popular music formats. We will be able to offer more specific
programming choices than traditional AM/FM radio generally offers for even the
most popular listening formats. For example, on traditional AM/FM radio oldies
music is often generalized on a single format. We will be able to segment this
category by offering several dedicated, era-specific formats. We also plan to
offer up to six dedicated channels with urban formats and four distinct country
music formats.
Use more extensive playlists. Traditional AM/FM radio stations frequently
use limited playlists that focus on artists and specific music that target the
largest audience. With our large channel capacity and focus on specific
formats, we have the ability to provide more variety to attract listeners
dissatisfied with repetitive and/or limited playlist selection offered by
traditional radio.
Deliver a wide range of ethnic and informational programming. We will
provide a variety of formats that target specific ethnic and special interest
groups who are rarely served by traditional AM/FM radio. We believe by using
our national platform to aggregate geographically disparate groups through
affinity programming, we will provide advertisers a valuable way to market
products and services to these groups by advertising on our affinity channels.
Develop promotional opportunities with record companies, recording artists
and radio personalities. Because of our nationwide coverage and resulting
economies of scale, we will be able to deliver a variety of national promotions
and events that would not be cost effective or efficient on a market-by-market
basis through traditional AM/FM radio distribution. Also, we will seek to hire
and develop high profile talk and disc jockey talent capable of becoming the
next generation of national radio stars with an influence on radio similar to
the impact that the new breed of cable TV talk hosts have had on the television
industry.
Respond quickly when major music and cultural events occur. XM Radio
programmers will respond quickly to changing musical tastes, seasonal music and
emerging popular cultural events, such as Bruce
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Springsteen and Ricky Martin tours, by providing listeners with extensive
coverage utilizing our large channel capacity.
Take advantage of digital's higher quality signal. There are several music
formats that have strong demand but have been relegated to AM stations with
weaker signals due to lack of available FM frequencies. Such AM formats include
traditional country music, big band/nostalgia and gospel formats that we will
be able to deliver with superior sound quality.
Focus on special demands of mobile listeners. A significant percentage of
radio listeners, such as truckers, routinely travel through two or more radio
markets on a frequent basis. According to the U.S. Department of
Transportation, there were over three million truckers in the United States in
1997. We believe these listeners will be attracted to a radio service with
national coast-to-coast coverage. We are seeking to specifically identify and
target the listening demands of this audience.
Availability of commercial-free and limited-advertising channels. We believe
that a significant portion of the listening market would pay to subscribe to a
radio service that provided commercial-free channels and channels with reduced
advertising, as demonstrated by the appeal of limited periods of non-stop music
used by some traditional AM/FM stations. Therefore, we plan to target this
audience with a number of commercial-free music channels covering popular music
formats. In addition, we expect that our limited-advertising channels will
carry less than half the advertising spots of typical AM/FM stations.
Use cross-promotion capability to market XM Radio. We will dedicate a
percentage of our advertising inventory across our channels to promote specific
programming and brand loyalty. AM/FM radio stations traditionally promote on a
single channel basis to build awareness.
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Representative XM Radio Channel List
The following table is a list of representative channels we may offer.
Channels in italics represent contractual commitments with content providers.
Representative Channels of XM Radio
ROCK MUSIC INFORMATION HISPANIC
Classic Rock All News (USA Today) Tejano (Hispanic
Classic Hard Rock All News (Bloomberg) Broadcasting Corp.)
New Hard Rock Public Affairs (C-SPAN) Caribbean (Hispanic
New Alternative Broadcasting Corp.)
Classic Alternative Financial News (CNNfn) Regional Mexican
(Hispanic Broadcasting
Soft Rock News/Information (BBC Corp.)
ECLECTIC MUSIC World Service)
Contemporary Christian Home & Garden Rock en Espanol
(Salem) Love/Relationship Line (Hispanic Broadcasting
Traditional Christian Farm/Rural Corp.)
(Salem) Health/Fitness Hispanic Ballads
Blues Comedy (Hispanic Broadcasting
Traditional Jazz Audio Books Corp.)
Reggae/Island Consumer Classified Hispanic News (CNN en
World Music Soap Operas Espanol)
American Folk For Truckers Only OLDIES MUSIC
Pop Classical Movie Soundtrack Channel 40's Oldies
Traditional Classical Relationship Classified 50's Oldies
Modern Jazz (-18) 60's Oldies
Progressive/Fusion Relationship Classified 70's Oldies
POP MUSIC (19-30) 80's Oldies
Top 20 Contemporary Hits Relationship Classified 90's Oldies
Disco/Dance (31-50) Love Songs
Broadway Show Tunes Relationship Classified TALK
Modern Adult (51+) African American Talk
Contemporary Lifestyles (BET/Radio One)
Classic Vocalists Celebrity Gossip Asian/Indian Talk
All Request Contemporary Entertainment News (AsiaOne)
Hits Game Show/Contest Christian/Family Talk
SPORTS URBAN MUSIC (Salem)
Sports Headlines Hip Hop/Rap (BET/Radio Mandarin Talk (AsiaOne)
(CNN/Sports) One) Conservative Talk
Sports Talk (One-On-One Urban Dance Mix (Radio Liberal Talk
Sports) One) Senior Citizen Talk
Sportsman Channel Classic Soul (BET/Radio Rock Talk (18-34)
Automotive One) Hispanic Talk
COUNTRY MUSIC Gospel (BET/Radio One) Teen Talk
Mainstream Country Adult Urban (BET/Radio CHILDREN'S MUSIC
Classic Country One) Pre-School
Bluegrass/Traditional Top 20 Urban Grade School/pre-teen
Country ENVIRONMENTAL MUSIC SPECIAL/EVENTS
All Request Country Soft Jazz Reserved Channels
New Age
Electronic
Environmental (Earth
Sounds)
Beautiful Instrumentals
Key Elements of Our Business
We have developed a business strategy to become a premier nationwide
provider of audio entertainment and information programming in the vehicle,
home and portable markets. Our strategy includes the following elements.
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Programming
We believe that the quality and diversity of our programming will be a key
driver of consumer interest in our service. To that end, we have developed a
unique programming strategy that offers consumers
. Original music and information channels created by XM Originals, our in-
house programming unit;
. Channels created by well-known providers of brand name programming; and
. The availability of commercial-free and advertiser-supported channels.
XM Originals. Through a programming unit in XM Radio called "XM Originals",
we will create a significant number of original channel formats with content
focusing on popular music such as oldies, rock and country, and on new and
innovative formats, including jazz, blues, reggae and pop classical. These
formats will include artists with strong music sales and concert revenue who do
not get significant airplay on traditional AM/FM radio stations. We also intend
to brand individual channels creating a specific station personality and image
using compelling on-air talent and other techniques to attract listeners in our
target market segments. We have hired a team of programming professionals with
a proven track record of introducing new radio formats and building local and
national listenership.
Brand Name Programming Partners. We intend to complement our original
programming with a variety of unique and diverse content provided to us by
brand name programming providers. We have signed contracts representing at
least 24 channels with numerous well-known specialty and niche programmers that
will provide brand name content for XM Radio. These companies include:
<TABLE>
<CAPTION>
Media Radio
----- -----
<S> <C>
-- Bloomberg News Radio -- Hispanic Broadcasting Corporation (formerly Heftel)
-- USA Today -- Clear Channel Communications
-- CNNfn -- Radio One
-- CNN en Espanol -- Salem Communications
-- CNN Sports Illustrated -- AsiaOne
-- C-SPAN Radio -- One-On-One Sports
-- Black Entertainment Television -- BBC World Service
-- DIRECTV
-- Weather Channel
-- Sporting News
</TABLE>
Availability of Commercial-Free and Limited-Advertising Channels. We will
provide a number of commercial-free music channels covering popular music
formats. In addition, our limited-advertising channels will carry less than
half the advertising of a typical AM/FM radio station. We expect the diversity
of our programming line-up will appeal to a large audience, including urban and
rural listeners of all ages, ethnicities, economic groups and specialty
interests. We expect to tailor our programming and marketing to appeal to
specific groups within those audiences that research has shown are most likely
to subscribe to our satellite radio service. Initially, we plan to concentrate
our programming efforts on listeners who are most receptive to innovative
entertainment services, so-called early adopters, and new car buyers. According
to our research, 16-34 years old adults will compose a high percentage of our
early adopters; we will therefore focus a significant portion of our
programming and marketing efforts to appeal to them. In addition, we will
develop programming and marketing specifically to appeal to other market
segments such as baby boomers who are 35-53 years old, seniors who are 54 years
old and older, African-Americans, Asian-Americans and Hispanics.
Marketing and Distribution
Our marketing strategy will be designed to build awareness and demand among
potential subscribers in our target markets and the advertising community. In
addition, we expect to work closely with radio and automotive manufacturers and
retail distributors to promote rapid market penetration.
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Establish Broad Distribution Channels for XM Radios
We plan to market our satellite radio service through several distribution
channels including national electronics retailers, car audio dealers, mass
retailers and automotive manufacturers. In addition, we will support our
distribution channels by building awareness of XM Radio with a substantial
introductory launch campaign, including national and local advertising.
Exclusive Distribution Agreement with General Motors. We have an agreement
with the OnStar division of General Motors whereby, for a 12-year period,
General Motors will exclusively distribute and market the XM Radio service and
install XM radios in General Motors vehicles beginning in 2001. General Motors
sold over 4.5 million automobiles in 1998, which represented more than 29% of
the United States automobile market. Under the agreement, we have substantial
payment obligations to General Motors, including among others, certain
guaranteed, annual, fixed payment obligations. While we have discussed with
General Motors certain installation projections, General Motors is not required
to meet any minimum targets for installing XM radios in General Motors
vehicles. In addition, certain of the payments to be made by us under this
agreement will not be directly related to the number of XM radios installed in
General Motors vehicles. Our contract with General Motors is described in more
detail under the caption "Certain Relationships and Related Party
Transactions--Distribution Agreement with General Motors and OnStar." We are
currently in discussions with other car manufacturers regarding additional
distribution agreements.
Distribution through Radio Manufacturers. We have signed contracts with
Delphi-Delco, Motorola, Pioneer and Alpine for the development, manufacture and
distribution of XM radios for use in cars. One of these manufacturers, Delco
Electronics Corporation, a subsidiary of Delphi Automotive Systems, is the
leading original equipment manufacturer of radios for the automobile industry,
producing more than 33% of car radios manufactured for installation in new
automobiles in the United States in 1997. Delphi-Delco is also the leading
manufacturer of car radios sold in General Motors vehicles. Motorola is a
leading supplier of integrated electronics systems to automobile manufacturers.
Two of our other manufacturers, Pioneer Electronics Corporation and Alpine
Electronics, together produced over 31% of aftermarket car radios sold in the
United States in 1997. We have also signed a contract with SHARP to manufacture
and distribute XM radios for home and portable use. We are pursuing additional
agreements for the manufacture and distribution of XM radios, subject to
contract limitations on the number of manufacturer distributors during the
early years of service. We also plan to meet with automobile dealers to educate
them about XM Radio and develop sales and promotional campaigns to promote XM
radios to new car buyers.
These leading radio manufacturers have strong retail and dealer distribution
networks in the United States. We expect to have access to the distribution
channels and direct sales relationships of these distributors, including
national electronics retailers, car audio dealers and mass retailers.
We do not intend to manufacture or hold inventory of XM radios. Radio
distribution likely would be handled by fulfillment centers, which hold
inventory for the radio manufacturers and ship products directly to listeners
at the manufacturers' request.
Rural Market Distribution/Alternative Distribution. We intend to market our
satellite radio service in rural counties, using distribution channels similar
to satellite television, to penetrate rural households not served by
traditional electronic retailers. In addition, we plan to pursue alternative
distribution opportunities such as catalog/direct marketing, the Internet and
marketing through affinity groups.
Maximize Revenue Through Dual Sources
As with other subscription-based entertainment media such as cable
television, we expect to generate revenue by charging a monthly subscription
fee and selling limited advertising time. We will earn all of the revenue from
advertising on our own programming and a portion of the revenues from
advertising on third party programming. XM Radio offers a new national radio
platform for advertisers that solves many of the problems associated with
buying radio advertising nationally on a spot or syndicated basis. We believe
the
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attractiveness of one-stop national radio advertising buys will provide a
significant source of income as our subscriber base grows.
Subscriber Development and Expansion
We expect to promote XM Radio as a national brand name with an exciting
image. Several months prior to service commencement, we will launch an
advertising campaign in several United States markets to test and generate
early feedback on the product offerings and stimulate early demand. Promotional
activities currently under consideration include distributing sample
programming at retail outlets, concert venues and on the Internet to generate
initial interest.
Although XM Radio will be available nationwide upon commencement of
operations, we will initially concentrate promotional activities in several key
markets and rapidly expand to other large markets. This phased roll-out
strategy, similar to that employed by consumer electronics manufacturers and
special services such as DIRECTV and Web TV, will enable us to refine our
launch implementation throughout the roll-out period. The advertising will
consist of both branding and promotion efforts for XM Radio, as well as
separate campaigns to promote and brand individual channels. Initially, we will
focus marketing efforts on the various channels targeting young adults, who we
believe are more likely to drive early penetration. We also expect to benefit
from free local media coverage as XM Radio is first offered in each new market.
XM Radio will promote subscriber acquisition activities with both original
equipment and aftermarket radio manufacturers. This might include
. promotional campaigns directed towards automobile manufacturers and
dealers;
. promotional campaigns for free months of service with purchase of an XM
radio or free installations for aftermarket car radios;
. incentive programs for retailer sales forces;
. in-store promotional campaigns, including displays located in
electronics, music and other retail stores, rental car agencies and
automobile dealerships; and
. jointly funded local advertising campaigns with retailers.
Advertiser Development and Acquisition
Our ability to aggregate various local niche market segments into national
audiences will be attractive to national advertisers and agencies. We have held
extensive meetings with media directors, planners and buyers at advertising and
media buying agencies to develop advertiser awareness of the benefits of
satellite radio. We expect to have advertising sales offices in seven major
media markets to sell directly to advertising agencies and media buying groups.
We will also work with ratings agencies in our advertising-supported business.
Statistical Research, Inc., which produces Radar reports, has agreed to work
with us to develop other ratings methodologies for satellite radio.
During our early years of service, we do not expect to have a listener base
sufficient to attract substantial national advertising dollars on individual
channels at competitive rates. Thus, we plan initially to attract national
advertisers and agencies with the following kinds of incentives.
Charter Advertising Agreements. We have contracts with several advertisers,
advertising agencies and media buying companies offering charter advertising
packages at reduced rates for a limited time. Each charter advertiser will
purchase a minimum amount of advertising from us during the period that the
reduced rates are in effect. We intend to sign additional contracts on similar
terms.
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Foreign Language Advertising. We and our programmers plan to offer foreign
language advertising on specific foreign language-based channels. Several major
national advertisers have expressed strong interest in the ability to advertise
to these hard-to-reach customer segments.
The XM Radio System
We are designing our system to provide satellite radio to the continental
United States and coastal waters using radio frequencies allocated by the FCC
for satellite radio. These radio frequencies are within a range of frequencies
called the S-Band. The XM Radio system will be capable of providing high
quality satellite services to XM radios in automobiles, trucks, recreation
vehicles and pleasure craft, as well as to fixed or portable XM radios in the
home, office or other fixed locations. The XM Radio system design uses a
network consisting of an uplink facility, two high-power satellites and, where
necessary, ground-based repeaters to provide digital audio service to XM
radios.
[PICTURE OF RADIO WAVES REFLECTED OFF SATELLITES TO CAR APPEARS HERE]
Space Segment
Satellite Construction. Under our satellite contract with Hughes, Hughes is
building and will launch two HS 702 high-power satellites for the XM Radio
system. Hughes has also agreed to provide, at our option, one ground spare
satellite, to be available in the event of a failed launch of any satellite or
to accommodate our satellite system growth.
We believe that the HS 702 model will provide higher quality performance
than other satellite options. The first HS 702 satellite is expected to be
ready for launch in the third or fourth quarter of 1999 and a total of three HS
702 satellites are currently scheduled for launch before the launch of our
satellites.
Hughes has also contracted to provide us with launch and operations support
services, equipment and software. Under our contract, Hughes must deliver the
first satellite no later than December 31, 2000 and the second satellite no
later than April 11, 2001.
Hughes has engaged Alcatel to provide the communications payload electronics
for our satellites. The communications payload electronics are designed to make
best use of technologies that have already been developed or used in previous
satellite programs. The design includes significant redundancy and protective
measures to prevent loss of service.
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Satellite Transmission. We anticipate that our two satellites will be
deployed at 85 West Longitude and 115 West Longitude. After reaching their
designated orbital location, the satellites will receive audio signals from our
programming center and retransmit the signals across the continental United
States. The satellites will be 30(degrees) apart in longitude in order to
enhance the probability of clear line-of-sight communication between the
satellites and XM mobile radios.
The transmission coverage areas, or footprints, of our satellites encompass
the 48 contiguous states and nearby coastal waters. We have tailored these
footprints to provide nearly uniform availability over the United States and to
minimize transmission spillage across the United States borders into Canada and
Mexico. However, because coverage does extend to the Gulf of Mexico, the
California coast and the Atlantic coast, we also expect to be able to provide
XM Radio to the cruise ships, cargo vessels and leisure boats which frequent
these waters.
Our satellites will transmit audio programming within a 12.5 MHz range of S-
Band radio frequencies that have been allocated by the FCC for our exclusive
use. Megahertz is a unit of measurement of frequency. This 12.5 MHz bandwidth
will be subdivided to carry the transmission of six signals, two signals to be
transmitted from each of our two satellites and two signals to be transmitted
by the terrestrial repeater network. The audio programming for XM Radio will be
carried on two satellite signals, and the remaining two satellite signals and
the terrestrial repeater signals will repeat the audio programming to enhance
overall signal reception. The transmission of higher quality sound requires the
use of more kilobits per second than the transmission of lesser quality sound.
In order to provide high-quality digital sound, we expect that music channels
will require approximately 56 to 64 kilobits per second depending on the type
of compression technology used, whereas talk channels will require
significantly less band width. We expect to use our allocated bandwidth in such
a way as to provide up to 100 channels of programming, with our music channels
having a high bandwidth allocation so as to provide high-quality digital sound.
Launch Services. Hughes has signed an agreement with Sea Launch Limited
Partnership, a joint venture in which Boeing Commercial Space Company has a
controlling 40% interest, to provide the launch services for our satellites.
The launch vehicle uses a new rocket called the Zenit-3SL, which is based on a
flight-proven two-stage rocket called the Zenit-2, plus a stage which is the
flight-proven upper stage of a Russian-developed rocket called the Proton
rocket. The Zenit-2 vehicle has been successfully launched 28 times in 33
attempts, for an 85% success rate. The upper stage has successfully flown in
182 flights on various rockets with five failures, for a 97% success rate.
Sea Launch has developed a new launch system to launch rockets from an
ocean-based platform. Sea Launch will perform all rocket and satellite
processing at the Sea Launch home port in Long Beach, California. Sea Launch
will move the platform to its launch position in the South Pacific Ocean near
the equator, where the satellites can be launched more efficiently by avoiding
the requirement to conduct an orbital plane change. In March 1999, Sea Launch
successfully launched a rocket carrying an inert payload into geo-stationary
orbit. Sea Launch has contracts for 16 launches and expects its first
commercial launch using this system in the third quarter of 1999. Our
satellites are currently the fifth and sixth on the launch manifest.
Insurance. We bear the risk of loss for each of the satellites from the time
of launch, subject to exceptions set forth in our agreement with Hughes, and we
intend to obtain insurance to cover that risk. We intend to purchase launch and
in-orbit insurance policies from global space insurance underwriters. The
insurance premiums for both satellites are expected to cost us approximately
$50 million. We cannot predict the status of the insurance market near the time
of launch, which is the customary time for purchasing satellite insurance. We
expect that the policies we obtain will indemnify us for a total, constructive
total or partial loss of either of the satellites that occurs from the time of
launch through each satellite's expected lifetime. We intend to obtain coverage
which will exceed all hardware, insurance and launch service costs related to
the in-orbit replacement of a lost satellite. However, any insurance we may
obtain will not protect us from the adverse effect on our business operations
due to the loss of a satellite. We expect that these policies will contain
standard commercial satellite insurance provisions, including standard coverage
exclusions.
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Ground Segment
Satellite Control. Each of our satellites will be monitored by a telemetry,
tracking and control station, and both satellites will be controlled by a
satellite control station. Each of the stations will have a backup station.
Hughes, our satellite manufacturer is constructing primary and backup antennas
and electronics. We are evaluating proposals from experienced satellite
operators to perform the telemetry, tracking and control functions.
Programming and Business Center. Programming from both our studios and
external sources will be sent to our programming center, which will package and
retransmit signals to our satellites through the uplink station. Financial
services and certain administrative support will be carried on at our business
center. Communications traffic between the various XM Radio facilities will be
controlled by the network monitoring center. The network monitoring center will
monitor satellite signals and the terrestrial repeater network to ensure that
the XM Radio system is operating properly. We plan to design and install fault
detection systems to detect various system failures before they cause
significant damage.
Terrestrial Repeaters. We intend to install a terrestrial repeater system to
supplement the coverage of our satellites. Terrestrial repeaters are ground-
based electronics equipment which receive and re-transmit the satellite
signals. We have signed a contract with LCC International, a wireless service
site planner, for the design and deployment of our terrestrial repeater
network. LCC International has completed initial site planning for 70 markets.
The contract with LCC International is described in more detail under the
caption "Certain Relationships and Related Party Transactions--Engineering
Contract with LCC International."
In some areas, satellite signals may be subject to blockages from tall
buildings and other obstructions. Due to the satellites' longitudinal
separation, in most circumstances where reception is obscured from one
satellite, XM Radio will still be available from the other satellite. In some
urban areas with a high concentration of tall buildings, however, line-of-sight
obstructions to both satellites may be more frequent. In such areas, we will
install terrestrial repeaters to facilitate signal reception. We will install
terrestrial repeaters on rooftops and existing tower structures where they will
receive the satellite signals, amplify them and retransmit them at a
significantly higher signal strength than is possible directly from the
satellites. Before we may install many of our planned terrestrial repeaters, we
must obtain roof rights in suitable locations and on acceptable terms. We do
not expect this to present a serious problem to our construction of a
terrestrial repeater network.
The high power levels and proprietary signal design of the terrestrial
signals may allow XM radios to receive signals when a terrestrial repeater is
not in view, including within buildings and other structures which can be
penetrated by the terrestrial repeater signal. In some indoor locations which
cannot receive the repeater signal, users will need to use small externally
mounted antennas that will receive the signal from one of the two satellites.
We plan to install approximately 1,700 terrestrial repeaters to cover urban
areas in approximately 70 markets. We expect that this system will be
operational by the second quarter of 2001. We estimate that the largest urban
markets may require in excess of 100 repeaters, while smaller cities with fewer
tall buildings may require as few as one to three repeaters. We also intend to
use additional small repeaters in areas such as tunnels, where reception would
otherwise be severely restricted. Our placement of terrestrial repeaters will
be guided by a newly developed radio frequency analysis technique which,
employing technology similar to that used in certain cellular telephone
systems, analyzes the satellite footprint to discover areas likely to have
impaired reception of XM Radio.
We expect to benefit from the expertise gained by American Mobile with its
ARDIS terrestrial two-way data network consisting of approximately 1,700 base
stations sites serving cities throughout the United States. We may use a
portion of these sites in our system.
XM Radios. We will transmit XM Radio throughout the continental United
States to vehicle, portable, home and plug and play radios. Our radios will be
capable of receiving both XM Radio and traditional AM/FM
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stations. We believe prototypes will be available and limited production will
begin by December 2000, and radios will be commercially available by
commencement of commercial operation.
We have signed a contract with STMicroelectronics to design and produce
chips which will decode the XM Radio signal. Additionally, some of the design
elements in the chipsets currently being made for the WorldSpace International
system, which operates in a different frequency band, will be integrated into
our chipsets.
Delphi-Delco, Motorola, Pioneer and Alpine have signed contracts to develop,
manufacture and distribute XM radios which can be used in the car. We have
signed a contract with SHARP to manufacture XM radios for home and portable
use.
Competition
We expect to face competition for both listeners and advertising dollars.
CD Radio
Our direct competitor in satellite radio service is likely to be CD Radio,
the only other FCC licensee for satellite radio service in the United States.
Since October 1997, CD Radio's common stock has traded on the Nasdaq National
Market. CD Radio plans to deploy three satellites in a North American
elliptical orbit and a network of terrestrial repeaters. CD Radio has announced
in recent SEC filings that it has arrangements for the construction,
implementation and distribution of its service and that it expects to begin
receiving revenue from operations in early 2001, which is slightly ahead of our
planned commencement of commercial operations in the second quarter of 2001.
Traditional AM/FM Radio
Our competition will also include traditional AM/FM radio. Unlike XM Radio,
traditional AM/FM radio already has a well established market for its services
and generally offers free broadcast reception paid for by commercial
advertising rather than by a subscription fee. Also, many radio stations offer
information programming of a local nature, such as traffic and weather reports,
which XM Radio initially will be unable to offer as effectively as local radio,
or at all. The AM/FM radio broadcasting industry is highly competitive. Radio
stations compete for listeners and advertising revenues directly with other
radio stations within their markets on the basis of a variety of factors,
including
. program content;
. on-air talent;
. transmitter power;
. source frequency;
. audience characteristics;
. local program acceptance; and
. the number and characteristics of other radio stations in the market.
Currently, traditional AM/FM radio stations broadcast by means of analog
signals, not digital transmission. We believe, however, that in the future
traditional AM/FM radio broadcasters may be able to transmit digitally into the
bandwidth occupied by current AM/FM stations.
Internet Radio
There are a growing number of Internet radio broadcasts which provide
listeners with radio programming from around the country and the world.
Internet radio can be heard through a personal computer equipped with
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a modem, sound card and speakers. One of the largest Internet radio providers,
Broadcast.com Inc., currently provides a large number of stations on the
Internet and has recently completed an initial public offering of stock,
indicating growth in the industry. Although we believe that the current sound
quality of Internet radio is below standard and may vary depending on factors
such as network traffic, which can distort or interrupt the broadcast, we
expect that improvements from higher bandwidths, faster modems and wider
programming selection may make Internet radio a more significant competitor in
the future.
There are a number of Internet-based audio formats in existence or in
development which could compete directly with XM Radio. For example, Internet
users with the appropriate hardware and software can download sound files for
free or for a nominal charge and play them from their personal computers or
from specialized portable players. In addition, prominent members of the music
and computer industry have supported an initiative known as the Secure Digital
Music Initiative to become a standard for fee-based electronic distribution of
copyrighted sound recordings. Although presently available formats have
drawbacks such as hardware requirements and download bandwidth constraints,
which we believe would make XM Radio a more attractive option to consumers,
Internet-based audio formats may become increasingly competitive as quality
improves and costs are reduced.
Direct Broadcast Satellite and Cable Audio
A number of companies provide specialized audio service through either
direct broadcast satellite and cable audio systems. These services are targeted
to fixed locations, mostly in-home. The radio service offered by direct
broadcast satellite and cable audio is generally an add-on service to the
higher priced video service.
Regulatory Matters
XM Radio and CD Radio received licenses from the FCC in October 1997 to
construct and operate satellite radio service. The FCC has allocated 25 MHz for
the new service in a range of radio frequencies known as the S-Band.
As an owner of one of two FCC licenses to operate a commercial satellite
radio service in the United States, we will continue to be subject to
regulatory oversight by the FCC. Our development, implementation and eventual
operation of our system will be subject to significant regulation by the FCC
under authority granted under the Communications Act and related to federal
law. Non-compliance by us with FCC rules and regulations could result in fines,
additional license conditions, license revocation or other detrimental FCC
actions. Any of these FCC actions may harm our business. There is no guarantee
that the rules and regulations of the FCC will continue to support our business
plan.
One of the two losing bidders in the satellite radio license auction filed
an application for review of the order granting our FCC license, but the
challenge was denied. The losing bidder is seeking review by the FCC. The
losing bidder has argued that WorldSpace had effectively taken control of XM
Radio without FCC approval and that WorldSpace has circumvented the FCC's
application cut-off procedures. WorldSpace is no longer a stockholder in XM
Radio. We have opposed this appeal and have denied the allegations contained in
the challenge. The FCC's order granting our license remains in effect during
the pendency of the application for review. Although we believe that the award
of the license to us will continue to be upheld, we cannot predict the ultimate
outcome of this challenge. If this challenge is successful, the FCC could take
a range of actions, any of which could harm our ability to proceed with our
planned satellite radio service.
The term of our license is for eight years from our commencement of
operations and may be renewed. The FCC requires the satellite radio licensees,
including XM Radio, to adhere to certain milestones in the development of their
systems, including a requirement that the licensees begin full operation by
October 2003.
40
<PAGE>
Our FCC license requires us to meet the following milestones:
<TABLE>
<CAPTION>
Deadline Milestone Status
- -------- --------- ------
<S> <C> <C>
October 1998 Complete contracting for first satellite Completed March 1998
October 1999 Complete contracting for second satellite Completed March 1998
October 2001 Begin in-orbit operation of at least one satellite Expected Fourth Quarter 2000
October 2003 Begin full operation of the XM Radio system Expected Second Quarter 2001
</TABLE>
While we have already fulfilled the first two milestones, we may not meet
the remaining two milestones, in part because we depend on third parties to
build and launch our satellites. If we fail to meet these milestones, the FCC
could take a range of actions, any of which may harm our business.
For business and technical reasons, we have decided to modify certain
aspects of the satellite radio system described in our May 1997 amended
application to the FCC. Specifically, we intend to
. increase the satellites' transmission power;
. eliminate coverage of Alaska and Hawaii; and
. change the total number of signals carried by the satellites and
terrestrial repeaters.
We will subdivide our 12.5 MHz of allocated bandwidth to carry six signals
instead of five as previously stated in our FCC application. Two signals will
be transmitted by each of the two satellites, and two signals will be
transmitted by our terrestrial repeaters. We plan to request that the FCC allow
us to modify the XM Radio system to incorporate these changes. While the FCC
regularly approves modifications to commercial licenses, it may not approve our
request.
The FCC has indicated that it may in the future impose public service
obligations, such as channel set-asides for educational programming, on
satellite radio licensees.
The FCC's rules require interoperability with all licensed satellite radio
systems that are operational or under construction. The FCC conditioned our
license on certification by us that our final receiver design is interoperable
with the final receiver design of the other licensee, CD Radio, which plans to
use a different transmission technology than we plan to use. Because of
uncertainty regarding the design of CD Radio's systems, we may not be able
initially to meet this interoperability requirement. We may not be able
initially to design a commercially viable interoperable receiver, and CD Radio
may not cooperate with us on the issue of interoperability. Accordingly, we may
not be able to meet the FCC's interoperability requirements, and may need to
obtain an extension of time or modification of this requirement from the FCC.
Complying with the interoperability requirement could make the radios more
difficult and costly to manufacture. Accordingly, this requirement could delay
the commercial introduction of our service.
The FCC is currently conducting a rulemaking proceeding to establish rules
for terrestrial repeater transmitters, which we plan to deploy to fill in gaps
in satellite coverage. The FCC has proposed to permit us to deploy these
facilities. Specifically, the FCC has proposed a form of blanket licensing for
terrestrial repeaters and service rules which would prohibit satellite radio
licensees from using terrestrial repeating transmitters to originate local
programming or transmit signals other than those received from the satellite
radio satellites. Various parties, including the National Association of
Broadcasters, have asked the FCC to
. delay consideration of terrestrial repeater rules until XM Radio and CD
Radio provide additional information regarding planned terrestrial
repeaters;
. require individual licensing of each terrestrial repeater;
. limit the number of repeaters that may be deployed; and
. impose a waiting period on the use of repeaters in order to determine if
signal reception problems can be resolved through other means.
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<PAGE>
Our plans to deploy terrestrial repeaters in our system may be impacted,
possibly materially, by whatever rules the FCC issues in this regard.
The FCC also may adopt limits on emissions of terrestrial repeaters to
protect other services using nearby frequencies. While we believe that we will
meet any reasonable non-interference standard for terrestrial repeaters, the
FCC has no specific standard at this time, and the application of such limits
might increase our cost of using repeaters. Although we are optimistic that we
will be able to construct and use terrestrial repeaters as needed, the
development and implementation of the FCC's ultimate rules might delay this
process or restrict our ability to do so.
We will need to coordinate the XM Radio system with systems operating in the
same frequency bands in adjacent countries. Canada and Mexico are the countries
whose radio systems are most likely to be affected by satellite radio. The
United States government, which conducts the coordination process, has resolved
the issue with Canada and has begun discussions with the Mexican government.
However, the negotiations with Mexico could be complicated by that country's
interest in developing a similar digital satellite radio service that might
operate on the same frequencies as XM Radio will use in the United States.
Although we are optimistic that the FCC will coordinate satellite radio
frequency use with Mexico without compromising our ability to operate as
planned, it may not be able to do so, which could materially affect XM Radio.
We will operate the communication uplinks between our own earth station and
our satellites in a band of radio frequencies that are used for several other
services. These services are known under FCC rules as fixed services, broadcast
auxiliary services, electronic news gathering services, and mobile satellite
services for uplink station networks. Although we are optimistic that we will
succeed in coordinating domestic uplink station networks, we may not be able to
coordinate use of this spectrum in a timely manner, or at all.
We also need to protect our system from out-of-band emissions from licensees
operating in adjacent frequency bands. Wireless Communication Service licensees
operating in frequency bands adjacent to the satellite radio's S-Band
allocation must comply with certain out-of-band emission limits imposed by the
FCC to protect satellite radio systems. These limits, however, are less
stringent than those we proposed. In addition, in April 1998, the FCC proposed
to amend its rules to allow for new radio frequency lighting devices that would
operate in an adjacent radio frequency band. We opposed the proposal on the
grounds that the proliferation of this new kind of lighting and its proposed
emission limits, particularly if used for street lighting, may interfere with
XM Radio. However, the FCC may not rule in our favor, a decision which could
adversely affect our signal quality.
The FCC order granting our license determined that because we are a private
satellite system providing a subscription service on a non-common carrier
basis, we would not be subject to the FCC's foreign ownership restrictions.
However, such restrictions would apply to us if we were to offer non
subscription services, which may appear more lucrative to potential advertisers
than subscription services. The FCC also stated in its order that it may
reconsider its decision not to subject satellite radio licensees to its foreign
ownership restrictions.
Sea Launch, Alcatel and other vendors are subject to United States export
regulations. Our vendors will need approval from the State Department under
technology export statutes and regulations for the launch of our satellites.
Although these are not new requirements, the export of technology has received
considerable attention recently in response to concerns about the export of
technology to China by the United States defense contractors. The recent
negative publicity may lead the United States Congress to alter the relevant
laws or regulations, or may change the State Department's policy in enforcing
the regulations. Any change in applicable law or policy may result in delay of
our satellite launch.
Intellectual Property
System Technology
We have contracted with several technology companies to implement portions
of the XM Radio system. These technology companies include Hughes and Alcatel
(satellites); Delphi-Delco, Alpine, Pioneer, Motorola and SHARP (car and home
radios); STMicroelectronics (chipsets); Fraunhofer Institute (various
technologies)
42
<PAGE>
and LCC International (design of repeater network). We will not acquire any
intellectual property rights in the satellites. We will have joint ownership of
or a license to use the technology developed by the radio and chipset
manufacturers. We will own the design of our system, including aspects of the
technology used in communicating from the satellites and the design of the
repeater network.
Our system design, our repeater system design and the specifications we
supplied to our radio and chipset manufacturers incorporates or may in the
future incorporate some intellectual property licensed to us on a non-exclusive
basis by WorldSpace Management. WorldSpace Management has used this technology
in its own non-United States satellite radio system. We also have the right to
sublicense the licensed technology to any third party, including chipset
manufacturers, terrestrial repeater manufacturers and receiver manufacturers in
connection with the XM Radio system. Under our agreement with WorldSpace
Management we must pay one time, annual or percentage royalty fees or reimburse
WorldSpace Management for various costs for various elements of the licensed
technology that we decide to use in the XM Radio system. We have incurred costs
of $6.7 million to WorldSpace Management under this agreement through June 30,
1999. We will not be required to pay royalties to WorldSpace Management for
licensed technology that we do not use in our system. We anticipate that the
Fraunhofer Institute will continue to provide various development services for
us in connection with the design of our system.
American Mobile has granted us a royalty-free license with respect to
certain ground segment communications technology and antenna technology.
American Mobile and WorldSpace Management have also granted us royalty-free,
non-exclusive and irrevocable licenses to use and sublicense all improvements
to their technology. The technology licenses from American Mobile and
WorldSpace Management renew automatically on an annual basis unless terminated
for a breach which has not been or cannot be remedied.
We believe that the intellectual property rights we have licensed under our
technology license were independently developed or duly licensed by American
Mobile or WorldSpace International, as the case may be. We cannot assure you,
however, that third parties will not bring suit against us for patent or other
infringement of intellectual property rights.
Litigation with CD Radio
On January 12, 1999, CD Radio, the other holder of an FCC satellite radio
license, commenced an action against us in the United States District Court for
the Southern District of New York, alleging that we are infringing or may
infringe three patents assigned to CD Radio. In its complaint, CD Radio seeks
money damages to the extent we have manufactured, used or sold any product or
method claimed in their patents and injunctive relief.
We responded to the complaint on February 26, 1999, denying that
. CD Radio's patents have been or will be infringed;
. the claims of CD Radio's patents are valid;
. CD Radio has any right to either damages or injunctive relief against
our proposed satellite radio system by reason of statements made by CD
Radio to the FCC and by reason of the conditions of CD Radio's
authorization from the FCC to provide satellite radio; and
. CD Radio has any right to either damages or injunctive relief against
our proposed satellite radio system because CD Radio is required to
license the CD Radio patents to us by reason of statements made by CD
Radio to the FCC and by reason of the conditions of CD Radio's
authorization from the FCC to provide satellite radio.
Based on the planned design of our system, our knowledge of the differences
between our system and the claims of the CD Radio patents and on advice we have
previously received from our patent counsel, we believe that we have not and
will not infringe any CD Radio patents. However, the litigation could harm our
company,
43
<PAGE>
even if we are successful. It will divert our management's attention and may
make it more difficult for us to raise financing or enter into other agreements
with third parties. In addition, even if we prevail, the CD Radio litigation
could prevent us from moving forward with the development of the XM Radio
system in a timely manner. The CD Radio patents involved in the CD Radio
litigation relate to certain aspects of signal and reception methodologies that
may be employed by a satellite radio system. If, despite our efforts, we lose
all or part of this litigation, we could become liable to CD Radio for money
damages and subject to an injunction preventing us from using certain
technology in the XM Radio system. Any such injunction could force us to
engineer technology which would not be subject to the injunction, license or
develop alternative technology, or seek a license from, and pay royalties to,
CD Radio. If any of these strategies becomes necessary, it could be costly and
time-consuming and would likely delay any implementation of our system. If we
could not accomplish any strategy, or could not do so in a timely manner at an
acceptable cost, our business would be harmed.
Copyrights to Programming
We must negotiate and enter into music programming royalty arrangements with
performing rights societies such as the American Society of Composers, Authors
and Publishers, Broadcast Music, Inc., and SESAC, Inc. These organizations
collect royalties and distribute them to songwriters and music publishers and
negotiate fees with copyright users based on a percentage of revenues. Radio
broadcasters currently pay a combined total of approximately 3-4% of their
revenues to these performing rights societies. We expect to negotiate or
establish by arbitration royalty arrangements with these organizations, but
such royalty arrangements may be more costly than anticipated or unavailable.
Under the Digital Performance Right in Sound Recordings Act of 1995 and the
Digital Millennium Copyright Act of 1998, we also have to negotiate royalty
arrangements with the owners of the sound recordings. The Recording Industry
Association of America will negotiate licenses and collect royalties on behalf
of copyright owners for this performance right in sound recordings. Cable audio
services currently pay a royalty rate of 6.5% of gross subscriber revenue. This
rate was set by the Librarian of Congress, which has statutory authority to
decide rates through arbitration, and was affirmed on May 21, 1999 by the
United States Court of Appeals for the District of Columbia. Although we
believe we can distinguish XM Radio sufficiently from the cable audio services
in order to negotiate a lower statutory rate, we may not be able to do so.
The XM(TM) Trademark
We believe that XM Radio will be seen as the complement to AM and FM radio.
We have an application pending in the United States Patent and Trademark Office
for the registration of the trademark "XM" in connection with the transmission
services offered by our company and expect that our brand name and logo will be
prominently displayed on the surface of XM radios together with the radio
manufacturer's brand name. This will identify the equipment as being XM Radio-
compatible and build awareness of XM Radio. 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 "XM" trademark in the
United States.
Personnel
As of September 15, 1999, we had 66 employees. In addition, we rely upon a
number of consultants and other advisors. The extent and timing of any increase
in staffing will depend on the availability of qualified personnel and other
developments in our business. None of our employees is represented by a labor
union, and we believe that our relationship with our employees is good.
44
<PAGE>
Property
Our executive offices are located at 1250 23rd Street, N.W., Suite 57,
Washington, D.C. 20037-1100, and are leased pursuant to a lease agreement that
will expire on December 31, 1999. We are in the process of negotiating for
additional space to be used as our headquarters office, as well as for our
studio and production facilities.
Legal Proceedings
Except for the CD Radio litigation and the FCC proceeding described under
the caption "Business--Regulatory Matters," we are not a party to any material
litigation or other proceedings.
45
<PAGE>
MANAGEMENT
Directors, Executive Officers and Other Key Employees
The following table sets forth information concerning our directors,
executive officers and key employees. All directors hold office until the next
annual meeting of stockholders and the election and qualification of their
successors. Officers are elected by and serve at the discretion of our board of
directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Gary M. Parsons......... 49 Chairman of the Board of Directors
Hugh Panero............. 43 President, Chief Executive Officer and Member, Board of Directors
Randall T. Mays (1)(2).. 34 Member, Board of Directors
Randy S. Segal (1)...... 43 Member, Board of Directors
Jack Shaw (2)........... 60 Member, Board of Directors
Dr. Rajendra Singh
(1)(2)................. 44 Member, Board of Directors
Ronald L. Zarrella...... 49 Member, Board of Directors
Nathaniel A. Davis...... 45 Member, Board of Directors
Thomas J. Donohue....... 61 Member, Board of Directors
Lee Abrams.............. 47 Senior Vice President, Content and Programming
Stephen Cook............ 44 Senior Vice President, Sales and Marketing
Dr. Stelios Patsiokas... 46 Senior Vice President, Technology
Heinz Stubblefield...... 42 Senior Vice President, Chief Financial Officer
Joseph M. Titlebaum..... 36 Senior Vice President, General Counsel and Secretary
John R. Wormington...... 54 Senior Vice President, Engineering and Operations
</TABLE>
- --------
(1) Member of the audit committee.
(2) Member of the compensation committee.
Set forth below are descriptions of the backgrounds and principal
occupations of each of our directors and executive officers.
Gary M. Parsons has served as Chairman of the board of directors since May
1997. Mr. Parsons is Chairman of the board of directors of American Mobile, a
position he has held since March 1998. Mr. Parsons joined American Mobile in
July 1996 and has also served as its Chief Executive Officer and President.
Previously, Mr. Parsons was with MCI Communications Corporation where he served
in a variety of roles from 1990 to 1996, including most recently as Executive
Vice President of MCI Communications, and as Chief Executive Officer of MCI's
subsidiary MCImetro, Inc. From 1984 to 1990, Mr. Parsons was one of the
principals of Telecom*USA, which was acquired by MCI. Prior to the recruitment
of Hugh Panero, Mr. Parsons served as our Chief Executive Officer.
Hugh Panero has served as a member of the board of directors and as
President and Chief Executive Officer since June 1998. Mr. Panero has over 16
years experience building and managing entertainment distribution services.
Most recently, from 1993 to 1998, Mr. Panero served as President and Chief
Executive Officer of Request TV, a national pay-per-view network owned by
Liberty Media and Twentieth Century Fox. Prior to his employment with Request
TV, Mr. Panero spent ten years with Time Warner Cable where he was part of the
team which built the cable systems serving parts of Queens and Brooklyn, New
York. Mr. Panero held various positions with Time Warner Cable, including Vice
President, Marketing.
46
<PAGE>
Randall T. Mays has served as a member of the board of directors since July
1999. Mr. Mays is the Executive Vice President and Chief Financial Officer of
Clear Channel Communications. Mr. Mays has been associated with Clear Channel
since 1993 when he was elected Vice President and Treasurer. Mr. Mays also
serves on the board of directors of American Tower Corporation.
Randy S. Segal has served as a board member since July 1999. Ms. Segal has
served as American Mobile's Senior Vice President, General Counsel and
Secretary since October 1992. From October 1983 to October 1992, Ms. Segal was
associated with the law firm of Debevoise & Plimpton in New York, New York.
Prior to joining Debevoise, Ms. Segal clerked for the Honorable Jerre S.
Williams of the United States Court of Appeals for the Fifth Circuit, and for
the Honorable Edmund L. Palmieri for the United States District Court for the
Southern District of New York.
Jack Shaw has served as a member of the board of directors since May 1997.
Mr. Shaw is Chairman and Chief Executive Officer of Hughes Network Systems,
Inc. and Executive Vice President of Hughes Electronics Corporation. Mr. Shaw
is a member of the Hughes Electronics Corporation Executive Committee. Mr. Shaw
has been a director of American Mobile since July 1996 and has previously
served as Chairman of American Mobile's Board. Previously, Mr. Shaw held senior
management positions with companies including ITT Space Communications, Inc.,
Digital Communications Corporation and M/A-Com Telecommunications, Inc., which
was acquired by Hughes Electronics Corporation in 1987.
Rajendra Singh has served as a board member since July 1999. Dr. Singh is a
member of the board of directors and a co-founder of LCC. Dr. Singh was
President of LCC from its formation in 1983 until September 1994, was Chief
Executive Officer from January 1994 until January 1995, and was Interim
President from September 1998 to May 1999. Dr. Singh is Chairman of the Members
Committee of Telcom Ventures L.L.C. and a director of Teligent, Inc., a
wireless local access provider.
Ronald L. Zarrella has served as a member of the board of directors since
July 1999. Mr. Zarrella is an Executive Vice President of General Motors and
President of GM North America, a position he has held since October 1998. Mr.
Zarrella has been associated with General Motors since 1994 when he was elected
Vice President and Group Executive in charge of the North American Vehicle
Sales Service and Marketing Group.
Nathaniel A. Davis will serve as a member of the board of directors
effective upon completion of the offering. Mr. Davis is Executive Vice
President of Nextel Communications where he has responsibility for the
technical and engineering operations of Nextel's nationwide switching and
wireless communications network, billing and information technology systems.
From August 1986 through November 1998, Mr. Davis served in a variety of senior
engineering and finance roles at MCI, most recently as Senior Vice President
and Chief Financial Officer of MCI Telecommunications. Mr. Davis serves on the
board of directors and audit committee of Capital Management Corporation.
Thomas J. Donohue will serve as a member of the board of directors effective
upon completion of the offering. Mr. Donohue is President and Chief Executive
Officer of the U.S. Chamber of Commerce, the world's largest business
federation, and has been active in national policy and non-profit operations
for 30 years. From July 1984 through September 1997, Mr. Donohue served as
President and Chief Executive Officer of the American Trucking Association. He
serves on the board of directors of Union Pacific Corporation, Sunrise Assisted
Living Corporation, Marymount University and the Hudson Institute.
Lee Abrams has served as Senior Vice President, Content and Programming
since June 1998. Mr. Abrams is a prominent radio programmer/consultant with
more than 30 years of experience in radio, and since 1970 has been a consultant
to a variety of radio stations, networks and record companies. He is credited
with many innovations in radio programming, including transforming FM radio,
pioneering the album rock format in the 1970s, adult contemporary radio and
urban, classic and smooth jazz radio in the 1980s and active rock radio in the
1990s. He most recently has served as a consultant for ABC Radio Networks,
Capstar, Thorn-EMI and Sony, among others.
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<PAGE>
Stephen Cook has served as Senior Vice President, Sales and Marketing since
February 1999. Previously, Mr. Cook was Chief Operating Officer for Conxus
Communications, where he successfully launched its portable voice messaging
product, Pocketalk, in the top 12 United States markets. From 1990 to 1997, Mr.
Cook held key management positions with GTE's cellular operations, including VP
of Marketing and President of the Southeast region. Prior to that time, Mr.
Cook also spent five years in brand management with Procter & Gamble and has
more than 15 years of experience with launching and marketing new consumer
products.
Stelios Patsiokas has served as Senior Vice President, Technology since
October 1998. Previously, Dr. Patsiokas was with Motorola, Inc., where he
served in a variety of consumer electronics design and development roles since
1979. Since 1996, Dr. Patsiokas was Director of Product Development, for
Motorola's Messaging Systems Product Group, where he was involved with
developing the PageWriter(TM) 2000 two-way messaging device. Dr. Patsiokas
holds 24 United States patents.
Heinz Stubblefield has served as Senior Vice President, Chief Financial
Officer since June 1998. Previously, from March 1996 to May 1998, Mr.
Stubblefield was Chief Financial Officer for WorldSpace International. Before
joining WorldSpace, from February 1993 to February 1996, Mr. Stubblefield was
Corporate Controller for Next Software Corporation and, prior to that time,
spent several years as divisional CFO for Raychem Corporation's German offices.
Joseph M. Titlebaum has served as Senior Vice President, General Counsel and
Secretary since September 1998. From 1990 to 1998, Mr. Titlebaum was an
attorney with the law firm of Cleary, Gottlieb, Steen & Hamilton. With a
specialty in telecommunications ventures, Mr. Titlebaum has expertise in
structuring, negotiating and implementing corporate finance and mergers and
acquisitions transactions.
John R. Wormington has served as Senior Vice President, Engineering and
Operations since September 1998. Mr. Wormington has leadership experience in
commercial and governmental development, design and operational deployment of a
variety of high technology projects. Mr. Wormington came to our company from
Hughes, where since September 1995 he was a senior executive and led the
project management team responsible for that company's HS 702 satellite
program. During his distinguished military career (retiring as an Air Force
Brigadier General in 1995), Mr. Wormington was responsible for a wide range of
large government projects requiring technical management and operational
leadership skills necessary to meet strict implementation deadlines, including
responsibility for conducting all launch and range operations at Cape
Canaveral.
Provisions Governing the Board of Directors
Until completion of this offering, our board of directors will consist of
seven members, three of whom will be selected by General Motors, Clear Channel
and the other investors in our subordinated convertible notes and four of whom
will be selected by American Mobile, including our Chairman and our President
and Chief Executive Officer. Following completion of this offering, our board
of directors will consist of nine members, including the same seven directors
plus two independent directors. One of the independent directors must be
approved by American Mobile, and one must be approved by a majority of the
investors in our subordinated convertible notes. Following completion of this
offering and receipt of approval of the FCC to transfer control of XM Radio to
a diffuse group of stockholders, our board of directors will consist of nine
members, three of whom will be selected by the investors in our subordinated
convertible notes, three of whom will be selected by American Mobile, two of
whom will be independent directors of recognized industry experience and
stature whose nominations must be approved by American Mobile and a majority of
the holders of our subordinated convertible notes and one of whom will be our
President and Chief Executive Officer. The investors in our subordinated
convertible notes also have observation rights at meetings of our board of
directors under this shareholders' agreement. The foregoing board and
observation rights are subject to the parties to the shareholders' agreement
maintaining their original investment or certain minimum share percentages in
us. For additional details regarding the shareholders' agreement, see "Certain
Relationships and Related Party Transactions--Shareholders' Agreement."
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<PAGE>
Terms of Directors
All members of the board of directors hold office until the next annual
meeting of stockholders and the election and qualification of their successors.
Board Committees
The board of directors has established compensation and audit committees.
Each committee reports to the board of directors. The compensation committee,
currently consisting of Messrs. Mays and Shaw and Dr. Singh, is responsible for
determining and paying compensation, salaries, annual bonuses, stock option
grants and benefits to officers, directors and employees. The audit committee,
currently consisting of Mr. Mays, Dr. Singh and Ms. Segal, reviews, acts on and
reports to the board of directors with respect to various auditing and
accounting matters. These matters include the selection of our auditors and
review of our accounting books, records and policies.
Compensation of Directors
Following completion of this offering, independent directors (as determined
under our shareholders' agreement) will receive retainer fees of $2,500 per
quarter. In addition, these independent directors will receive $2,000 for every
meeting attended in person and $500 for every meeting attended telephonically.
Independent directors will also receive $3,000 per year for each board
committee on which they serve. In July 1999, we also granted each non-employee
director an option to purchase 26,757 shares of our Class A common stock at
$9.52 per share. These options are immediately exercisable and have ten-year
terms. Mr. Zarrella has elected to forego receipt of these options.
Chairman of the Board. We have issued to Mr. Parsons 14,716 shares of Class
A common stock in compensation for his service to us. We will have a right to
repurchase these shares for $9.52 per share if Mr. Parsons' service with us
ends prior to the first anniversary of the agreement. In addition, we will
grant Mr. Parsons a ten-year option to purchase 267,570 shares of our Class A
common stock at an exercise price of $9.52 per share. 160,542 of these shares
will vest after one year, and 53,514 shares will vest in each of the two years
thereafter. The vesting of 53,514 of the 160,542 shares that vests in the first
year and the shares that vest at the end of the second and third years will be
subject to the fulfillment of performance criteria.
Executive Compensation
The following table sets forth the compensation earned by our named
executive officers which include our Chief Executive Officer and all other
executive officers whose salary and bonus for the year ended December 31, 1998
exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------------- -------------------
Class A Shares
Name and Principal Position(s) Salary Bonus Other Underlying Options
- ------------------------------ -------- ------- -------- ------------------- ---
<S> <C> <C> <C> <C> <C>
Hugh Panero............... $163,333 $65,333 $267,309(1) 267,570
President and Chief
Executive Officer
Lee Abrams................ 125,417 27,413 30,989(2) 53,514
Senior Vice President,
Content & Programming
Stelios Patsiokas......... 43,077 16,710 59,966(3) 53,514
Senior Vice President,
Technology
Heinz Stubblefield........ 116,667 60,000 -- 53,514
Senior Vice President,
Chief Financial Officer
</TABLE>
- --------
(1) Includes a signing bonus of $200,000.
(2) Includes a signing bonus of $28,000.
(3) A signing bonus.
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<PAGE>
Employment Agreements
Hugh Panero is employed as our President, Chief Executive Officer and member
of the board of directors for a term of three years under an employment
agreement effective June 1, 1998. His employment agreement provides for an
annual base salary of $280,000, subject to increase from time to time by the
board of directors. Mr. Panero is also eligible for a pro-rata annual bonus to
be determined by the board of directors according to Mr. Panero's personal job
performance and mutually agreed upon corporate goals and objectives. The bonus
target guideline is 40% of Mr. Panero's annual base salary. Under Mr. Panero's
employment agreement and pursuant to our shares award plan, we granted to Mr.
Panero a 10-year option to purchase 267,570 shares of our Class A common stock
at an exercise price of $9.52 per share. This option vests at the rate of
. 107,028 shares in three equal annual installments beginning on the
first anniversary of the grant; and
. 160,542 shares in three equal annual installments beginning on the
first anniversary of the grant based on achievement of performance
objectives.
All options vest in the event of death or involuntary termination within one
year of a change of control of our company; otherwise, all non-vested options
would be forfeited upon termination of employment. Following termination of
employment, vested stock options would cease to be exercisable
. immediately, if Mr. Panero is terminated for cause;
. three months after termination, in the event of a voluntary
termination;
. six months, following an involuntary termination; or
. one year following death, disability, retirement, or in the event of
voluntary or involuntary termination within one year following a change
of control.
His employment agreement restricts Mr. Panero from engaging in any business in
the United States which resembles or competes with XM Radio for a period of one
year following termination of his employment.
We also have agreements with the following named executive officers:
<TABLE>
<CAPTION>
Salary Rate
Name Title Effective Date Annual Base
- ---- ----- ---------------- -----------
<S> <C> <C> <C>
Lee Abrams................ Senior Vice President, June 8, 1998 $215,000
Content and Programming
Stelios Patsiokas......... Senior Vice President, October 19, 1998 $210,000
Technology
Heinz Stubblefield........ Senior Vice President, June 1, 1998 $200,000
Chief Financial Officer
</TABLE>
Mr. Stubblefield's agreement is for a term of three years, which will
automatically renews for a period of an additional two years unless either
party gives 60 days notice to the other; Mr. Patsiokas' agreement is for a term
of three years; and Mr. Abrams' agreement has no specified term. Each agreement
provides that the executive is eligible for an annual bonus to be determined by
the board of directors based upon agreed upon performance measures. These
amounts are up to 40% of annual base salary for Mr. Patsiokas and up to 30% of
annual base salary for Messrs. Stubblefield and Abrams. The agreement for Mr.
Patsiokas provides for severance payment of one year's salary payable in a lump
sum upon termination of employment by us other than for cause. The agreement
for Mr. Stubblefield provides for severance payment of one year's salary and
bonus, plus the pro-rated portion of earned bonus and options scheduled to vest
for the current year, payable in a lump sum upon termination of employment by
us other than for cause. Under these agreements and the terms of our shares
award plan, we have granted to each of Messrs. Abrams, Patsiokas and
Stubblefield a 10-year option to purchase 53,514 shares of Class A common stock
at an exercise price of $9.52 per share. Each of these options vests in three
equal annual installments beginning on the first anniversary of the grant.
50
<PAGE>
Shares Award Plan
General
In 1998, our board of directors adopted a 1998 Shares Award Plan for
employees, consultants and non-employee directors. The plan is administered by
the board's compensation committee.
We can grant options, stock appreciation rights, restricted stock or phantom
shares under the plan. The aggregate number of shares of our Class A common
stock with respect to which awards may be granted under the shares award plan
is 2,675,700 shares. We may not grant awards of more than 267,570 shares of our
common stock to any participant in any calendar year. Options may be either
incentive or non-incentive stock options within the meaning of the Internal
Revenue Code. Each option will be exercisable in whole or in installments, as
determined at the time of grant. The term of any option granted may not be more
than 10 years from the date of grant. Stock appreciation rights may be granted
in tandem with another award, in addition to another award or unrelated to any
other award. No stock appreciation right may be exercisable until six months
after the day of grant. A stock appreciation right entitles the participant to
receive the excess of the fair market value of our common stock on the date of
the exercise of the stock appreciation right over its grant price.
If we engage in a corporate transaction, which consists of a merger, a
consolidation, a dissolution, a liquidation, or a sale of all or substantially
all of our assets, then the holder of an outstanding award will have the right
prior to the effective date of the transaction to exercise such awards without
regard to any installment provision regarding exercisabilty. All such awards
which are not so exercised will be forfeited as of the effective time of the
transaction. If we have had a change of control, each participant will be
entitled to receive an equivalent award. An equivalent award is defined as a
continuation of the awards, an agreement by the person acquiring us to honor or
assume the award, or the substitution of a new award with an inherent value at
least equivalent to the original award, and on terms at least as beneficial to
the participant as is the original award. If it is not possible to grant such
an equivalent award, we may grant a cash equivalent, calculated as described in
the shares award plan. If the participant's employment with us is terminated by
reason of involuntary termination within one year following the change of
control, the equivalent award may be exercised in full beginning on the date of
such termination.
Stock Option Grants
The following table sets forth information concerning the stock options
granted to our named executive officers under the 1998 Shares Award Plan in
1998.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------
Number of
Common Percent of Potential Realizable Value
Shares Total Exercise at Assumed Annual Rates
Underlying Options Price of Stock Price
Options Granted to Per Appreciation for Stock
Name Granted Employees Share(1) Expiration Date Term
- ---- ---------- ---------- -------- ---------------- ---------------------------
5% 10%
------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Hugh Panero............. 267,570 33.9% $16.35 June 1, 2008 $ 2,751,269 $ 6,972,256
Lee Abrams.............. 53,514 6.8 16.35 June 8, 2008 550,254 1,394,451
Stelios Patsiokas....... 53,514 6.8 16.35 October 19, 2008 550,254 1,394,451
Heinz Stubblefield...... 53,514 6.8 16.35 June 1, 2008 550,254 1,394,451
</TABLE>
- --------
(1) On July 8, 1999, the per share exercise price for these options was
adjusted to $9.52.
51
<PAGE>
Employee Stock Purchase Plan
We will have an employee stock purchase plan that provides for the issuance
of 300,000 shares of Class A common stock. All employees whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year are eligible to participate in the stock purchase plan, provided
that any employee who would own five percent or more of our total combined
voting power immediately after an offering date under the plan is not eligible
to participate. Eligible employees must authorize us to deduct an amount from
their pay during offering periods established by the compensation committee.
The purchase price for shares under the plan will be determined by the
compensation committee but may not be less than 85% of the lesser of the market
price of the common stock on the first or last business day of each offering
period.
52
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Satellite Contract with Hughes Space and Communications
Our Satellite Purchase Contract for In-Orbit Delivery, dated March 20, 1998,
as amended thereafter, with Hughes calls for Hughes to deliver
. in-orbit, two high-power satellites;
. an optional ground spare satellite upon exercise of XM Radio's option;
and
. satellite launch services.
We expect to incur total payment obligations under this contract of
approximately $541.3 million, which includes amounts we expect to pay pursuant
to the exercise of the option to build the ground spare satellite and certain
financing costs and in-orbit incentive payments. Payments are to be made to
Hughes upon certain calendar dates and completion of discrete milestones and
other events. As of July 7, 1999, we have paid $126.3 million under this
contract.
We have granted Hughes a first priority security interest in any rights we
may have in Hughes' work product under the satellite contract to secure our
payment obligations to Hughes under the contract. This security interest will
be released once we have made substantial pre-arranged payments to Hughes under
our satellite contract or, if earlier, upon the launch of the satellites.
We may, subject to certain conditions, terminate the satellite contract at
our convenience, in which case Hughes will be entitled to certain payments. We
may also terminate the satellite contract for certain events of default by
Hughes or in case it becomes reasonably certain that the total amount of
excusable delay in Hughes' performance under the satellite contract caused by
events beyond Hughes' control, excluding delays we caused, will exceed 485
calendar days.
The first satellite is to be delivered to us in orbit by December 31, 2000,
the second by April 11, 2001. The scheduled launch period for the first
satellite is the period from November 1, 2000 through February 1, 2001. The
scheduled launch period for the second satellite is the period from February
15, 2001 through May 15, 2001. If there is a delay of more than six months in
the launch of either the first or second satellite, we would be able to select
an alternative launch system from within or outside of Hughes' inventory of
launch vehicles, subject to certain payment conditions set forth in the
satellite contract.
For each satellite, title will transfer to us after Hughes successfully
completes certain tests and analyses on each satellite upon arrival at its
specified orbital location. If Hughes fails to deliver either satellite on or
before the fiftieth day following its delivery date, then Hughes must pay us
liquidated damages which accrue on a daily basis. The total aggregate amount of
liquidated damages for failure to meet the delivery dates of both satellites is
limited to $16 million. These liquidated damages are in addition to other
limited liquidated damages for delay in the launch of the satellites. We would
have no other damages or remedies for late delivery of a satellite. If, on the
other hand, Hughes launches both satellites on or before December 31, 2000, we
will pay Hughes $6 million in addition to the contract price.
American Mobile, whose single largest stockholder on a fully diluted basis
is Hughes Communications, an affiliate of Hughes, owns 37% of the outstanding
shares of our common stock, or 52.7% assuming no conversion of preferred stock.
General Motors, which owns Hughes and with whom we have a distribution
agreement as described below, owns 12% of the outstanding shares of our common
stock and an additional 12% of the outstanding shares is held by DIRECTV, an
affiliate of Hughes and an indirect subsidiary of General Motors.
53
<PAGE>
Distribution Agreement with General Motors and OnStar
We have signed a long-term distribution agreement with the OnStar division
of General Motors providing for the installation of XM radios in General Motors
vehicles. During the term of the agreement, which expires 12 years from the
commencement date of our commercial operations, General Motors has agreed to
distribute our service to the exclusion of other satellite digital radio
services that broadcast in the S-Band. General Motors will factory-install XM
radios, purchased exclusively from our authorized manufacturers, in certain new
General Motors vehicles and not install any radios which receive CD Radio as
the only satellite radio service. We will have a non-exclusive right to arrange
for the installation of XM radios included in OnStar systems in non-General
Motors vehicles that are sold for use in the United States.
We have agreed, for a nine-month period beginning on July 1, 2001, that
General Motors shall be the exclusive vehicle manufacturer in whose new
vehicles we will activate the XM Radio service. If, however, we cannot install
XM radios prior to January 1, 2002, then this exclusivity arrangement will
apply for a six-month period beginning on the later of July 1, 2002 or the date
we commence full commercial operations. In addition, we have significant
annual, fixed payment obligations to General Motors for four years following
commencement of commercial operation. These payments approximate $35 million in
the aggregate during this period. Additional annual fixed payment obligations
beyond the initial four years of the contract term range from less than $35
million to approximately $130 million through 2009, aggregating approximately
$400 million. In order to encourage the broad installation of XM radios in
General Motors vehicles, we have agreed to subsidize a portion of the cost of
XM radios, and to make incentive payments to General Motors when the owners of
General Motors vehicles with installed XM radios become subscribers for the XM
Radio service within 12 months of purchasing a General Motors vehicle equipped
with an XM radio. We must also share with General Motors a percentage of the
subscription revenue attributable to General Motors vehicles with installed XM
radios. We will also make available to General Motors a limited amount of
bandwidth for audio and/or data transmission by General Motors to owners of
General Motors vehicles equipped with XM radios.
This agreement is subject to renegotiation if four years after the
commencement of commercial operations and at two-year intervals thereafter
General Motors does not achieve and maintain specified installation levels,
starting with 1.24 million units after four years and thereafter increasing by
the lesser of 600,000 units per year and amounts proportionate to our share of
the satellite digital radio market. There can be no assurance as to the outcome
of any such renegotiations. General Motors' exclusivity obligations will
discontinue if, four years after we commence commercial operations and at two-
year intervals thereafter, our mobile aftermarket share falls below 40% if
there are two satellite radio providers in the United States, or below 33% if
there are three satellite radio providers in the United States.
Furthermore, if General Motors elects to install radios which are
interoperable radios with other satellite radio providers, in the absence of
any regulatory requirements to do so, we may seek to renegotiate the
distribution agreement. If the FCC requires the installation of interoperable
radios, we will renegotiate the distribution agreement on mutually acceptable
terms.
Engineering Contract with LCC International
We have signed a contract with LCC International for the engineering of and
site preparation of our terrestrial repeater network. The repeater network will
supplement our high-powered satellite signals. Payments by XM Radio under this
contract are expected to approximate $115 million. This contract does not
include the repeater hardware, which will be supplied by a separate vendor.
The contract designates LCC International as the prime contractor for the
implementation of our terrestrial repeater sites. Under this contract, LCC
International will perform various services, including program management,
radio frequency engineering, site acquisition, architectural and engineering
design, zoning, regulatory services, network management testing and
construction and interim system maintenance. The initial site planning is now
complete for 70 cities and metropolitan areas and implementation work is
continuing.
54
<PAGE>
The design of our terrestrial repeater system will be guided by a radio
frequency analysis technique newly developed by LCC International. This
technique uses analysis of the satellite footprint to discover areas likely to
have impaired reception of XM Radio through technology similar to that used in
certain cellular telephone systems.
Dr. Rajendra Singh, a member of our board of directors and a member of the
board of directors of LCC International, controls the largest shareholder of
both LCC International and one of the holders of our convertible notes, Telcom-
XM Investors L.L.C. See "Principal Stockholders."
Technology License Agreement with American Mobile
American Mobile has granted us a royalty-free license with respect to
certain technology to be used in connection with the implementation of the XM
Radio system, including, among other things, certain ground segment
communications technology and antenna technology. We also have the right to
sublicense this technology to any third party, including chipset manufacturers,
terrestrial repeater manufacturers and receiver manufacturers in connection
with the XM Radio system.
Under cross-license provisions in the license, if we obtain from any third
party the right to use any technology which could be used to develop, implement
and commercialize a satellite radio system for transmission in the United
States, we will make all reasonable efforts to obtain for American Mobile the
right to use such technology. We have granted to American Mobile a royalty-
free, non-exclusive and irrevocable license to any and all technology and
improvements we develop relating to the XM Radio system. This cross-license is
for use and sublicensing worldwide outside the United States and its
territories, or inside the United States and its territories only in connection
with American Mobile's mobile satellite business in the United States and other
than in connection with any satellite radio system.
The technology license renews automatically on an annual basis unless
terminated for a breach which has not been or cannot be remedied.
Technical Services Agreements
We have a technical services agreement with American Mobile under which
American Mobile provides us with certain technical, engineering, marketing and
strategic planning services. We pay American Mobile at specified hourly rates,
which we believe approximate rates available from unrelated parties. On or
after our commencement of commercial operations, American Mobile or we may
terminate the technical services agreement at any time. We incurred costs of
$0.1 million to American Mobile under this agreement from January 1, 1999
through June 30, 1999.
We expect shortly to enter into a technical services agreement with DIRECTV
with respect to customer service, billing and conditional access capabilities.
Other Transactions with American Mobile
In 1997, American Mobile contributed $143,000 for us to establish our
original application for the FCC license. Also in 1997, we received $1.5
million as a capital contribution from American Mobile. During 1998, American
Mobile incurred general and administrative costs and professional fees for us
and established an intercompany balance of $458,000. During June 1999, American
Mobile provided us a line of credit under which we drew $250,000. This was
repaid, and the line of credit terminated, in July 1999.
American Mobile Convertible Notes
We have issued a convertible note to American Mobile, pursuant to which we
have borrowed the principal amount of $21.4 million. In July 1999, we issued a
second convertible note to American Mobile in the
55
<PAGE>
aggregate principal amount of $81.7 million. The American Mobile convertible
notes bear interest at a rate equal to the LIBOR plus 5% per annum, and the
notes matures on December 31, 2004, unless extended in certain circumstances if
we issue high yield debt securities. The principal amount of the notes and all
interest accrued thereon are repayable in a single installment on the maturity
date. The $21.4 million note provides that American Mobile may convert all or a
portion of the aggregate principal amount thereof into shares of our Class B
common stock at a conversion of price of $16.35 per share, subject to
adjustment, and the $81.7 million note has a conversion price of $8.65 per
share, subject to adjustment. In each case, accrued interest is convertible
into shares of our Class B common stock at a conversion price of $9.52. These
notes convert automatically into shares of our Class B common stock upon
completion of this offering.
$250 Million Subordinated Convertible Notes
We have issued Series A subordinated convertible notes to General Motors,
Clear Channel, DIRECTV, Telcom Ventures, Columbia Capital and Madison Dearborn
Partners, pursuant to which we have borrowed the principal amount of $250.0
million. The notes bear interest at a rate equal to six-month LIBOR plus 5% per
annum, and the notes mature on December 31, 2004, unless extended in certain
circumstances if we issue high yield debt securities. The principal amount of
the notes and all interest accrued thereon are repayable in a single
installment on the maturity date or the date of conversion. The notes and
accrued interest will be converted automatically into Series A convertible
preferred stock, in the case of notes held by General Motors and DIRECTV, and
Class A common stock, in the case of notes held by the others, at a price of
$9.52 per share upon completion of this offering.
Registration Rights Agreement
We have a registration rights agreement with the holders of our Series A
subordinated convertible notes, Baron Asset Fund and American Mobile.
Commencing July 7, 2000, each of these parties is entitled to demand
registration with respect to its Class A common stock, including shares
issuable upon conversion of other securities. American Mobile is entitled to
make two demands. These rights are subject to our right to defer the timing of
a demand registration and an underwriters' right to cut back shares in an
underwritten offering. In certain instances if a demand registration is cut
back by more than 75% of the number of shares originally requested to be
registered, then the party requesting registration shall be entitled to one
additional demand registration request.
In addition to these demand rights, following our commencement of commercial
operation, parties to the registration rights agreement may request
registration of at least $25.0 million of Class A common stock.
Parties to the registration rights agreement also have rights to include
their Class A common stock in registered offerings initiated by us, other than
the registration statement for this offering and an offering for high yield
debt.
Shareholders' Agreement
We have entered into a shareholders' agreement with American Mobile, Baron
Asset Fund and the holders of our subordinated convertible notes, containing,
among others, the provisions described below.
Conversion of Shares of Class B Common Stock to Class A Common Stock
Our Class B common stock owned by American Mobile is convertible into our
Class A common stock, on a one for one basis, following this offering at any
time at American Mobile's discretion. In addition, under the shareholders'
agreement, following this offering, the holders of a majority of our
outstanding Class A common stock, which must include at least 20% of the public
holders of the Class A common stock, may require conversion by American Mobile.
This conversion will not be effected, however, if the FCC does not approve the
transfer of control of XM Radio from American Mobile to a diffuse group of
stockholders.
56
<PAGE>
Restrictions on Transfer of Shares of Our Securities
Except for affiliated transactions, American Mobile will not be permitted to
transfer any of our securities until the earlier of the date on which we begin
commercial operations or one year after the closing of this offering. Shares of
Class B common stock are transferable only upon conversion into shares of Class
A common stock and, in certain circumstances, to Baron Asset Fund, which can
transfer its shares only upon conversion into shares of Class A common stock.
Non-Competition
American Mobile has agreed not to compete with XM Radio in the satellite
radio business in the United States for so long as American Mobile holds 5% of
our common stock and for a period of three years following any transfer which
results in American Mobile owning less than 5% of our common stock.
Governance
The parties to the agreement are entitled to designate directors to our
board of directors and to observe meetings of the board of directors. We have
described these provisions previously under the caption "Management--Provisions
Governing the Board of Directors." In addition, the parties have agreed to take
all necessary actions to give effect to the agreement including to prevent any
conflict between the agreement and our governing instruments.
Investor Operational Agreements
We have agreements with Clear Channel, DIRECTV and the TCM Group, which is
owned by Columbia Capital, Telcom Ventures and Madison Dearborn Partners, under
which we will make available to them up to 406.6 kilobits per second, 204.8
kilobits per second, and 64.0 kilobits per second each, respectively, of our
bandwidth, for them to supply programming to us with content reasonably
acceptable to us, on terms (including revenue sharing) no less favorable than
those offered to similar commercial programmers who provide similar
programming. Until these options are exercised and this bandwidth is actually
used by them, we can use the bandwidth. Any use of our bandwidth by these
companies must be in compliance with applicable laws, must not interfere with
our business or our obligations to other content providers, and must meet our
quality standards.
The agreements call for us to have a technology advisory committee on which
Clear Channel, DIRECTV and the TCM Group have representatives. The committee
will direct the selection of appropriate billing, customer service and
conditional access systems for us, as well as our overall system integration
effort. We have granted to Clear Channel, DIRECTV, and TCM Group under these
agreements a royalty-free, non-transferable, non-exclusive license to use,
sell, manufacture and have manufactured any and all technology we develop
relating to the XM Radio system worldwide for any purpose other than one
related to digital audio radio service.
We are to enter into a technical services agreement with DIRECTV with
respect to customer service, billing and conditional access capabilities, and
we will use DIRECTV's customer service, billing and conditional access
capabilities if made available to us on competitive terms and conditions.
DIRECTV is to make good faith efforts to represent us in obtaining distribution
of XM Radio service through DIRECTV's existing retail distribution network. We
will provide Clear Channel and DIRECTV with access to our advertising at the
lowest available commercial rates. Clear Channel must make good faith efforts
to give us access to its advertising at the lowest available commercial rates.
The agreements provide for further good faith negotiations with respect to
other arrangements, including advertising barter arrangements, marketing of XM
Radio service by Clear Channel and DIRECTV, and technology cooperation.
57
<PAGE>
These agreements remain in effect so long as Clear Channel, DIRECTV, and
Columbia Capital, Telcom Ventures and Madison Dearborn Partners hold at least
5% of our fully diluted ownership or the full amount of their original
investments in us.
July 1999 Transactions
We engaged in a series of transactions in July 1999 in which WorldSpace
ceased to be an owner of XM Radio, American Mobile became the owner of the
securities previously held by WorldSpace, and several of the transactions and
agreements described above were entered into. These transactions are described
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Sources of Funds"
and in the notes to our Unaudited Condensed Consolidated Financial Statements.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table and the accompanying notes set forth certain information
concerning the beneficial ownership of our Class A common stock after giving
effect to this offering based on stock ownership at August 20, 1999 but
assuming automatic conversion of outstanding convertible notes as of September
15, 1999, by each person who is known by us to own beneficially more than five
percent of such stock, each director and each named executive officer, and all
directors and executive officers as a group. Except as otherwise indicated,
each person listed in the table has informed us that such person has sole
voting and investment power with respect to such person's shares of common
stock and record and beneficial ownership with respect to such person's shares
of common stock.
As of August 20, 1999, there were 14,716 shares of Class A common stock
outstanding, all of which were owned by our chairman, Gary M. Parsons, and
6,689,250 shares of Class B common stock outstanding, all of which were owned
by American Mobile. Class B common stock is convertible into Class A common
stock on a one-for-one basis. Class B common stock is entitled to three votes
for each share. The numbers of shares of Class A common stock beneficially
owned after the offering in the table below include shares issuable upon
conversion of notes that convert automatically upon completion of this
offering. Share ownership in the table below includes shares we may issue if
certain stockholders exercise outstanding options within 60 days after August
20, 1999.
<TABLE>
<CAPTION>
Percentage
of Total
Number of Class A
Class A Shares Shares
Beneficially Owned after
Name and Address of Beneficial Owner after Offering Offering
------------------------------------ ------------------ ----------
<S> <C> <C>
Beneficial Owners of More Than 5%:
American Mobile Satellite Corporation............ 17,774,894(1) 40.5%
10802 Parkridge Boulevard
Reston, VA 20191-5416
General Motors Corporation....................... 10,715,310(2) 29.1
100 Renaissance Center
3031 West Grand Boulevard
PO Box 100
Detroit, MI 48265-1000
DIRECTV Enterprises, Inc. ....................... 5,357,655(3) 17.0
2230 E. Imperial Highway
El Segundo, CA 90245
Clear Channel Investments, Inc. ................. 8,036,482 30.8
200 Concord Plaza, Suite 600
San Antonio, TX 78216
Columbia XM Radio Partners, L.L.C. .............. 2,678,827 10.3
201 N. Union Street, Suite 300
Alexandria, VA 22314
Telcom-XM Investors, L.L.C. ..................... 2,678,827(4) 10.3
211 North Union Street, Suite 300
Alexandria, VA 22314
Madison Dearborn Capital Partners III, L.P. ..... 2,604,913 10.0
Madison Dearborn Special Equity III, L.P......... 57,841 *
Special Advisors Fund I, LLC..................... 16,072 *
3 First National Plaza, Suite 3800
Chicago, IL 60602
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Percentage
of Total
Number of Class A
Class A Shares Shares
Beneficially Owned after
Name after Offering Offering
---- ------------------ ----------
<S> <C> <C>
Directors and Named Executive Officers
Gary M. Parsons ................................ 14,716(5) *
Hugh Panero .................................... 89,186(6) *
Randall T. Mays ................................ 26,757 *
Randy S. Segal ................................. 26,757 *
Jack Shaw ...................................... 26,757 *
Rajendra Singh ................................. 26,757(4) *
Ronald L. Zarrella ............................. - -
Nathaniel Davis................................. - (7) -
Thomas R. Donohue............................... - (7) -
Lee Abrams ..................................... 17,836(8) *
Stelios Patsiokas .............................. 17,836(8) *
Heinz Stubblefield ............................. 17,836(8) *
All directors and executive officers as a group
(15 persons)................................... 309,032(9) 1.2%
</TABLE>
- --------
* Less than 1%.
(1) Includes 17,774,894 shares issuable upon conversion of Class B common
stock.
(2) Includes 10,715,310 shares issuable upon conversion of Series A convertible
preferred stock, 5,357,655 of which are owned by DIRECTV.
(3) Includes 5,357,655 shares issuable upon conversion of Series A convertible
preferred stock.
(4) Rajendra Singh, a member of our board of directors, indirectly owns a
controlling interest in Telcom-XM Investors, L.L.C. Dr. Singh disclaims
beneficial ownership of the shares of Class A common stock beneficially
owned by Telcom-XM Investors, L.L.C.
(5) Reflects an agreement to issue shares reached as of July 16, 1999. Does not
include 267,570 shares issuable upon exercise of options which are not
exercisable within 60 days. A trust for the benefit of Mr. Parsons' minor
children has acquired a minority membership interest in each of Columbia XM
Radio Partners, L.L.C. and Telcom-XM Investors, L.L.C. and a minority
participatory interest in each of Madison Dearborn Capital Partners III,
L.P. and Madison Dearborn Special Equity III, L.P. Mr. Parsons disclaims
beneficial ownership of these interests.
(6) Does not include 178,384 shares issuable upon exercise of options which are
not exercisable within 60 days. Mr. Panero has acquired a minority
membership interest in Telcom-XM Investors, L.L.C.
(7) Messrs. Davis and Donohue will receive options to purchase 26,757 shares
upon completion of the offering.
(8) Does not include 35,678 shares issuable upon exercise of options which are
not exercisable within 60 days.
(9) Does not include 695,692 shares issuable upon exercise of options which are
not exercisable within 60 days.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 180,000,000 shares of Class A common stock, $.01 par value per share,
30,000,000 shares of Class B common stock, $.01 par value per share, 30,000,000
shares of Class C common stock, $.01 par value per share and 15,000,000 shares
of Series A convertible preferred stock, $.01 par value per share. The
following summary description of our capital stock is subject to our Restated
Certificate of Incorporation and Amended and Restated Bylaws and the Delaware
General Corporation Law.
Common Stock
As of the date of this prospectus, there were 14,716 shares of Class A
common stock outstanding and 6,689,250 shares of Class B common stock
outstanding. After giving effect to the issuance of 10,000,000 shares of Class
A common stock by us in this offering and the conversion of the outstanding
convertible subordinated notes, other than the notes to be converted into
Series A convertible preferred stock, there will be 26,087,678 shares of Class
A common stock outstanding.
Class A Common Stock
Holders of Class A common stock are entitled
. to one vote for each share held on any matter submitted for stockholder
approval;
. to receive on a pro rata basis, dividends and distributions, if any, as
the board of directors may declare out of legally available funds; and
. upon the liquidation, dissolution, winding up or insolvency of our
company, to share ratably in the net assets of our company available
after we pay our liabilities and any preferential amounts to which
holders of the Series A convertible preferred stock may be entitled.
Holders of Class A common stock have no preemptive, redemption or sinking
fund rights.
Class B Common Stock
Class B common stock has the same rights as Class A common stock except that
Class B common stock is entitled to three votes for each share. Shares of Class
B common stock are convertible into shares of Class A common stock on a one-
for-one basis, subject to antidilution protection if we effect a
recapitalization.
Class C Common Stock
Holders of Class C common stock are entitled to the same rights as holders
of Class A common stock except that the holders of Class C common stock are not
entitled to vote on any matter submitted for stockholder approval.
Preferred Stock
The board of directors may issue preferred stock in one or more series and
may fix the designations, powers, preferences and relative, participating,
optional and other special rights, qualifications, limitations and restrictions
on the preferred stock, including the dividend rate, conversion rights, voting
rights, redemption price and liquidation preference, and may fix the number of
shares to be included in any such series. Any preferred stock may rank senior
to the common stock for the payment of dividends or amounts upon liquidation,
dissolution or winding-up, or both. In addition, any shares of preferred stock
may have class or series voting rights. Issuances of preferred stock, while
providing us with flexibility in connection with general corporate purposes,
may, among other things, have an adverse effect on the rights of holders of
common stock. The board of directors, without stockholder approval, can issue
preferred stock with voting and conversion rights that could adversely affect
the voting power and other rights of holders of common stock. Preferred stock
61
<PAGE>
could thus be issued quickly with terms calculated to delay or prevent a change
of control or to make the removal of management more difficult. In certain
circumstances, this could have the effect of decreasing the market price of our
common stock.
Series A Convertible Preferred Stock
Series A convertible preferred stock has the following characteristics:
. a right to receive dividends and distributions ratably with the holders
of common stock;
. a $9.52 per share payment preference over our common stock in the event
of our liquidation, dissolution, winding up or insolvency;
. a right to convert, at the election of the holder, one share of the
Series A convertible preferred stock into one share of Class A common
stock; and
. shares of our Series A convertible preferred stock do not have
-- voting rights;
-- any preference with respect to dividends and distributions;
-- preemptive rights;
-- sinking fund rights; or
-- redemption rights.
Following the occurrence of a recapitalization, as described under the
caption "Class B Common Stock", each share of Series A convertible preferred
stock will be convertible into the kind and number of shares of securities or
other property to which the holders of such share of Series A convertible
preferred stock would have been entitled to receive if the holder had converted
such share of Series A convertible preferred stock into Class A common stock
immediately prior to the recapitalization.
As of the date of this prospectus, there are no shares of Series A
convertible preferred stock outstanding. After giving effect to the conversion
of convertible subordinated notes, there will be 10,715,310 shares of Series A
convertible preferred stock outstanding upon completion of this offering.
Certain Provisions of Our Certificate of Incorporation and Bylaws
Certificate of Incorporation
Our certificate of incorporation permits the board of directors without
stockholder approval to issue shares of preferred stock up to the number of
shares authorized for issuance in our certificate of incorporation, except as
limited by Nasdaq rules. We could use these additional shares for a variety of
corporate purposes. These purposes include future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans. Our
ability to issue these shares of preferred stock could make it more difficult
or discourage an attempt to obtain control of our company by means of a proxy
contest, tender offer, merger or otherwise.
Federal communications law prohibits the holding of a broadcast license by a
corporation of which more than 20.0% of the capital stock is owned directly or
beneficially by aliens. Where a corporation controls another entity that holds
such an FCC license, such corporation may not have more than 25.0% of its
directors as aliens and may not have more than 25.0% of its capital stock owned
directly or beneficially by aliens, in each case, if the FCC finds that the
public interest would be served by such prohibitions. Failure to comply with
these requirements may result in the FCC issuing an order requiring divestiture
of alien ownership to bring a company into compliance with federal law. In
addition, fines or a denial of renewal, or revocation of the license are
possible. Although we are not currently subject to these foreign ownership
restrictions, in order to provide flexibility should our regulatory states
change our restated certificate of incorporation permits the redemption of
common stock from stockholders where necessary to protect our license.
62
<PAGE>
Bylaws
As currently in effect, our bylaws require that the number of directors be
as provided in the shareholders' agreement. See "Management--Provisions
Governing the Board of Directors." The bylaws provide that special meetings of
the stockholders may be called by the board of directors, by stockholders
holding at least 15% of the outstanding common stock or by the chief executive
officer or the president. The bylaws may be amended or repealed, or new bylaws
may be adopted, by the stockholders or the board of directors, subject to the
shareholders' agreement. If there is a conflict between the bylaws and the
shareholders' agreement, the latter will govern.
Stockholder Actions
Except as otherwise expressly provided in our certificate of incorporation
or our bylaws, resolutions may be adopted at stockholders' meetings by the
affirmative vote of a simple majority of the aggregate number of votes
represented by all shares entitled to vote thereon and represented, in person
or by proxy, at the meeting. Our bylaws establish special advance notice
procedures for stockholders who wish to make director nominations or bring
other business before a stockholder meeting. In addition, stockholders may act
by written consent without a meeting if approved by the holders of a majority
of the aggregate number of votes represented by all shares entitled to vote
thereon, provided that notice of any such action must be subsequently furnished
to all stockholders if such approval was not unanimous.
Directors may be elected by a plurality of votes cast by stockholders at a
meeting or by written consent, assuming a quorum is present, in person or by
proxy, or acting by written consent. The quorum required for a meeting or
action by written consent of stockholders consists of stockholders holding a
majority of the issued and outstanding shares present in person or by proxy and
entitled to vote. Stockholders' meetings are convened upon advance notice of at
least 10 days and not more than 60 days.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation provides that directors shall not be
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duty as a director, except for liability
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under a provision of Delaware General Corporation Law relating to
unlawful payment of dividends or unlawful stock purchase or redemption of
stock; or
. for any transaction from which such director derived an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to obtain
monetary damages from a director for breach of his or her duty of care.
In addition, our certificate of incorporation and bylaws provide for the
indemnification of directors and officers and any director or officer who is or
was serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise to the full
extent authorized or permitted by the laws of Delaware against expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit
or proceeding to which such person was or is made a party or is threatened to
be made a party by reason of serving in any of the foregoing capacities. The
indemnification includes, to the full extent authorized or permitted by the
Delaware General Corporation Law, payment by us of the expenses in advance of
any proceeding. In addition, we have entered or will enter into indemnification
agreements with our directors and executive officers that provide
indemnification in addition to the indemnification provided in our bylaws.
Under the bylaws, we may, but are not obligated to, maintain insurance, at our
expense, for the benefit of XM Radio and of any person to be indemnified by us.
63
<PAGE>
Listing
We will apply to have our Class A common stock approved for quotation on the
Nasdaq National Market under the symbol "XMSR".
Transfer Agent and Registrar
We have designated BankBoston, N.A. to be the transfer agent and registrar
for the Class A common stock.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Based upon the number of shares outstanding as of September 15, 1999, after
this offering we will have outstanding 26,087,678 shares of Class A common
stock. Of these outstanding shares, all shares of Class A common stock sold in
this offering will be immediately eligible for resale in the public market
without restriction under the Securities Act of 1933, except that any shares
purchased in this offering by our affiliates (as that term is defined in
Rule 144), may generally only be resold in compliance with the applicable
provisions of Rule 144. The expected remaining 16,087,678 shares of our Class A
common stock plus an additional 30,594,121 shares of Class A common stock
issuable upon exercise of outstanding options and other convertible securities
will be restricted securities under Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or 701 under the
Securities Act.
XM Radio, the executive officers and directors of XM Radio and certain
security and option holders have agreed, pursuant to lock-up agreements with
our underwriters, not to offer for sale, contract to sell, pledge, hypothecate,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of our Class A common stock or
any securities convertible into or exercisable or exchangeable for shares of
our Class A common stock, without the prior written consent of Bear, Stearns &
Co. Inc. and Donaldson, Lufkin & Jenrette Securities Corporation on behalf of
our underwriters, for a period of 180 days after the effective date of the
registration statement of which this prospectus is a part.
In general, under Rule 144, beginning approximately 90 days after the
effective date of the Registration Statement of which this prospectus is a
part, a stockholder, including an affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least
one year from the later of the date such securities were acquired from us or
(if applicable) the date they were acquired from an affiliate, is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of 1% of the then outstanding shares of our Class A common
stock or the average weekly trading volume of our Class A common stock during
the four calendar weeks preceding the date on which notice of such sale was
filed under Rule 144, provided certain requirements concerning availability of
public information, manner of sale and notice of sale are satisfied. In
addition, under Rule 144(k), if a period of at least two years has elapsed
between the later of the date restricted securities were acquired from us or
(if applicable) the date they were acquired from an affiliate of our company, a
stockholder who is not an affiliate of our company at the time of sale and has
not been an affiliate of our company for at least three months prior to the
sale is entitled to sell the shares immediately without compliance with the
foregoing requirements under Rule 144.
Securities issued in reliance on Rule 701, such as shares of Class A common
stock that may be acquired pursuant to the exercise of certain options granted
prior to this offering, are also restricted securities and, beginning 90 days
after the date of this prospectus, may be sold by stockholders other than an
affiliate of our company subject only to the manner of sale provisions of Rule
144 and by an affiliate under Rule 144 without compliance with its one-year
holding period requirement.
Prior to this offering, there has been no public market for our common
stock. No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the number of shares
that may be sold in the public market pursuant to Rule 144, since this will
depend on the market price of our Class A common stock, the personal
circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of our Class A common stock in the public market could
adversely affect the market price of our Class A common stock and could impair
our ability to raise capital through an offering of its equity securities.
65
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
between us and the underwriters named below, who are represented by Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
Deutsche Bank Securities Inc., and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, the underwriters have severally agreed to purchase from us the
following respective numbers of shares of Class A common stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this prospectus.
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
Bear, Stearns & Co. Inc.....................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Deutsche Bank Securities Inc................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................
----------
Total...................................................... 10,000,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration
statement, the continuing correctness of our representations to them, the
receipt of a comfort letter from our accountants, the listing of the Class A
common stock on the Nasdaq National Market and no occurrence of an event that
would have a material adverse effect on our business. The underwriters are
obligated to purchase and accept delivery of all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares.
We have granted to the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to 1,500,000 additional
shares at the public offering price less the underwriting fees. The
underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not in excess of $ per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share on sales
to other dealers. After the initial offering of the shares to the public, the
representatives of the underwriters may change the public offering price and
such concessions. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of the Class A common stock.
<TABLE>
<CAPTION>
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per share.................................................. $ $
Total...................................................... $ $
</TABLE>
At our request, the underwriters have reserved for sale at the initial
public offering price up to 500,000 shares of our Class A common stock to be
sold in this offering for sale to certain persons designated by us. The number
of shares available for sale to the general public will be reduced to the
extent that any reserved shares are purchased. Any reserved shares not so
purchased will be offered by the underwriters on the same basis as the other
shares offered hereby.
66
<PAGE>
In order to facilitate the offering of the Class A common stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the market price of the Class A common stock. Specifically, the
underwriters may over-allot shares of the Class A common stock in connection
with this offering, thereby creating a short position in the Class A common
stock for their own account. Additionally, to cover such over-allotments or to
stabilize the market price of the Class A common stock, the underwriters may
bid for, and purchase, shares of the Class A common stock in the open market.
Finally, the representatives, on behalf of the underwriters, also may reclaim
selling concessions allowed to an underwriter or dealer if the underwriting
syndicate repurchases shares distributed by that underwriter or dealer. Any of
these activities may maintain the market price of our Class A common stock at
a level above that which might otherwise prevail in the open market. The
underwriters are not required to engage in these activities and, if commenced,
may end any of these activities at any time.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
We have applied to list our Class A Common Stock on the Nasdaq National
Market under the symbol "XMSR".
Prior to this offering, there has been no public market for our Class A
common stock. Consequently, the initial public offering price for our Class A
Common Stock will be determined by negotiation among us and the
representatives of the underwriters. Among the factors to be considered in
determining the public offering price will be:
. prevailing market conditions;
. our results of operations in recent periods;
. the present stage of our development;
. the market capitalizations and stages of development of generally
comparable companies; and
. estimates of our business potential.
Bear, Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation acted as our financial advisor in connection with our issuance of
$250.0 million of subordinated convertible notes, for which they received
customary compensation. Bear, Stearns & Co. Inc. or its affiliates have also
provided and may in the future provide investment banking or other financial
services to us and American Mobile and its affiliates in the ordinary course
of business, for which it has received and is expected to receive customary
fees and expenses. To date, Bear, Stearns & Co. Inc. has served American
Mobile as an initial purchaser for its issuance of units in March 1998, as an
underwriter in its sale of common stock in July 1999, and as financial advisor
in several of its acquisition and financing transactions. Deutsche Bank
Securities Inc. also served as an underwriter in American Mobile's sale of
common stock in July 1999.
LEGAL MATTERS
Certain legal matters with respect to the shares of Class A common stock
offered by this prospectus will be passed upon for XM Radio by Hogan & Hartson
L.L.P., Washington, D.C. Certain legal matters with respect to communications
regulatory issues will be passed upon for XM Radio by Fisher Wayland Cooper
Leader & Zaragoza L.L.P., Washington, D.C. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Latham &
Watkins, New York, New York.
67
<PAGE>
EXPERTS
Our consolidated financial statements as of December 31, 1997 and 1998, and
for the years ended December 31, 1997 and 1998 and for the period from December
15, 1992 (date of inception) through December 31, 1998, have been included
herein and in the registration statement, in reliance upon the report of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing. The
report of KPMG LLP contains an explanatory paragraph that states that we have
not commenced operations, have negative working capital and are dependent upon
additional debt and equity financings, which raise substantial doubt about our
ability to continue as a going concern. Our consolidated financial statements
do not include any adjustments that might result from the outcome of that
uncertainty.
CERTAIN INFORMATION ABOUT THIS PROSPECTUS
We have filed a registration statement on Form S-1 with the SEC under the
Securities Act of 1933 covering the Class A common stock being offered by this
prospectus. As permitted by SEC rules, this prospectus omits certain
information that is included in the registration statement. For further
information about us and our Class A common stock, you should refer to the
registration statement and its exhibits. Since the prospectus may not contain
all the information that you may find important, you should review the full
text of these documents. If we have filed a contract, agreement or other
document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the document or matter involved.
Each statement in this prospectus, including statements incorporated by
reference as discussed below, regarding a contract, agreement or other document
is qualified in its entirety by reference to the actual document. You may read
and copy any document we file with the SEC at the SEC's public reference rooms
located at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549, at 7 World
Trade Center, 13th Floor, New York, NY 10048, and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, IL 60661. You can also obtain copies of
filed documents by mail from the Public Reference Section of the SEC at Room
1024, 450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-
SEC-0330 for further information on the public reference rooms. Our SEC filings
are also available to the public at the SEC's web site at www.sec.gov. Upon
approval of our Class A common stock for quotation on the Nasdaq National
Market, you can also inspect such reports, proxy and information statements and
other information at the office of Nasdaq Operations, 1735 K Street, N.W.,
Washington, DC. 20006.
68
<PAGE>
INDEX TO PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Description of Pro Forma Financial Information............................ P-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1999..................................................................... P-3
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
six months ended June 30, 1999........................................... P-4
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1998............................................. P-5
Notes to Pro Forma Financial Information.................................. P-6
</TABLE>
P-1
<PAGE>
Description of Pro Forma Financial Information
The accompanying pro forma financial information gives effect to (i) the
July 1999 transactions, including (a) American Mobile's acquisition of the debt
and equity interests in our company from WorldSpace; (b) the completion of the
issuance of Series A subordinated convertible notes in a private placement net
of related financing costs; (c) the repayment of certain related party notes
and certain amounts due to vendors with the proceeds received from the issuance
of the Series A subordinated convertible notes above; and (d) the exchange of
the outstanding options and debt held by American Mobile for a new subordinated
convertible note; and (ii) the offering and related transactions, including (a)
the issuance of shares in this offering net of underwriters' discounts and
commissions and related fees and expenses; and (b) the mandatory conversion of
the Series A subordinated convertible notes, the existing American Mobile
convertible note and the new American Mobile convertible note as if such
transactions had been consummated on June 30, 1999 in the case of the Unaudited
Pro Forma Condensed Consolidated Balance Sheet of XM Satellite Radio and on
January 1, 1998 in the case of the Unaudited Pro Forma Condensed Consolidated
Statements of Operations of XM Satellite Radio.
The pro forma condensed consolidated financial information is presented for
illustrative purposes only and is not necessarily indicative of what the
Company's actual financial position and results of operations would have been
had the above referenced transactions been consummated as of the above
referenced dates or of the financial position or results of operations that may
be reported by the Company in the future.
The following data should be read in conjunction with XM Satellite Radio
Holdings Inc. and Subsidiary Consolidated Financial Statements and related
notes included elsewhere herein.
P-2
<PAGE>
XM Satellite Radio Inc.
(A Development Stage Company)
Unaudited Pro Forma Condensed Balance Sheet
<TABLE>
<CAPTION>
As of June 30, 1999
--------------------------------------------------------------
July 1999
Transactions Offering Pro Forma
Actual Adjustments Pro Forma Adjustments As Adjusted
-------- ------------ --------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................... $ 163 $250,000 (1) $ 96,763 $ 150,000 (6) $235,513
(75,000)(2) (11,250)(6)
(68,000)(3)
(10,400)(1)
Prepaid and other
current assets........ 92 92 92
-------- -------- --------
Total current assets... 255 96,855 235,605
-------- -------- --------
OTHER ASSETS:
Property and equipment,
net of accumulated
depreciation.......... 1,033 1,033 1,033
System under
construction.......... 261,653 261,653 261,653
Goodwill and
intangibles........... -- 51,624 (4) 51,624 51,624
Other assets........... 960 10,400 (1) 11,360 (11,250)(7) 110
-------- -------- --------
Total assets........... $263,901 $422,525 $550,025
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and
accrued expenses...... $ 93,892 $(68,000)(3) $ 25,892 $ 25,892
Due to related
parties............... 6,389 6,389 6,389
Accrued interest on
loans payable......... 1,891 (1,891)(5) -- --
Notes payable due to
related parties....... 96,147 (75,000)(2) -- --
(21,147)(5)
Term loan.............. 34 34 34
-------- -------- --------
Total current
liabilities........... 198,353 32,315 32,315
NONCURRENT LIABILITIES:
Accrued interest on
notes payable......... 4,793 (3,816)(5) 977 (977)(7) --
Convertible notes
payable due related
party................. 54,536 (54,536)(5) -- --
American Mobile
convertible note...... 21,419 21,419 (21,419)(7) --
American Mobile
convertible note--
new................... -- 81,390 (5) 81,390 (81,390)(7) --
Series A subordinated
convertible notes..... -- 250,000 (1) 250,000 (250,000)(7) --
Capital lease, net of
current portion....... 309 309 309
Term loan, net of
current portion....... 39 39 39
-------- -------- --------
Total liabilities...... 279,449 386,449 32,663
-------- -------- --------
STOCKHOLDERS' EQUITY
(DEFICIT):
Series A convertible
preferred stock....... -- -- 105 (7) 105
Common stock........... 669 669 (669)(7) --
Class A common stock... -- -- 257 (7) 257
Class B common stock... -- -- 175 (7) 175
Class C common stock... -- -- --
Additional paid-in-
capital............... 9,974 51,624 (4) 61,598 150,000 (6) 543,016
(11,250)(6)
353,918 (7)
(11,250)(7)
Deficit accumulated
during development
stage................. (26,191) (26,191) (26,191)
-------- -------- --------
Total stockholders'
equity (deficit)...... (15,548) 36,076 517,362
-------- -------- --------
Commitments and
contingencies
Total liabilities and
stockholders' equity
(deficit)............. $263,901 $422,525 $550,025
======== ======== ========
</TABLE>
See accompanying notes to the pro forma financial information.
P-3
<PAGE>
XM Satellite Radio Holdings Inc. and Subsidiary
(A Development Stage Company)
Unaudited Pro Forma Condensed Consolidated Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1999
---------------------------------------------------------------
July 1999
Transactions Offering Pro Forma
Actual Adjustments Pro Forma Adjustments As Adjusted
--------- ------------ --------- ----------- -----------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Revenue................. $ -- $ -- $ --
--------- --------- ----------
Operating expenses:
Research and
development........... 1,378 1,378 1,378
Professional fees...... 2,560 2,560 2,560
General and
administrative........ 4,503 1,721 (8) 6,224 6,224
--------- --------- ----------
Total operating
expenses............... 8,441 10,162 10,162
--------- --------- ----------
Operating loss.......... (8,441) (10,162) (10,162)
Other expense-interest
income (expense), net.. 76 (938) (9) (8,017) 938 (9) 76
(7,155) (10) 7,155 (10)
--------- --------- ----------
Net loss................ $ (8,365) $ (18,179) $ (10,086)
========= ========= ==========
Net loss per share--
basic and diluted...... (1.25) (2.72) (0.23)
Weighted average shares
used in computing net
loss per share--basic
and diluted............ 6,689,250 6,689,250 43,262,784
</TABLE>
See accompanying notes to the pro forma financial information.
P-4
<PAGE>
XM Satellite Radio Holdings Inc. and Subsidiary
(A Development Stage Company)
Unaudited Pro Forma Condensed Consolidated Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
----------------------------------------------------------------
July 1999
Transactions Offering Pro Forma
Actual Adjustments Pro Forma Adjustments As Adjusted
--------- ------------ --------- ----------- -----------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Revenue................. $ -- $ -- $ --
--------- --------- ----------
Operating expenses:
Research and
development........... 6,941 6,941 6,941
Professional fees...... 5,242 5,242 5,242
General and
administrative........ 4,010 3,442 (8) 7,452 7,452
--------- --------- ----------
Total operating
expenses............... 16,193 19,635 19,635
--------- --------- ----------
Operating loss.......... (16,193) (19,635) (19,635)
Other expense-interest
income (expense), net.. 26 (1,875)(9) (18,218) 1,875 (9) 26
(16,369)(10) 16,369 (10)
--------- --------- ----------
Net loss................ $ (16,167) $ (37,853) $ (19,609)
========= ========= ==========
Net loss per share--
basic and diluted...... (2.42 ) (5.66) (0.45)
Weighted average shares
used in computing net
loss per share--basic
and diluted............ 6,689,250 6,689,250 43,262,784
</TABLE>
See accompanying notes to the pro forma financial information.
P-5
<PAGE>
Notes to Pro Forma Financial Information
The pro forma financial information is based on the following assumptions
and adjustments:
(1) Reflects the issuance of $250.0 million of Series A subordinated
convertible notes to General Motors, Clear Channel, DIRECTV, Columbia
Capital, Telcom Ventures and Madison Dearborn Partners net of related
financing costs of approximately $11.3 million (of which, approximately
$850,000 was accrued as of June 30, 1999).
(2) Reflects the repayment of $75.0 million of certain outstanding notes
payable to WorldSpace with a portion of the proceeds from the issuance of
the $250.0 million Series A subordinated convertible notes.
(3) Reflects the payment of $68.0 million under the Hughes satellite contract
with portion of the proceeds from the issuance of the $250.0 million
Series A subordinated convertible notes.
(4) Reflects American Mobile's acquisition of debt and equity interests from
WorldSpace.
Total purchase consideration and transaction costs are anticipated to be as
follows:
<TABLE>
<CAPTION>
Amount
--------------
(in thousands)
<S> <C> <C>
8,614,244 shares of American Mobile at $15.00 per share
(the closing price of American Mobile's common stock at
the date of signing of the letter of intent and
announcement of the recapitalization)................... $129,214
Estimated transaction costs.............................. 1,000
--------
$130,214
Less: Fair value of debt acquired........................ 81,700
--------
Consideration for 20% interest in XM Radio............... $ 48,514
========
The purchase consideration and transaction costs have been allocated for
pro forma purposes as follows:
<CAPTION>
Amount
--------------
(in thousands)
<S> <C> <C>
Cash..................................................... $ 163
Other current and long-term assets....................... 1,052
Property and equipment................................... 1,033
System under construction................................ 261,653
Current liabilities...................................... (99,928)
Non-current liabilities.................................. (179,521)
--------
Fair value of identified net assets acquired............. (15,548)
--------
Fair value of 20% interest in identified net assets
acquired................................................ (3,110)
--------
Goodwill and intangibles................................. $ 51,624
========
</TABLE>
The above purchase price allocation is preliminary and may change upon
final determination of the fair value of assets acquired by American
Mobile. The Company has not specifically identified amounts to assign to
systems under construction and the license; changes in the amounts
allocated to such assets could result in changes to the amount of goodwill
recorded. A preliminary amortization period of fifteen years has been used
for purposes of the pro forma financial information for goodwill, which is
expected to be representative, in all material respects, of the
amortization expense that will result from the ultimate allocation to the
specific assets.
(5) Reflects the July 1999 exchange of the outstanding options and debt
acquired by American Mobile from WorldSpace for the American Mobile
convertible note-new due December 2004, which is convertible into Class B
common stock including the related accrued interest at a rate of $8.65 per
share. As a result of the beneficial conversion feature of the American
Mobile convertible note-new, the Company will recognize a non-recurring
interest charge of approximately $5,520,000 in the third quarter of 1999.
P-6
<PAGE>
(6) Reflects the issuance of 10,000,000 shares of common stock for estimated
proceeds of $150.0 million as a result of this offering, less underwriters
discounts and commissions and related fees and expenses of $11.3 million in
connection with this transaction.
(7) Reflects the mandatory conversion of the $250.0 million of Series A
subordinated convertible notes into 10,498,890 shares of Series A
convertible preferred stock and 15,748,333 shares of Class A common stock,
and the mandatory conversion of the American Mobile convertible note--new
and the $21.4 million American Mobile note, including the related accrued
interest, into 10,825,201 shares of Class B common stock concurrently with
the offering noted in (6) above.
(8) Reflects the amortization, over a 15-year life, of the acquired intangibles
including goodwill arising from American Mobile's acquisition of debt and
equity interests in our company from WorldSpace.
(9) Reflects the amortization of $11.3 million deferred financing fees over the
term of the notes.
(10) Reflects interest in excess of amounts that would be capitalized arising
from the issuance of $250.0 million Series A subordinated convertible
notes.
P-7
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Unaudited Condensed Consolidated Balance Sheet............................. F-19
Unaudited Condensed Consolidated Statements of Operations.................. F-20
Unaudited Condensed Consolidated Statements of Cash Flows.................. F-21
Notes to Unaudited Condensed Consolidated Financial Statements............. F-22
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
XM Satellite Radio Holdings Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of XM Satellite
Radio Holdings Inc. and subsidiary (a development stage company) as of December
31, 1997 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the years ended December 31,
1997 and 1998, and for the period from December 15, 1992 (date of inception) to
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of XM
Satellite Radio Holdings Inc. and subsidiary (a development stage company) as
of December 31, 1997 and 1998, and the results of their operations and their
cash flows for the years then ended and for the period from December 15, 1992
(date of inception) to December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
note 11 to the consolidated financial statements, the Company has not commenced
operations, has negative working capital of $130,341,000, and is dependent upon
additional debt and equity financings, which raises substantial doubt about its
ability to continue as a going concern. Management's plan in regard to these
matters is also described in note 11. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ KPMG LLP
McLean, VA
February 12, 1999,except for note 14,which is as of September 9, 1999
F-2
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
---------- -----------
(in thousands, except
share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 1 $ 310
Prepaid and other current assets...................... -- 172
---------- -----------
Total current assets................................ 1 482
Other assets:
System under construction............................. 91,932 169,029
Property and equipment, net of accumulated
depreciation and amortization of $0 and $57.......... -- 449
Other assets.......................................... -- 525
---------- -----------
Total assets........................................ $ 91,933 $ 170,485
========== ===========
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.......................................... $ -- $ 23,125
Due to related parties.................................... 445 13,767
Accrued interest on loans payable......................... 1,886 1,907
Loans payable due to related parties...................... 80,618 91,546
Term loan................................................. -- 34
Accrued expenses.......................................... -- 444
------- --------
Total current liabilities............................... 82,949 130,823
Term loan, net of current portion......................... -- 53
Subordinated convertible notes payable due to related
party.................................................... -- 45,583
Accrued interest on subordinated convertible notes payable
due to related party..................................... -- 1,209
------- --------
Total liabilities....................................... 82,949 177,668
------- --------
Common stock--$0.10 par value; authorized 3,000 and
160,542,000 shares; 125 and 6,689,250 shares issued and
outstanding at December 31, 1997 and 1998 (note 14)...... -- 669
Additional paid-in capital (note 14)...................... 10,643 9,974
Deficit accumulated during development stage.............. (1,659) (17,826)
------- --------
Total stockholders' equity (deficit).................... 8,984 (7,183)
------- --------
Commitments and contingencies (notes 4, 7, 8, 11, 12, and
13)
Total liabilities and stockholders' equity (deficit).... $91,933 $170,485
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1997 and 1998, and for the period from
December 15, 1992 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
December 15, 1992
(date of inception)
1997 1998 to December 31, 1998
--------- --------- --------------------
(in thousands, except share data)
<S> <C> <C> <C>
Revenue............................ $ -- $ -- $ --
--------- --------- --------
Operating expenses:
Research and development......... -- 6,941 6,941
Professional fees................ 1,090 5,242 6,332
General and administrative....... 20 4,010 4,030
--------- --------- --------
Total operating expenses....... 1,110 16,193 17,303
--------- --------- --------
Operating loss................. (1,110) (16,193) (17,303)
Other expense--interest income
(expense), net.................... (549) 26 (523)
--------- --------- --------
Net loss....................... $ (1,659) $ (16,167) $(17,826)
========= ========= ========
Net loss per share:
Basic and diluted................ $ (0.26) $ (2.42)
========= =========
Weighted average shares used in
computing net loss per share-basic
and diluted 6,368,166 6,689,250
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1997 and 1998, and for the period from
December 15, 1992 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During Total
---------------- Paid-in Development Stockholders'
Shares Amount Capital Stage Equity (Deficit)
--------- ------ ---------- ----------- ----------------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Issuance of common stock
(December 15, 1992).... 100 $ -- $ -- $ -- $ --
--------- ---- ------ -------- --------
Balance at December 31,
1992................... 100 -- -- -- --
Net loss................ -- -- -- -- --
--------- ---- ------ -------- --------
Balance at December 31,
1993................... 100 -- -- -- --
Net loss................ -- -- -- -- --
--------- ---- ------ -------- --------
Balance at December 31,
1994................... 100 -- -- -- --
Net loss................ -- -- -- -- --
--------- ---- ------ -------- --------
Balance at December 31,
1995................... 100 -- -- -- --
Net loss................ -- -- -- -- --
--------- ---- ------ -------- --------
Balance at December 31,
1996................... 100 -- -- -- --
Contributions to paid-in
capital................ -- -- 143 -- 143
Issuance of common stock
and capital
contributions.......... 25 -- 9,000 -- 9,000
Issuance of options..... -- -- 1,500 -- 1,500
Net loss................ -- -- -- (1,659) (1,659)
--------- ---- ------ -------- --------
Balance at December 31,
1997................... 125 -- 10,643 (1,659) 8,984
Net loss................ -- -- -- (16,167) (16,167)
53,514-for-one stock
split
(note 14).............. 6,689,250 669 (669) -- --
--------- ---- ------ -------- --------
Balance at December 31,
1998................... 6,689,375 $669 $9,974 $(17,826) $ (7,183)
========= ==== ====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997 and 1998, and for the period from
December 15, 1992 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
December 15, 1992
(date of
inception) to
1997 1998 December 31, 1998
------- -------- -----------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $(1,659) $(16,167) $(17,826)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................ -- 57 57
Note discount amortization.............. 33 -- 33
Changes in operating assets and
liabilities:
Increase in prepaid and other current
assets................................ -- (212) (212)
Increase in accounts payable and
accrued expenses...................... -- 1,701 1,701
Increase in amounts due to related
parties............................... 445 13,322 13,767
Increase (decrease) in accrued
interest.............................. 517 (2) 515
------- -------- --------
Net cash provided by (used in)
operating activities................. (664) (1,301) (1,965)
------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment....... -- (506) (506)
Additions to system under construction... (90,031) (43,406) (133,437)
------- -------- --------
Net cash used in investing
activities........................... (90,031) (43,912) (133,943)
------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common stock and
capital contribution.................... 9,143 -- 9,143
Proceeds from issuance of loan payable to
related party........................... 80,053 337 80,390
Proceeds from issuance of options........ 1,500 -- 1,500
Proceeds from issuance of subordinated
convertible notes to related party...... -- 45,583 45,583
Payment to establish collateral for term
loan.................................... -- (92) (92)
Proceeds from term loan.................. -- 92 92
Repayments of term loan.................. -- (5) (5)
Payments for deferred financing costs.... -- (393) (393)
------- -------- --------
Net cash provided by financing
activities........................... 90,696 45,522 136,218
------- -------- --------
Net increase in cash and cash
equivalents.......................... 1 309 310
------- -------- --------
Cash and cash equivalents at beginning of
year..................................... -- 1 --
Cash and cash equivalents at end of year.. $ 1 $ 310 $ 310
======= ======== ========
Supplemental cash flow disclosure:
Interest capitalized..................... $ 1,901 $ 11,824 $ 13,725
Interest converted into principal note
balance................................. $ 501 $ 9,157 $ 9,658
Accrued system milestone payments........ $ -- $ 21,867 $ 21,867
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the period from December 15, 1992 (date of inception) to December 31, 1998
(1) Summary of Significant Accounting Policies and Practices
(a) Nature of Business
XM Satellite Radio Inc. ("XMSR"), formerly American Mobile Radio
Corporation, was incorporated on December 15, 1992 in the State of Delaware as
a wholly owned subsidiary of American Mobile Satellite Corporation ("AMSC") for
the purpose of procuring a digital audio radio service ("DARS") license.
Business activity for the period December 15, 1992 through December 31, 1996
was insignificant. Pursuant to various financing agreements entered into in
1997 between AMSC, XMSR and WorldSpace, Inc. ("WSI"), WSI acquired a 20 percent
interest in XMSR.
On May 16, 1997, AMSC and WSI formed XM Satellite Radio Holdings Inc. (the
"Company"), formerly AMRC Holdings Inc., as a holding company for XMSR in
connection with the construction, launch and operation of a domestic
communications satellite system for the provision of DARS. AMSC and WSI
exchanged their respective interests in XMSR for equivalent interests in the
Company, which had no assets, liabilities or operations prior to the
transaction.
(b) Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of XM Satellite
Radio Holdings Inc. and its subsidiary, XM Satellite Radio Inc. All significant
intercompany transactions and accounts have been eliminated. The Company's
management has devoted substantially all of its time to the planning and
organization of the Company and to the process of addressing regulatory
matters, initiating research and development programs, conducting market
research, initiating construction of the satellite system, securing content
providers, and securing adequate debt and equity capital for anticipated
operations and growth. Accordingly, the Company's financial statements are
presented as those of a development stage enterprise, as prescribed by
Statement of Financial Accounting Standards No. 7, Accounting and Reporting by
Development Stage Enterprises.
As discussed in Note 14, on September 9, 1999, the Company determined to
effect a 53,514-for-1 stock split. The effect of the stock split has been
retroactively reflected as of December 31, 1998 in the consolidated balance
sheet and consolidated statement of stockholders' equity (deficit); however,
the activity in prior periods was not restated in those statements. All
references to the number of common shares and per share amounts elsewhere in
the consolidated financial statements and notes thereto have been restated to
reflect the effect of the split for all periods presented.
(c) Cash and Cash Equivalents
The Company considers short-term, highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(d) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization is calculated using the straight-
line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture, fixtures and computer equipment........... 3 years
Machinery and equipment.............................. 7 years
Leasehold improvements............................... Remaining lease term
</TABLE>
F-7
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(e) System Under Construction
The Company is currently developing its satellite system. Costs related to
the project are being capitalized to the extent that they have future benefits.
As of December 31, 1998, all amounts recorded as system under construction
relate to costs incurred in obtaining a Federal Communications Commission
("FCC") license and approval as well as the system development. Depreciation of
the satellites will begin upon completion of in-orbit testing of the individual
satellites. Losses from unsuccessful launches or satellite failures are
recognized as they occur. The FCC license will be amortized using the straight
line method over an estimated useful life of fifteen years. Amortization of the
license will begin on commercial launch.
On October 16, 1997, the FCC granted XMSR a license to launch and operate
two geostationary satellites for the purpose of providing DARS in the United
States in the 2332.5-2345 Mhz (space-to-earth) frequency band, subject to
achieving certain technical milestones and international regulatory
requirements. The license is valid for eight years upon successful launch and
orbital insertion of the satellites. The Company's license requires that it
comply with a construction and launch schedule specified by the FCC for each of
the two authorized satellites. The FCC has the authority to revoke the
authorizations and in connection with such revocation could exercise its
authority to rescind the Company's license. The Company believes that the
exercise of such authority to rescind the license is unlikely.
The license asset value consists of the total payments made to the FCC for
the license of $90,031,000. Associated with this license is capitalized
interest of $1,901,000 and $10,991,000 as of December 31, 1997 and 1998,
respectively. Costs incurred for system development were $65,273,000.
Associated with the system development costs is capitalized interest of
$2,734,000 at December 31, 1998.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of (SFAS 121), during fiscal year
1997. SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell. Adoption of SFAS 121 did not have a material impact on the Company's
financial position, results of operations, or liquidity during 1997 or 1998.
(f) Stock-Based Compensation
During fiscal year 1997, the Financial Accounting Standards Board issued
SFAS No. 123, Accounting for Stock-based Compensation (SFAS 123), which
encourages, but does not require, the recognition of stock-based employee
compensation at fair value. SFAS 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations, and to provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made during the
year of adoption and in future years as if the fair-value-based method defined
in SFAS 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS 123. Accordingly, compensation cost for options to purchase
common stock granted to employees is measured as the excess, if any, of the
fair value of common stock at the date of the grant over the exercise price an
employee must pay to acquire the common stock.
Warrants to purchase common stock granted to other than employees as
consideration for goods or services rendered are recognized at fair market
value.
F-8
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(g) Research and Development
Research and development costs are expensed as incurred.
(h) Net Loss Per Share
In December 1997, the Company adopted the provisions of SFAS No. 128,
Earnings per Share, (SFAS 128). SFAS 128 supersedes APB Opinion No. 15,
Earnings per Share and its related interpretations, and promulgates new
accounting standards for the computation and manner of presentation of the
Company's loss per share. SFAS 128 requires the presentation of basic and
diluted loss per share. Basic earnings per share is calculated by dividing net
income by the weighted-average number of common shares outstanding during the
period. The computation of diluted earnings per share includes all common stock
options and warrants and other common stock, to the extent dilutive, that
potentially may be issued as a result of conversion privileges, including the
subordinated convertible notes payable due to related party. Due to losses
incurred during 1997 and 1998, the impact of other potentially dilutive
securities is anti-dilutive and is not included in the diluted loss per share
calculation.
(i) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and the financial
reporting amounts at each year-end, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
is the sum of tax payable for the period and the change during the period in
deferred tax assets and liabilities.
(j) Comprehensive Income
In December 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income (SFAS 130). This statement establishes standards for reporting and
displaying comprehensive income and its components in the financial statements.
This statement is effective for all interim and annual periods with the year
ended December 31, 1998. The Company has evaluated the provisions of SFAS 130
and has determined that there were no transactions that have taken place during
the years ended December 31, 1997 and 1998 that would be classified as other
comprehensive income.
(k) Accounting Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of expenses
during the reporting period. The estimates involve judgments with respect to,
among other things, various future factors which are difficult to predict and
are beyond the control of the Company. Significant estimates include valuation
of the Company's investment in the DARS license and the benefit for income
taxes and related valuation allowances. Accordingly, actual amounts could
differ from these estimates.
(l) Reclassifications
Certain fiscal year 1997 amounts have been reclassified to conform to the
fiscal 1998 consolidated financial statement presentation.
F-9
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(2) Related Party Transactions
The Company had related party transactions with the following shareholders:
(a) AMSC
In 1997, AMSC contributed $143,000 for the Company to establish the original
application for the FCC license. On March 28, 1997, the Company received
$1,500,000 as a capital contribution from AMSC. During 1998, AMSC incurred
general and administrative costs and professional fees for the Company and
established an intercompany balance of $458,000 (see note 3).
(b) WSI
On March 28, 1997, the Company received $1,500,000 as a capital contribution
from WSI. The Company issued WSI 1,337,850 shares of common stock for this
consideration.
On April 16, 1997, the Company received $15,000,000 from WSI, which
represented $6,000,000 as an additional capital contribution and $9,000,000 as
a six-month bridge loan (see note 4).
On May 16, 1997, the Company obtained a $1,000,000 working capital loan
facility from WSI. During 1997, the Company drew down $663,000 against the
facility with the remaining $337,000 drawn in 1998 (see note 4).
On October 16, 1997, the Company received $71,911,000 from WSI, which
represented an additional $13,522,000 under the bridge loan and $58,389,000
under the additional amounts loan (see note 4).
On April 1, 1998, the Company entered into an agreement with WSI to issue
$54,536,000 in subordinated convertible notes. During 1998, the Company drew
down $45,583,000 under the agreement (see note 4).
In July 1998, the Company acquired furniture and equipment from WSI for
$104,000 and has established a due to WSI for the balance (see note 3).
In addition to financing, the Company has relied upon certain related
parties for legal and technical services. Total expenses incurred in
transactions with related parties are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-------------------------------
WSI AMSC Total
----------- -------------------
<S> <C> <C> <C>
Professional fees......................... $ 960 130 1,090
General and administrative................ -- 20 20
----------- ------- ----------
Total................................... $ 960 150 1,110
=========== ======= ==========
<CAPTION>
Year Ended December 31, 1998
-------------------------------
WSI AMSC Total
----------- -------------------
<S> <C> <C> <C>
Research and development.................. $ 6,624 -- 6,624
Professional fees......................... 2,529 353 2,882
General and administrative................ 903 60 963
----------- ------- ----------
Total................................... $ 10,056 413 10,469
=========== ======= ==========
</TABLE>
Additionally, during 1998 the Company incurred $925,000 of WSI project
management costs that were capitalized to the satellite system.
F-10
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) Due to Related Parties
Due to related parties included the following amounts (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
-------------
<S> <C> <C>
Advances from WSI........................................... $ -- 7,405
Due to WSI.................................................. 390 5,904
Due to AMSC................................................. 55 458
----- -------
$ 445 13,767
===== =======
</TABLE>
Advances represent funding provided by WSI for 30 days. If amounts are not
repaid within this time period, additional subordinated convertible notes will
be issued.
(4) Debt
(a) Loans Payable Due to Related Party
In March 1997, XMSR entered into a series of agreements (the "Participation
Agreement") with AMSC and WSI in which both companies provided various equity
and debt funding commitments to XMSR for the purpose of financing the
activities of XMSR in connection with the establishment of a DARS satellite
system in the United States. On May 16, 1997 certain portions of the
Participation Agreement were subsequently ratified with substantially the same
terms and conditions under the Bridge Loan, Additional Amounts Loan and Working
Capital Credit Facility (the "Loan Agreement").
The Company has loans payable with a face amount of $82,053,000 and
$91,546,000 with a carrying amount of $80,618,000 and $91,546,000 at December
31, 1997 and 1998, respectively, outstanding with WSI as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------- ------
<S> <C> <C>
Bridge loan............................................. $23,001 25,556
Additional amounts loan................................. 58,389 64,875
Working capital loan.................................... 663 1,115
------- ------
82,053 91,546
Discount arising from concurrent issuance of options
(note 7), net.......................................... (1,435) --
------- ------
$80,618 91,546
======= ======
</TABLE>
Bridge Loan
The Company executed the bridge loan with WSI in two tranches. On April 16,
1997, the Company received proceeds of $8,479,000 for a loan with a face amount
of $9,000,000. On October 16, 1997, the Company received proceeds of
$12,771,000 for a loan with a face amount of $13,522,000. The first tranche was
a six-month loan at LIBOR plus five percent per annum, equaling 11.03 percent.
The first tranche was rolled over with the establishment of the second tranche,
which is a six-month loan at LIBOR plus five percent per annum, equaling 9.94
percent at December 31, 1998 and due in April 1999. The accrued interest under
the bridge loan is compounded to the loan balance each April and October.
F-11
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional Amounts Loan
On October 16, 1997, the Company executed the additional amounts loan with
WSI and received proceeds of $58,219,000 for a loan with a face amount of
$58,389,000. This loan is a six-month loan at LIBOR plus five percent per
annum, equaling 9.94 percent at December 31, 1998 and due in April 1999. The
accrued interest under the additional amounts loan is compounded to the loan
balance each April and October.
Working Capital Loan
On May 16, 1997, the Company executed the working capital loan with WSI
whereby the Company would receive proceeds of $920,000 for a loan with a face
amount of $1,000,000. The Company drew down $663,000 against the line of credit
through December 31, 1997. This loan is a six-month loan at LIBOR plus five
percent per annum, with an interest rate of 10.19 percent at December 31, 1998
and due in May 1999. The accrued interest on the loan is compounded to the
balance in May and November.
Restrictive Covenants
The financing agreements contain restrictive covenants which include a
prohibition of the Company or its subsidiary to merge or consolidate, or sell,
transfer, or otherwise dispose of substantially all of its assets. The Company
or the subsidiary may not incur additional indebtedness in excess of $1,000,000
without prior written consent of WSI. Additionally, the financing agreements
provide for other restrictive covenants including a restriction on the payment
of dividends.
The Company has pledged 64.7511 percent of its share of the issued and
outstanding common stock of the subsidiary to WSI as collateral for the
financings.
(b) Subordinated Convertible Notes Payable Due to Related Party
Effective April 1, 1998, the Company entered into a convertible note
agreement with WSI that provides for a maximum of $54,536,000 through the
issuance of subordinated convertible notes. The notes mature on September 30,
2006 and carry an interest rate of LIBOR plus five percent per annum, which was
10.15 percent as of December 31, 1998. Under the terms of the note agreement,
WSI shall have the right to convert all or a portion of the aggregate principal
amount of the notes into shares of common stock at a conversion price of $16.35
per share. As of December 31, 1998, $45,583,000 had been drawn through the
issuance of subordinated convertible notes. Interest is payable upon maturity.
(c) Term Loan
On November 1, 1998, the Company reached an agreement with a commercial bank
for a $92,000 installment loan with a 36 month term at 7 percent interest per
annum. The Company pledged $92,000 as collateral for the loan and placed this
balance on deposit at the commercial bank. At December 31, 1998, the Company's
outstanding balance was $87,000.
(5) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, receivables, accounts
payable, accrued expenses, and the term loan approximate their fair market
value because of the relatively short duration of these instruments as of
December 31, 1997 and 1998, in accordance with SFAS No. 107, Disclosures about
Fair Value of Financial Instruments.
F-12
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of the loans and subordinated convertible notes due to
related party could not be estimated as such amounts are due to the Company's
stockholders.
(6) Common Stock
(a) 1998 Shares Award Plan
On June 1, 1998, the Company adopted the 1998 Shares Award Plan (the "Plan")
under which employees, consultants, and non-employee directors may be granted
options to purchase shares of common stock of the Company. The Company has
authorized 1,337,850 shares of common stock under the Plan. The options are
exercisable in installments determined by the compensation committee of the
Company's board of directors. The options expire as determined by the
committee, but no later than ten years from the date of grant. Transactions and
other information relating to the Plan for the year ended December 31, 1998 are
summarized below:
<TABLE>
<CAPTION>
Outstanding Options
------------------------
Weighted-
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance, January 1, 1998......................... -- --
Options granted................................ 787,297 $16.35
Options canceled or expired.................... -- --
Options exercised.............................. -- --
------- ------
Balance, December 31, 1998....................... 787,297 $16.35
======= ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ---------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Price December 31, 1998 Life Price December 31, 1998 Price
- -------- ----------------- ----------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
$16.35 787,297 9.5 years $16.35 -- $16.35
====== ======= ========= ====== === ======
</TABLE>
There were no stock options exercisable at December 31, 1998. There were
550,552 shares available under the plan for future grants at December 31, 1998.
At December 31, 1998, all options have been issued to employees.
The per share weighted-average fair value of employee options granted during
the year ended December 31, 1998 was $10.54 on the date of grant using the
Black-Scholes Option Pricing Model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Expected dividend yield.... 0%
Volatility................. 56.23%
Risk-free interest rate
range..................... 4.53% to 5.67%
Expected life.............. 7.5 years
=============
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined
F-13
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
compensation cost based on the fair value at the grant date for its stock
options under SFAS 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below (in thousands,
except share data):
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Net loss:
As reported............................................ $16,167
Pro forma.............................................. 17,508
As reported--net loss per share--basic and diluted..... (2.42)
Pro forma--net loss per share--basic and diluted....... (2.62)
=======
</TABLE>
(b) Restrictive Covenants
Certain actions require the unanimous affirmative vote of the board of
directors of the Company. Such actions include the entry into, or the
amendment, modification, extension or termination of any agreements for amounts
in excess of $40,000,000 or with AMSC or WSI; the entry into any agreements
outside of the ordinary course of business; merger or consolidation; issuance
of additional shares of capital stock; and the declaration and payment of
dividends. If WSI holds more than 50 percent of the shares of common stock,
this provision requiring the unanimous affirmative vote of the board of
directors will be of no further force and effect. Additionally, an affirmative
vote of 81 percent of all the issued and outstanding shares of common stock
shall be required to approve any voluntary filing of a bankruptcy petition by
the Company or its subsidiary.
(7) WSI Options
The Company issued WSI three options. Under the first option, WSI may
purchase 5,202,748 shares of common stock at $4.52 per share to acquire common
stock. The option may be exercised in whole or in incremental amounts between
April 16, 1998 and October 16, 2002. Under certain circumstances, AMSC may
require WSI to exercise the option in whole. The Company allocated $1,250,000
to the option. Under the second option, WSI may purchase 6,897,291 shares at
$8.91 per share. The option may be exercised between October 16, 1997 and
October 16, 2003. The Company allocated $170,000 to the option. Under the third
option, WSI may purchase 187,893 shares of common stock at $5.32 per share. The
option may be exercised between October 16, 1997 and October 17, 2002. The
Company allocated $80,000 to the option.
The exercise of these options is subject to prior approval of the FCC to the
extent that such exercise would constitute transfer of control.
(8) Employee Benefit Plan
On July 1, 1998, the Company has adopted a profit sharing and employee
savings plan under Section 401(k) of the Internal Revenue Code. This plan
allows eligible employees to defer up to 15 percent of their compensation on a
pre-tax basis through contributions to the savings plan. The Company
contributed $0.50 in 1998 for every dollar the employees contributed up to 6
percent of compensation, which amounted to $14,000.
(9) Interest Cost
The Company capitalizes a portion of interest cost as a component of the
cost of the FCC license and satellite system under construction. The following
is a summary of interest cost incurred during December 31,
F-14
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1997 and 1998, and for the period from December 15, 1992 (date of inception) to
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
December 15, 1992
(date of inception) to
1997 1998 December 31, 1998
------ ------ ----------------------
<S> <C> <C> <C>
Interest cost capitalized........... $1,901 11,824 13,725
Interest cost charged to expense.... 549 -- 549
------ ------ ------
Total interest cost incurred...... $2,450 11,824 14,274
====== ====== ======
</TABLE>
Interest costs incurred prior to the award of the license were expensed in
1997.
(10) Income Taxes
For the period from December 15, 1992 (date of inception) to December 31,
1998, the Company filed consolidated federal and state tax returns with its
majority stockholder AMSC. The Company generated net operating losses and other
deferred tax benefits which were not utilized by AMSC. As no formal tax sharing
agreement has been finalized, the Company was not compensated for the net
operating losses. Had the Company filed on a stand-alone basis, it would have
had no tax provision as the deferred tax benefit of approximately $650,000 and
$7,164,000 for 1997 and 1998, respectively, would have been fully offset by a
valuation allowance.
(11) Accumulated Deficit
The Company is devoting its efforts to develop, construct and expand a
digital audio radio network. This effort involves substantial risk and future
operating results will be subject to significant business, economic,
regulatory, technical, and competitive uncertainties and contingencies. These
factors individually or in the aggregate could have an adverse effect on the
Company's financial condition and future operating results and create an
uncertainty as to the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
In order to commence satellite-based radio broadcasting services, the
Company will require substantial funds to develop and construct the DARS
system, develop and launch radio communications satellites, retire debt
incurred in connection with the acquisition of the DARS license and to sustain
operations until it generates positive cash flow. At December 31, 1998, the
Company has negative working capital of $130,341,000.
At the Company's current stage of development, economic uncertainties exist
regarding successful acquisition of additional debt and equity financing and
ultimate profitability of the Company's proposed service. The Company is
currently constructing its satellites and will require substantial additional
financing before construction is completed. Failure to obtain the required
long-term financing will prevent the Company from realizing its objective of
providing satellite-delivered radio programming. Management's plan to fund
operations and capital expansion includes the additional sale of debt and
equity securities through public and private sources. There are no assurances,
however, that such financing will be obtained.
(12) Commitments and Contingencies
(a) FCC License
The FCC has established certain system development milestones that must be
met for the Company to maintain its license to operate the system. The Company
believes that it is proceeding into the system development as planned and in
accordance with the FCC milestones.
F-15
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b) Application for Review of FCC License
One of the losing bidders for the DARS licenses filed an Application for
Review by the full FCC of the Licensing Order which granted the Company its FCC
license. The Application for Review alleges that WorldSpace has effectively
taken control of the Company without FCC approval. The FCC or the U.S. Court of
Appeals has the authority to overturn the award of the FCC license should they
rule in favor of the losing bidder. Although the Company believes that its
right to the FCC license will withstand the challenge, no prediction of the
outcome of this challenge can be made with any certainty.
(c) Satellite Purchase Contract
On March 20, 1998, as amended on June 5, 1998, the Company entered into an
agreement for the construction of two satellites, two launch vehicles, and
related equipment, services and spare parts, including launch services. The
total commitment under the amended agreement, excluding financing fees, is
approximately $438,013,000 as of December 31, 1998. These amounts are due upon
the completion of certain milestones. The Company has incurred costs of
$64,348,000 as of December 31, 1998. One of the members of the board of
directors is an executive of an affiliate of the Contractor.
Under the terms of this agreement, the Contractor shall invest $15,000,000
in a private or public equity offering of the Company, should it be consummated
prior to March 20, 1999.
(d) Technical Services and Technology Licenses
Effective January 1, 1998, the Company entered into an agreement with AMSC
and WorldSpace Management Corporation ("WorldSpace MC"), an affiliate of WSI,
in which WorldSpace MC provides technical support in areas related to the
development of a DARS system. Payments for services provided under this
agreement are made based on negotiated hourly rates. This agreement may be
terminated by either party on or after the date of the commencement of
commercial operation following the launch of the Company's first satellite.
There is no minimum services purchase requirement. The Company incurred costs
of $4,770,000 under the agreement during 1998.
Effective January 1, 1998, XMSR entered into a technology licensing
agreement with AMSC and WorldSpace MC by which as compensation for certain
licensed technology currently under development to be used in the XM Radio
system, XMSR will pay up to $14,300,000 over a ten-year period. XMSR incurred
costs of $6,624,000 under the agreement during 1998. Any additional amounts to
be incurred under this agreement are dependent upon further development of the
technology, which is at XMSR's option. No liability exists to AMSC or
WorldSpace MC should such developments prove unsuccessful. In addition, XMSR
agreed to pay 1.2 percent of quarterly net revenues to WorldSpace MC and a
royalty of $0.30 per chipset for equipment manufactured using certain source
encoding and decoding signals technology.
(e) FCC Occurrences
On October 30, 1998, AMSC and WSI submitted an application for Consent and
Transfer Control with the FCC. These entities have requested the FCC's consent
to WSI's exercise of certain options that would increase its shareholding
interest in the Company. There have been challenges filed against the
application.
F-16
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(f) Leases
The Company has two noncancelable operating leases for office space that
expire over the next four years. The future minimum lease payments under
noncancelable leases as of December 31, 1998 are (in thousands):
<TABLE>
<CAPTION>
Year ending December 31:
------------------------
<S> <C>
1999.................................... $ 42
2000.................................... 44
2001.................................... 46
2002.................................... 48
2003.................................... --
----
$180
====
</TABLE>
Rent expense for 1997 and 1998 was $0 and $231,000, respectively.
(13) Subsequent Events
On January 12, 1999, a competitor of the Company commenced action against
the Company for patent infringement and for a declaratory judgment of future
patent infringement by the Company. There have been no damages specified in the
action and the Company is in the process of responding to the complaint. Should
it be unsuccessful in its defense, the Company could be liable for monetary
damages, and could be forced to engineer alternative technologies related to
signal reception or seek a license from, or pay royalties to, the competitor.
The Company intends to vigorously defend against the suit; however, the outcome
is uncertain at this time.
Effective January 15, 1999, the Company issued a convertible note to AMSC
for $21,419,000. This note matures on September 30, 2006 and carries an
interest rate of LIBOR plus five percent per annum. Under the terms of this
note, AMSC shall have the right to convert all or a portion of the aggregate
principal amount of the note into shares of common stock at a conversion price
of $16.35 per share. Interest is payable upon maturity.
(14) Stock Split
On September 9, 1999, the board of directors of the Company determined to
effect a stock split providing 53,514 shares of stock for each share owned.
F-17
<PAGE>
(15) Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
1997
-------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except share
data)
<S> <C> <C> <C> <C>
Revenues................................. $-- -- -- --
Operating loss........................... -- 51 185 874
Loss before income taxes................. -- 270 459 930
Net loss................................. -- 270 459 930
==== ===== ===== =====
Net loss per share--basic and diluted.... $-- (0.04) (0.07) (0.14)
==== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except share
data)
<S> <C> <C> <C> <C>
Revenues................................ $ -- -- -- --
Operating loss.......................... 3,100 5,032 3,849 4,204
Loss before income taxes................ 3,100 5,032 3,857 4,178
Net loss................................ 3,100 5,032 3,857 4,178
====== ===== ===== =====
Net loss per share--basic and diluted... $(0.46) (0.75) (0.58) (0.62)
====== ===== ===== =====
</TABLE>
The sum of quarterly per share net losses for 1997 do not necessarily agree
to the net loss per share for the year due to the timing of stock issuances.
F-18
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1999
------------------
(in thousands,
except share data)
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 163
Prepaid and other current assets.......................... 92
--------
Total current assets.................................... 255
Other assets:
Property and equipment, net of accumulated depreciation... 1,033
System under construction................................. 261,653
Other assets.............................................. 960
--------
Total assets............................................ $263,901
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses..................... $ 93,892
Due to related parties.................................... 6,389
Accrued interest on loans payable......................... 1,891
Notes payable due to related parties...................... 96,147
Term loan................................................. 34
--------
Total current liabilities............................... 198,353
Noncurrent liabilities:
Accrued interest on notes payable......................... 4,793
Notes payable due to related parties...................... 75,955
Capital lease, net of current portion..................... 309
Term loan, net of current portion......................... 39
--------
Total liabilities....................................... 279,449
--------
Stockholders' deficit:
Common stock--$0.10 par value; authorized 160,542,000
shares; issued and outstanding 6,689,250 shares.......... 669
Additional paid-in capital................................ 9,974
Deficit accumulated during development stage.............. (26,191)
--------
Total stockholders' deficit............................. (15,548)
--------
Commitments and contingencies
Total liabilities and stockholders' deficit............. $263,901
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-19
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended June 30, 1998 and 1999 and for the period from
December 15, 1992 (date of inception) to June 30, 1999
<TABLE>
<CAPTION>
Six Months Ended December 15, 1992
June 30, (date of inception)
-------------------- to June 30,
1998 1999 1999
--------- --------- -------------------
(in thousands, except share data)
<S> <C> <C> <C>
Revenue............................. $ -- $ -- $ --
--------- --------- --------
Operating expenses:
Research and development.......... 3,867 1,378 8,319
Professional fees................. 3,723 2,560 8,892
General and administrative........ 542 4,503 8,533
--------- --------- --------
Total operating expenses........ 8,132 8,441 25,744
--------- --------- --------
Operating loss...................... (8,132) (8,441) (25,744)
Other expense--interest income
(expense), net..................... -- 76 (447)
--------- --------- --------
Net loss............................ $ (8,132) $ (8,365) $(26,191)
========= ========= ========
Net loss per share:
Basic and diluted................. $ (1.22) $ (1.25)
========= =========
Weighted average shares used in
computing net loss per share:
Basic and diluted................. 6,689,250 6,689,250
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1998 and 1999 and for the period from
December 15, 1992 (date of inception) to June 30, 1999
<TABLE>
<CAPTION>
Six Months December 15,
Ended June 30, 1992 (date of
------------------ inception) to
1998 1999 June 30, 1999
-------- -------- -------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $ (8,132) $ (8,365) $ (26,191)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................. -- 127 184
Note discount amortization............... -- -- 33
Changes in operating assets and
liabilities:
(Increase) decrease in prepaid and
other current assets.................. (79) 80 (132)
Decrease in other assets............... -- 21 21
Increase in accounts payable and
accrued expenses...................... 14 4,114 5,815
Increase in amounts due to related
parties............................... 20,692 12 13,779
Increase in accrued interest........... -- -- 515
-------- -------- ---------
Net cash used in operating activities........ 12,495 (4,011) (5,976)
-------- -------- ---------
Cash flows used in investing activities:
Purchase of property and equipment......... -- (280) (786)
Additions to system under construction..... (18,348) (18,356) (151,793)
-------- -------- ---------
Net cash used in investing activities........ (18,348) (18,636) (152,579)
Cash flows from financing activities:
Proceeds from sale of common stock and
capital contribution...................... -- -- 9,143
Proceeds from issuance of loan payable to
related party............................. 336 1,548 81,938
Proceeds from issuance of convertible note
to related party.......................... 6,035 21,419 67,002
Proceeds from issuance of options.......... -- -- 1,500
Payment to establish collateral for term
loan...................................... -- -- (92)
Proceeds from term loan.................... -- -- 92
Repayments of term loan.................... -- (12) (17)
Payment for deferred financing costs....... -- (455) (848)
-------- -------- ---------
Net cash provided by financing activities.... 6,371 22,500 158,718
-------- -------- ---------
Net cash increase in cash and cash
equivalents................................. 518 (147) 163
Cash and cash equivalents--beginning ........ 1 310 --
-------- -------- ---------
Cash and cash equivalents--ending ........... $ 519 $ 163 $ 163
======== ======== =========
Supplemental cash flow disclosure:
Interest capitalized....................... $ 4,648 $ 8,211 $ 21,936
Interest converted into principal note
balance................................... $ 4,582 $ 4,601 $ 14,259
Accrued system milestone payments.......... $ -- $ 66,133 $ 88,000
Accrued expenses transferred to loan
balance................................... $ -- $ 7,405 $ 7,405
Property acquired through capital lease.... $ -- $ 431 $ 431
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed financial
statements reflect all adjustments, consisting of only normal recurring
accruals, necessary for a fair presentation of the consolidated financial
position of XM Satellite Radio Holdings Inc. and subsidiary, a development
stage entity, (the "Company") as of June 30, 1999, and the results of
operations and cash flows for the six months ended June 30, 1998 and 1999, and
the period from December 15, 1992 (date of inception) through June 30, 1999.
The results of operations for the six months ended June 30, 1998 and 1999 are
not necessarily indicative of the results that may be expected for the full
year. These condensed financial statements are unaudited, and do not include
all related footnote disclosures.
The interim unaudited condensed financial statements should be read in
conjunction with the audited financial statements of the Company.
(2) Loans Payable to Related Party
The Company's loan facility with WorldSpace, Inc., including the $26,840,000
outstanding on the bridge loan, the $68,136,000 outstanding on the additional
amounts loan and the $1,171,000 outstanding under the working capital loan
expired in April 1999 for the bridge loan and additional amounts loan and May
1999 for the working capital loan. Upon maturity, the notes were converted to
demand notes. These demand notes are expected to be settled in connection with
AMSC's acquisition of the WSI debt and equity interest (see note 5). These
demand notes bear interest at LIBOR plus five percent per annum, approximately
10.0 percent.
(3) Subordinated Convertible Notes Payable Due to Related Party
During the period from January 1, 1999 through June 30, 1999 the Company
issued an additional $8,953,000 in subordinated convertible notes to
WorldSpace, Inc. ("WSI") under its agreement for an aggregate of $54,536,000 in
subordinated convertible notes with WSI. The notes mature on September 30, 2006
and carry an interest rate of LIBOR plus five percent per annum, which was 9.97
percent as of March 31, 1999. As of June 30, 1999, the full $54,536,000 had
been drawn through the issuance of subordinated convertible notes.
On January 15, 1999, the Company issued a convertible note to American
Mobile Satellite Corporation ("AMSC") for $21,419,000. This note matures on
September 30, 2006 and carries an interest rate of LIBOR plus five percent per
annum. Interest is payable upon maturity. AMSC shall have a right to convert
all or a portion of the aggregate principal amount of the note into shares of
common stock at a conversion price of $875,000 per share.
(4) Satellite Contract
During the first half of 1999, the Company and Hughes Space and
Communications, Inc. ("Hughes") amended the satellite contract to implement a
revised work time table, payment schedule to reflect the timing of the receipt
of additional funding, and technical modifications. We expect to incur total
payment obligations under this contract of approximately $541.3 million, which
includes amounts the Company expects to pay pursuant to the exercise of the
option to build the ground spare satellite and certain financing costs and in-
orbit incentive payments. As of June 30, 1999, we have paid $58.3 million under
this contract.
F-22
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) 1998 Shares Award Plan
Transactions relating to the 1998 Shares Award Plan for the six months ended
June 30, 1999 are summarized below:
<TABLE>
<CAPTION>
Outstanding Options
------------------------
Weighted-
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance, January 1, 1999......................... 787,297 $16.35
Options granted................................ 121,209 $16.35
Options canceled or expired.................... (13,913) 16.35
Options exercised.............................. -- --
------- ------
Balance, June 30, 1999........................... 894,593 $16.35
======= ======
</TABLE>
On June 6, 1999, the Company's board of directors defined shares under the
1998 Shares Award Plan as referring to the Company's Class A common stock. On
July 8, 1999, the Company's board of directors voted to reduce the exercise
price of the options outstanding under the Shares Award Plan from $16.35 to
$9.52 per share, which represented the par value of the stock on the date of
the repricing. Additionally, the total number of shares reserved for the Plan
was increased from 1,337,850 to 2,675,700.
(6) Subsequent Events
Exchange of WorldSpace's Interest in XM Radio (WorldSpace Transaction)
On July 7, 1999, AMSC acquired WSI's remaining debt and equity interests in
the Company in exchange for approximately 8.6 million shares of AMSC's common
stock, the issuance of approximately 2.1 million of which is subject to AMSC
stockholder approval. Additionally, the Company issued an aggregate $250.0
million of Series A subordinated convertible notes to several new investors and
used $75.0 million of the proceeds it received from the issuance of these notes
to redeem certain outstanding loan obligations owed to WSI. As a result of
these transactions, AMSC owns all of the issued and outstanding stock of the
Company. Assuming subsequent conversion of all outstanding subordinated
convertible notes of the Company, and assuming AMSC obtains stockholder
approval to issue the remaining 2.1 million shares discussed above, AMSC would
own approximately 37% of the equity of the Company, and would have
approximately 62% of the voting power in the Company.
Recapitalization
Concurrently with the transaction discussed above, the Company's capital
structure was reorganized. As a result, AMSC holds 6,689,250 shares of Class B
common stock, which are the only shares of the Company's capital stock
outstanding. The Class B common stock has three votes per share. The Company
also has Class A common stock, which is entitled to one vote per share and non-
voting Class C common stock. The Class B common stock is convertible into Class
A common stock on a one for one basis, as follows: (1) at any time at the
discretion of AMSC, (2) following the Company's initial public offering, at the
direction of the holders of a majority of the then outstanding shares of Class
A common stock (which majority must include at least 20% of the public holders
of Class A common stock), and (3) on or after January 1, 2002, at the direction
of the holders of a majority of the then outstanding shares of the Company's
Class A common stock. Such conversion will be effected only upon receipt of FCC
approval of AMSC's transfer of control of the Company to a diffuse group of
shareholders.
F-23
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company also authorized 60,000,000 shares of preferred stock, of which
15,000,000 shares are designated Series A convertible preferred stock, par
value $0.01 per share. The Series A convertible preferred stock is convertible
into Class A common stock at the option of the holder. The Series A preferred
stock is non-voting and receives dividends, if declared, ratably with the
common stock. No such shares have been issued.
Issuance of Series A Subordinated Convertible Notes of XM Radio to New
Investors
At the closing of the transaction described above, the Company issued an
aggregate $250.0 million of Series A subordinated convertible notes to six new
investors--General Motors Corporation, $50.0 million; Clear Channel
Investments, Inc., $75.0 million; DIRECTV Enterprises, Inc., $50.0 million; and
Columbia Capital, Telcom Ventures, L.L.C. and Madison Dearborn Partners, $75.0
million. The Series A subordinated convertible notes issued by the Company are
convertible into shares of the Company's Class A common stock or Series A
convertible preferred stock at the election of the holders or upon the
occurrence of certain events, including an initial public offering of a
prescribed size. The conversion price is $9.52 aggregate principal amount of
notes for each share of the Company's stock. The notes mature on December 31,
2004, or, if the Company issues at least $50.0 million aggregate principal
amount of high yield debt securities, the Company will be entitled to extend
the maturity date of the subordinated convertible notes to a date no later than
the six month anniversary of the stated maturity date of such high yield debt
securities. The notes are senior to all existing Company indebtedness,
including certain notes held by AMSC that are convertible into the Company's
stock, but will be subordinate to any future high yield debt securities issued
by the Company.
Repayment and Conversion of Notes
Using part of the proceeds from the issuance of its Series A subordinated
convertible notes, the Company paid WSI $75.0 million to repay an outstanding
portion of notes payable to WSI. The Company then exchanged $54.5 million of
the subordinated convertible notes payable, $6.9 million in demand notes, $20.3
million in accrued interest and all of the outstanding options to acquire the
Company's common stock for an $81.7 million note to AMSC, which is convertible
at the option of the holder at $8.65 per Class B common share. This note bears
interest at LIBOR plus five percent per annum and is due December 31, 2004,
unless extended in certain circumstances if the Company issues high yield debt
securities.
Satellite Purchase Contract
On July 7, 1999, the Company paid Hughes $68.0 million in satisfaction of
all previously completed milestones in accordance with the revised payment
schedule.
Technology Licenses Agreement
During the six months ended June 30, 1999, XM incurred additional costs of
$700,000 under the technology licenses agreement with AMSC and Worldspace
Management Corporation (WMC), giving a cumulative total from inception of
$7,324,000. XM does not currently anticipate incurring any further costs under
this agreement.
In addition, the Company does not currently expect to use the source
encoding and decoding of transmission signals technology, or to manufacture
equipment using this technology, and accordingly, does not anticipate incurring
any costs in this respect.
Amendment to AMSC Note Agreement
On July 7, 1999 the Company amended the convertible note agreement with AMSC
to change the maturity date to December 31, 2004, unless extended in certain
circumstances if the Company issues high yield debt securities, modify the
conversion provisions to Class B common stock and to provide for the payment of
the accrued interest in Class B common stock at a price of $9.52 per share.
F-24
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Split
On September 9, 1999, the board of directors of the Company determined to
effect a stock split providing 53,514 shares of stock for each share owned. All
references to the number of common shares and per share amounts in the
unaudited condensed consolidated financial statements and notes thereto have
been restated to reflect the effect of the split for all periods presented.
LCC International Services Contract
In August 1999, the Company signed a contract with LLC International, a
related party, for the engineering for its terrestrial repeater network.
Payments by the Company under this contract are expected to aggregate
approximately $115 million, through April 15, 2001.
(7) Contingencies
Patent Infringement Action
In January, 1999, a competitor of the Company commenced an action against
the Company for patent infringement. In February, 1999, the Company filed an
answer to the action. The Company does not believe that it has infringed and
will not infringe any of the competitor's patents and intends to vigorously
defend against the suit; however, the outcome is uncertain at this time.
FCC Occurrences
AMSC and WSI had previously submitted an application for Consent and
Transfer of Control with the FCC. Challenges have been filed against the
application. The application was withdrawn on July 7, 1999 based upon the
WorldSpace Transaction.
General Motors Distribution Agreement
The Company has signed a long-term distribution agreement with the OnStar
division of General Motors providing for the installation of XM radios in
General Motors vehicles. During the term of the agreement, which expires 12
years from the commencement date of the Company's commercial operations,
General Motors has agreed to distribute the service to the exclusion of other
S-band satellite digital radio services. The Company will also have a non-
exclusive right to arrange for the installation of XM radios included in OnStar
systems in non-General Motors vehicles that are sold for use in the United
States. The Company has significant annual, fixed payment obligations to
General Motors for four years following commencement of commercial service.
These payments approximate $35 million in the aggregate during this period.
Additional annual fixed payment obligations beyond the initial four years of
the contract term range from less than $35 million to approximately $130
million through 2009, aggregating approximately $400 million. In order to
encourage the broad installation of XM radios in General Motors vehicles, the
Company has agreed to subsidize a portion of the cost of XM radios, and to make
incentive payments to General Motors when the owners of General Motors vehicles
with installed XM radios become subscribers for the Company's service. The
Company must also share with General Motors a percentage of the subscription
revenue attributable to General Motors vehicles with installed XM radios, which
percentage increases until there are more than 8 million General Motors
vehicles with installed XM radios. The Company will also make available to
General Motors bandwidth on the Company's system. The agreement is subject to
renegotiation at any time based upon the installation of radios
F-25
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
that are interoperable or capable of receiving CD Radio's service. The
agreement is subject to renegotiation if, four years after the commencement of
XM Radio's commercial operations and at two-year intervals thereafter GM does
not achieve and maintain specified installation levels of General Motors
vehicles capable of receiving the Company's service, starting with 1.24 million
units after four years, and thereafter increasing by the lesser of 600,000
units per year and amounts proportionate to target market shares in the
satellite digital radio service market. There can be no assurances as to the
outcome of any such renegotiations. General Motors' exclusivity obligations
will discontinue if, four years after the Company commences commercial
operations and at two-year intervals thereafter, the Company fails to achieve
and maintain specified minimum market share levels in the satellite digital
radio service market.
F-26
<PAGE>
Credits for certain photographs on the inside front cover:
Barenaked Ladies courtesy of Reprise Records and Jay Blakesberg Photography;
Ricky Martin courtesy of Mark Harlan/Star File; Reba McIntyre courtesy of MCA
Records and Starstruck Entertainment; Sarah McLachlan courtesy of Arista
Records and Nettwerk Management; Tom Petty & The Heartbreakers courtesy of
Warner Bros. Records and Martin Atkins/Photographer; Santana courtesy of Arista
Records and Jay Blakesberg Photography; Britney Spears courtesy of Jive Records
and the Wright Entertainment Group; and George Strait courtesy of MCA Records
and The Erv Woolsey Company.
[On the inside back cover of the prospectus are titles of a number of the
"XM Originals", which are radio channels being developed by XM Radio, each
accompanied by the XM Radio logo. The text and logos appear to be emanating from
a satellite and broadcast to a car. At the top of the page is the phrase "RADIO
WILL NEVER BE THE SAME!", and the text at the bottom reads "Up TO 100 CHANNELS
COAST-TO-COAST DIGITAL QUALITY".]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicition of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the
Company have not changed since the date hereof.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 27
Management............................................................... 46
Certain Relationships and Related Party Transactions..................... 53
Principal Stockholders................................................... 59
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 65
Underwriting............................................................. 66
Legal Matters............................................................ 67
Experts.................................................................. 68
Certain Information About This Prospectus................................ 68
Index to Pro Forma Financial Information................................. P-1
Index to Financial Statements............................................ F-1
</TABLE>
Until , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in these securities may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter in this offering and when selling
previously unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
10,000,000 Shares
XM Satellite Radio
Holdings Inc.
Class A
Common Stock
------------------------------
PRELIMINARY PROSPECTUS
------------------------------
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following are the estimated expenses to be incurred in connection with
the issuance and distribution of the securities being registered.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 51,152
Printing and engraving expenses.................................. 250,000
Legal fees and expenses.......................................... 500,000
Blue Sky fees and expenses....................................... 7,500
NASD filing fees................................................. 18,900
Accounting fees and expenses..................................... 200,000
Transfer agent fees.............................................. 20,000
Listing fees..................................................... 95,000
Miscellaneous.................................................... 107,448
----------
Total.......................................................... $1,250,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of Delaware General Corporation Law permits indemnification of
officers and directors of our company under certain conditions and subject to
certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against
such person and incurred by him or her in such capacity, or arising out of his
or her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of Section 145
of the Delaware General Corporation law.
Article Ninth of our Restated Certificate of Incorporation and Article VI,
Section 1 of our Bylaws provides that we shall indemnify our directors and
officers and any such directors and officers serving at our request as a
director, officer, employee or agent of another entity to the fullest extent
not prohibited by the Delaware General Corporation Law. The Bylaws also provide
that we may, but shall not be obligated to, maintain insurance, at our expense,
for the benefit of our company and of any person to be indemnified. In
addition, we have entered or will enter into indemnification agreements with
our directors and officers that provide for indemnification in addition to the
indemnification provided in our Bylaws. The indemnification agreements contain
provisions that may require our company, among other things, to indemnify our
directors and executive officers against certain liabilities (other than
liabilities arising from intentional or knowing and culpable violations of law)
that may arise by reason of their status or service as directors or executive
officers of our company or other entities to which they provide service at the
request of our company and to advance expenses they may incur as a result of
any proceeding against them as to which they could be indemnified. We believe
that these provisions and agreements are necessary to attract and retain
qualified directors and officers. We have obtained an insurance policy covering
directors and officers for claims that such directors and officers may
otherwise be required to pay or for which we are required to indemnify them,
subject to certain exclusions.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article Eighth of our Restated Certificate of Incorporation provides that a
director shall not be personally liable for monetary damages or breach of
fiduciary duty as a director, except for liability
. for any breach of the director's duty of loyalty to our company or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
II-1
<PAGE>
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derived any improper
personal benefit.
The Underwriting Agreement (Exhibit 1.1 hereto) contains provisions by which
the underwriters have agreed to indemnify our company, each person, if any, who
controls our company within the meaning of Section 15 of the Securities Act,
each director of our company, and each officer of our company who signs this
Registration Statement, with respect to information furnished in writing by or
on behalf of the underwriters specifically for use in the Registration
Statement.
Item 15. Recent Sales of Unregistered Securities.
In the last three years we have sold the following unregistered securities:
(1) In April 1997, XM Satellite Radio Inc. (formerly American Mobile Radio
Corporation) issued 1,337,850 shares of common stock to WorldSpace,
Inc. for cash consideration of $7.5 million. (American Mobile held the
remaining 5,351,400 shares of common stock.)
(2) As of May 16, 1997, we formed as a parent company for XM Satellite
Radio. We issued 5,351,400 shares of common stock to American Mobile
and 1,337,850 shares of common stock to WorldSpace in exchange for the
5,351,400 shares and 1,337,850 shares of common stock of XM Satellite
Radio from American Mobile and WorldSpace, respectively.
(3) In May 1997, concurrent with a loan transaction, we issued options to
WorldSpace to purchase 5,202,748, 6,897,291 and 187,893 shares of our
common stock.
(4) In April 1998, we issued a convertible note in the aggregate principal
amount of $54,536,112 to WorldSpace.
(5) In January 1999, we issued convertible notes for cash in the aggregate
principal amount of $21,418,553 to American Mobile.
(6) In June 1999, we issued a $1.0 million promissory note for cash to
American Mobile.
(7) In July 1999, we issued $250.0 million aggregate principal amount of
our Series A subordinated convertible notes for cash to institutional
investors.
(8) In July 1999, we issued $81.7 million aggregate principal amount of
convertible notes for existing debt, accrued interest and options to
American Mobile, convertible into our Class B common stock.
The above transactions were exempt from registration under Section 4(2) of
the Securities Act and Regulation D thereunder.
In July 1999, we issued 6,689,250 shares of our Class B common stock to
American Mobile in exchange for the cancellation of 6,689,250 shares of our
common stock held by American Mobile. This transaction was exempt from
registration under Section 3(a)(9) of the Securities Act.
From June 1998 through September 9, 1999, we have granted options to
purchase 2,103,917 shares of Class A common stock to directors, officers and
employees under our Shares Award Plan. The offering of shares underlying these
options is exempt under Rule 701 under the Securities Act. No options have been
exercised.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1++ Underwriting Agreement.
3.1++ Restated Certificate of Incorporation of XM Satellite Radio Holdings
Inc.
3.2++ Restated Bylaws of XM Satellite Radio Holdings Inc.
4.1 Form of Certificate for our Class A common stock (incorporated by
reference to Exhibit 3 to the XM Satellite Radio Holdings Inc.
Registration Statement on Form 8-A, filed with the SEC on September
23, 1999).
5.1 Opinion of Hogan & Hartson L.L.P. with respect to the common stock
being registered.
10.1++ Shareholders' Agreement, dated as of July 7, 1999, by and among XM
Satellite Radio Holdings Inc., American Mobile Satellite
Corporation, Baron Asset Fund, Clear Channel Investments, Inc.,
Columbia XM Radio Partners, LLC, DIRECTV Enterprises, Inc., General
Motors Corporation, Madison Dearborn Capital Partners III, L.P.,
Special Advisors Fund I, LLC, Madison Dearborn Special Equity III,
L.P., and Telcom-XM Investors, L.L.C.
10.2++ Registration Rights Agreement, dated July 7, 1999, by and among XM
Satellite Radio Holdings Inc., American Mobile Satellite
Corporation, the Baron Asset Fund series of Baron Asset Fund, and
the holders of Series A subordinated convertible notes of XM
Satellite Radio Holdings Inc.
10.3++ Note Purchase Agreement, dated June 7, 1999, by and between XM
Satellite Radio Holdings Inc., XM Satellite Radio Inc., Clear
Channel Communications, Inc., DIRECTV Enterprises, Inc., General
Motors Corporation, Telcom-XM Investors, L.L.C., Columbia XM Radio
Partners, LLC, Madison Dearborn Capital Partners III, L.P., Madison
Dearborn Special Equity III, L.P., and Special Advisors Fund I, LLC
(including form of Series A subordinated convertible note of XM
Satellite Radio Holdings Inc. attached as Exhibit A thereto).
10.4* Technology Licensing Agreement by and among XM Satellite Radio Inc.,
XM Satellite Radio Holdings Inc., WorldSpace Management Corporation
and American Mobile Satellite Corporation, dated as of January 1,
1998, amended by Amendment No. 1 to Technology Licensing Agreement,
dated June 7, 1999.
10.5++* Technical Services Agreement between XM Satellite Radio Holdings Inc.
and American Mobile Satellite Corporation, dated as of January 1,
1998, as amended by Amendment No. 1 to Technical Services Agreement,
dated June 7, 1998.
10.6* Satellite Purchase Contract for In-Orbit Delivery, by and between XM
Satellite Radio Inc. and Hughes Space and Communications
International, Inc., dated July 21, 1999.
10.7* Amended and Restated Agreement by and between XM Satellite Radio,
Inc. and STMicroelectronics Srl, dated September 27, 1999.
10.8++* Distribution Agreement, dated June 7, 1999, between OnStar, a
division of General Motors Corporation, and XM Satellite Radio Inc.
10.9++* Operational Assistance Agreement, dated as of June 7, 1999, between
XM Satellite Radio Inc. and DIRECTV, INC.
10.10* Operational Assistance Agreement, dated as of June 7, 1999, between
XM Satellite Radio Inc. and Clear Channel Communications, Inc.
10.11++* Operational Assistance Agreement, dated as of June 7, 1999, between
XM Satellite Radio Inc. and TCM, LLC.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.12 Agreement, dated as of July 16, 1999 between XM Satellite Radio
Holdings Inc. and Gary Parsons.
10.13 Employment Agreement, dated as of June 1, 1998, between XM Satellite
Radio Holdings Inc. and Hugh Panero.
10.14 Letter Agreement with Lee Abrams date May 22, 1998.
10.15 Letter Agreement with Stelios Patsiokas dated September 14, 1998.
10.16 Letter Agreement with Heinz Stubblefield dated May 22, 1998.
10.17++ Form of Indemnification Agreement between XM Satellite Radio Holdings
Inc. and each of its directors and executive officers.
10.18++ 1998 Shares Award Plan.
10.19++ Form of Employee Non-Qualified Stock Option Agreement.
10.20* Firm Fixed Price Contract #001 between XM Satellite Radio Inc. and the
Fraunhofer Gesellschaft zur Foderung Der angewandten Forschung e.V.,
dated July 16, 1999.
10.21* Contract for Engineering and Construction of Terrestrial Repeater
Network System by and between XM Satellite Radio Inc. and LCC
International, Inc., dated August 18, 1999.
10.22 Employee Stock Purchase Plan.
10.23 Non-Qualified Stock Option Agreement between Gary Parsons and XM
Satellite Radio Holdings Inc., dated July 16, 1999.
10.24 Non-Qualified Stock Option Agreement between Hugh Panero and XM
Satellite Radio Holdings Inc., dated July 1, 1998, as amended.
10.25 Form of Director Non-Qualified Stock Option Agreement.
21.1 Subsidiaries of XM Satellite Radio Holdings Inc.
23.1 Consent of Hogan & Hartson L.L.P. (contained in their opinion filed as
Exhibit 5.1).
23.2 Consent of KPMG LLP.
23.3++ Consent of Nathaniel A. Davis as future director.
23.4++ Consent of Thomas J. Donohue as future director.
24.1++ Powers of Attorney.
27.1++ Financial Data Schedule.
</TABLE>
- --------
++ Previously filed.
+ To be filed by amendment.
* Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text. This Exhibit has been filed separately with
the Secretary of the Commission without such text pursuant to our
Application Requesting Confidential Treatment under Rule 406 under the
Securities Act.
(b) Financial Statement Schedules included separately in the Registration
Statement.
II-4
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes that
(1) It will provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(3) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the General Corporation Law of the State of Delaware,
the Restated Certificate of Incorporation, or the Restated Bylaws of
registrant, indemnification agreements entered into between registrant and its
officers and directors, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the District of Columbia, on the 28th day of September,
1999.
XM Satellite Radio Holdings Inc.
By: *
Name: Hugh Panero
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amended
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive September 27, 1999
______________________________________ Officer, and Director
Hugh Panero (Principal Executive
Officer)
* Senior Vice President and September 27, 1999
______________________________________ Chief Financial Officer
Heinz Stubblefield (Principal Financial and
Accounting Officer)
* Chairman of the Board of September 27, 1999
______________________________________ Directors
Gary M. Parsons
* Director September 27, 1999
______________________________________
Randall T. Mays
* Director September 27, 1999
______________________________________
Randy S. Segal
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director September 27, 1999
______________________________________
Jack Shaw
* Director September 27, 1999
______________________________________
Dr. Rajendra Singh
* Director September 27, 1999
______________________________________
Ronald L. Zarrella
*By: Joseph M. Titlebaum
______________________________________
Joseph M. Titlebaum
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
EXHIBIT 5.1
September 27, 1999
Board of Directors
XM Satellite Radio Holdings Inc.
1250 23rd Street, N.W.
Suite 57
Washington, DC 20037-1100
Ladies and Gentlemen:
We are acting as counsel to XM Satellite Radio Holdings Inc., a
Delaware corporation (the "Company"), in connection with its registration
statement on Form S-1, as amended (the "Registration Statement"), filed with the
Securities and Exchange Commission relating to the proposed public offering of
up to 10,000,000 shares of the Company's Class A common stock, par value $.01
per share, all of which shares (the "Shares") are to be sold by the Company.
This opinion letter is furnished to you at your request to enable you to fulfill
the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. (S)
229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. Amended and Restated Certificate of Incorporation of the Company,
as certified by the Secretary of the Company on the date hereof
as having been adopted by the Board of Directors of the Company
at a meeting held on September 9, 1999 and approved by unanimous
written consent of the stockholders of the Company as of the date
hereof (the "Certificate of Incorporation").
3. The Restated Bylaws of the Company, as certified by the Secretary
of the Company on the date hereof as being complete, accurate,
and in effect.
4. The proposed form of Underwriting Agreement among the Company and
the several Underwriters to be named therein, for whom Bear,
Sterns & Co. Inc. and Donaldson, Lufkin & Jenrette will act as
representatives, filed as Exhibit 1.1 to the Registration
Statement (the "Underwriting Agreement").
<PAGE>
Board of Directors
XM Satellite Radio Holdings Inc.
September 27, 1999
Page 2
5. Resolutions of the Board of Directors of the Company adopted at a
meeting held on September 9, 1999, as certified by the Secretary
of the Company on the date hereof as being complete, accurate,
and in effect, relating to the issuance and sale of the Shares
and arrangements in connection therewith.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents, and the conformity to authentic original documents of
all documents submitted to us as copies (including telecopies). This opinion
letter is given, and all statements herein are made, in the context of the
foregoing.
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware. We express no opinion herein
as to any other laws, statutes, ordinances, rules, or regulations.
Based upon, subject to and limited by the foregoing, we are of the
opinion that following (i) filing of the Certificate of Incorporation with the
Secretary of State of the State of Delaware, (ii) final action of the Board of
Directors of the Company approving the price of the Shares, (iii) execution and
delivery by the Company of the Underwriting Agreement, (iv) effectiveness of the
Registration Statement, (v) issuance of the Shares pursuant to the terms of the
Underwriting Agreement and (vi) receipt by the Company of the consideration for
the Shares specified in the resolutions of the Board of Directors, the Shares
will be validly issued, fully paid, and nonassessable.
This opinion letter has been prepared for your use in connection with
the Registration Statement and speaks as of the date hereof. We assume no
obligation to advise you of any changes in the foregoing subsequent to the
delivery of this opinion letter.
<PAGE>
Board of Directors
XM Satellite Radio Holdings Inc.
September 27, 1999
Page 3
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
HOGAN & HARTSON L.L.P.
<PAGE>
EXHIBIT 10.4
***Confidential treatment has been requested for portions of this agreement. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*****]. A complete version of this
agreement has been filed separately with the Securities and Exchange Commission.
TECHNOLOGY LICENSING AGREEMENT
This TECHNOLOGY LICENSING AGREEMENT (this "Agreement") is entered into
---------
on July 24, 1998, but intended to be effective as of January 1, 1998, by and
between WorldSpace Management Corporation, a corporation organized under the
laws of the State of Delaware ("WorldSpace"), American Mobile Radio Corporation,
----------
a corporation organized under the laws of the State of Delaware ("AMRC"), AMRC
----
Holdings, a corporation organized under the laws of the State of Delaware ("AMRC
----
Holdings") and American Mobile Satellite Corporation, a corporation organized
- --------
under the laws of the State of Delaware ("AMSC") (each a "Party" and together
---- -----
the "Parties").
-------
WHEREAS, AMRC is taking steps to commence the establishment of a
Digital Audio Radio Service ("DARS") satellite system in the United States (the
----
"AMRC System") under the license granted to AMRC in October 1997 by the U.S.
-----------
Federal Communications Commission, as such license may from time to time be
modified or amended;
WHEREAS, WorldSpace recognizes that in connection with the
establishment of the AMRC System it will be necessary and/or desirable for AMRC
to have the use of certain technology comprised of patents, patent applications,
software, databases, know-how and the intellectual property rights therein owned
by, licensed to or developed from time to time by WorldSpace or any corporation,
partnership or other entity controlled by, controlling or under common ownership
or control with WorldSpace (a "WorldSpace Affiliate" and together with
--------------------
WorldSpace, the "WorldSpace Group") and to be used in any digital radio
----------------
broadcasting system being implemented outside the United States by the
WorldSpace Group or in which the WorldSpace Group participates (such system, the
"WorldSpace System"); and
-----------------
WHEREAS, AMSC recognizes that in connection with the establishment of
the AMRC System it will be necessary and/or desirable for AMRC to have the use
of certain technology comprised of patents, patent applications, software,
databases, know-how and the intellectual property rights therein owned by,
licensed to or developed from time to time by AMSC and used by AMSC in its
mobile satellite business in the United States (the "AMSC System");
-----------
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Licensed Technology. (a) The technologies set forth below in
-------------------
this Section 1(a) are collectively referred to herein as "WorldSpace Licensed
-------------------
Technology:"
- ----------
[***** Pages 1-2]
(b) The technologies set forth below in this Section 1(b) are
collectively referred to herein as "AMSC Licensed Technology:"
------------------------
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the
omitted portions.
(i) the technologies described in that certain document entitled
"Final MT Performance Specification", which sets forth
----------------------------------
functional and performance specifications for mobile terminals
for AMSC's MSAT system;
(ii) [*****]
(iii) technology owned by AMSC or licensable by AMSC relating to the
Seavey low-profile omnidirectional L-band antenna developed by
AMSC as part of its low-rate codec project;
(iv) all other technologies now or from time to time used in the AMSC
System and which have practical application to the AMRC System
and which AMSC owns, acquires or licenses and is permitted to
sublicense to AMRC, subject to the provisions of Section 7
hereof; and
(v) all improvements made from time to time by AMSC to any of the
items set forth in Subsections (i) through (iv) above.
(c) The WorldSpace Licensed Technology and the AMSC Licensed
Technology are collectively referred to herein as the "Licensed Technology".
-------------------
2. Grant of License. (a) WorldSpace hereby grants to AMRC a
----------------
license to use the WorldSpace Licensed Technology for the development,
implementation and commercialization of the AMRC System for transmission in and
over the geographic area of the United States and its territories.
(b) AMSC hereby grants to AMRC a license to use the AMSC Licensed
Technology for the development, implementation and commercialization of the AMRC
System for transmission in and over the geographic area of the United States and
its territories.
(c) The licenses granted under Subsections (a) and (b) of this
Section shall include the right for AMRC to incorporate the WorldSpace Licensed
Technology or the AMSC Licensed Technology, as the case may be, in AMRC's own
technology and exploit all such rights granted to AMRC herein with respect to
the Licensed Technology without obligation to make any payment of any kind to
WorldSpace, AMSC or any third party except to the extent expressly set forth in
Section 4 of this Agreement.
3. Sublicensing; Reservation of Certain Rights. (a) Under the
-------------------------------------------
licenses set forth in Section 2, AMRC shall have the non-exclusive right
(subject to the provisions of this Section 3) to use the Licensed Technology for
the development, implementation and commercialization of a DARS satellite
system. Subject to the terms and conditions set forth herein, each of
WorldSpace and AMSC shall retain all rights not expressly granted hereunder,
including the right to use the WorldSpace Licensed Technology and the AMSC
Licensed Technology, respectively, for any purpose whatsoever.
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the
omitted portions.
(b) AMRC shall have the right to sublicense the WorldSpace Licensed
Technology to any third party, in connection with the development,
implementation and commercialization of the AMRC System, including, for example,
chipset manufacturers, terrestrial repeater manufacturers and receiver
manufacturers, provided, however, that (i) AMRC shall pay to WorldSpace [*****]
-------- -------
of the fees received from AMRC's sublicensee with respect to any WorldSpace
Licensed Technology so sublicensed that are in excess of the minimum payments,
if any, to be made to WorldSpace for such sublicensed technology under Section 4
hereof; and (ii) AMRC shall not permit any such sublicensee to further
sublicense the WorldSpace Licensed Technology without the prior written consent
of WorldSpace, which consent shall not be unreasonably withheld.
(c) WorldSpace reserves the right to license the WorldSpace Licensed
Technology to any third party for use in a DARS satellite system other than the
AMRC System for transmission in and over the geographic area of the United
States or its territories; provided, however, that any such license negotiated
-------- -------
by WorldSpace shall be subject to the consent of AMRC, which consent shall not
be unreasonably withheld; and provided further, that (i) if such third party is
-------- -------
CD Radio, Inc. or any affiliate thereof, all payments made by such third party
with respect to such license shall be for the benefit of WorldSpace and (ii) if
such third party is neither CD Radio Inc. nor an affiliate thereof, WorldSpace
and AMRC shall determine the proper allocation of the receipt of such payments
at the time of the execution of such license.
(d) AMRC shall have the right to sublicense the AMSC Licensed
Technology to any third party, in connection with the development,
implementation and commercialization of the AMRC System, including, for example,
chipset manufacturers, terrestrial repeater manufacturers and receiver
manufacturers, without obligation to pay any sublicensing fees to AMSC;
provided, however, that (i) AMRC shall pay to AMSC [*****] of the fees received
- -------- -------
from AMRC's sublicensee with respect to any AMSC Licensed Technology so
sublicensed that are in excess of the minimum payments, if any, to be made to
AMSC for such sublicensed technology and (ii) AMRC shall not permit any
sublicensee to further sublicense the AMSC Licensed Technology without the prior
written consent of AMSC, which consent shall not be unreasonably withheld.
(e) AMSC reserves the right to license the AMSC Licensed Technology to
any third party for use in a DARS Satellite System other than the AMSC System or
the AMRC System for transmission in and over the geographic area of the United
States or its territories, provided, however, that any such license for use
-------- -------
outside the AMSC System or the AMRC System in the United States or its
territories negotiated by AMSC shall be subject to the consent of AMRC, which
consent shall not be unreasonably withheld.
4. Royalty Payments. In the event that AMRC uses the Licensed
----------------
Technology or any portion thereof, except the MCM Technology discussed in
Subsection 4(c), in connection with a DARS satellite system, AMRC shall make
royalty payments to WorldSpace or AMSC, as the case may be, as follows.
(a) [*****] In connection with the use of the [*****] AMRC shall make
the following payments to WorldSpace, on and after the date, if any, that AMRC
declares its intention to use the [*****]; (ii) an ongoing quarterly payment
equal to one and two-tenths percent (1.2%) of AMRC's quarterly net revenues
determined in accordance with GAAP, payable 45 days after the end of each fiscal
quarter with respect to the previous fiscal quarter; and (iii) $0.30 per chipset
manufactured employing the MPEG 1,2, and 2.5 Layer 3 Technology, payable 45 days
after the end of each fiscal quarter with respect to such chipsets manufactured
in the previous fiscal quarter.
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the
omitted portions.
In the event that WorldSpace shall be required to pay to Thomson any
additional fees relating to AMRC's use of the WorldSpace Licensed Technology,
then WorldSpace shall promptly give notice of such fees to AMRC and AMRC shall
be liable for and pay such fees.
Any such royalties payable to WorldSpace that are not paid when due as
aforesaid shall accrue interest from the date on which payment becomes due at
nine percent (9%) per annum, compounded quarterly, with any payments received
being applied first to the oldest quarterly installments and accumulated
interest thereon.
In the event that the WorldSpace Group should negotiate a reduction in
the royalty payments payable to the owners of certain components of the [*****],
then the royalty payments specified in this Subsection 4(a) shall be reduced
- ----
dollar for dollar (or on an appropriate percentage basis) to reflect any such
reduction.
(b) [*****] In connection with the use of the [*****], AMRC shall
make the following payments to WorldSpace: [*****] per year, payable on January
1 of each year, with the payment for 1998 payable upon signing of this
Agreement.
Any such royalties payable to WorldSpace that are not paid when due as
aforesaid shall accrue interest from the date on which payment becomes due at
nine percent (9%) per annum, compounded quarterly, with any payments received
being applied first to the oldest annual installments and accrued interest
thereon.
(c) [*****] In connection with the development of the [*****], AMRC
shall make the following payments to WorldSpace, regardless of the success or
failure of the development of the [*****], as follows:
(i) [*****], payable upon delivery of such portion of the [*****] as
shall be embodied in the [*****] to be supplied to AMRC at or
around September 30, 1998
(ii) [*****] per fiscal quarter beginning with the first quarter
following such delivery until such time that the sum of such
quarterly royalty fees equals [*****]; and
(iii) [*****] of such costs as may be incurred by WorldSpace relating
to the further development of the [*****] beyond the [*****]
mentioned above, up to a maximum additional amount payable by
-----
AMRC under this Subsection (iii) equal to [*****];
provided, however, that (x) each of the quarterly royalty fees contemplated by
- -------- -------
Subsection (c)(ii) shall accrue interest from the first day of the related
fiscal quarter at nine percent (9%) per annum, compounded quarterly, (y) no
payments with respect to the quarterly royalty fees contemplated by Subsection
(c)(ii) need be made prior to the time that AMRC records quarterly gross
revenues in excess of [*****], determined in accordance with GAAP, and (z) any
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the
omitted portions.
payments made with respect to the quarterly royalty fees contemplated by
Subsection (c)(ii) shall be allocated first to the oldest quarterly royalty
payments and accrued interest thereon (an illustrative schedule of such
quarterly royalty payments contemplated under Subsection (c)(ii) is attached
hereto as Annex 1); provided, further, that any such royalty fees contemplated
-----------------
by Subsection (c)(iii) payable to WorldSpace that are not paid when due as
aforesaid shall accrue interest from the date on which payment becomes due at
nine percent (9%) per annum, compounded quarterly, with any payments received
being applied first to the oldest annual installments and accrued interest
thereon.
In the event that the additional costs to be incurred by WorldSpace
relating to the further development of the [*****] beyond the [*****] mentioned
in Subsection (iii) above are anticipated by WorldSpace to exceed [*****], then
----
AMRC and WorldSpace shall jointly determine whether costs in excess of [*****]
relating to the further development of the [*****] should be incurred and, if
so, the manner of payment and financing, if any, of such costs.
(d) Other Licensed Technology. Licensed Technology other than that
-------------------------
described in Subsections 4(a) through 4(c) above shall be made available to AMRC
on a royalty-free basis except for such Licensed Technology (i) that is
------
sublicensed to AMRC and for which WorldSpace or AMSC, as the case may be, must
pay a royalty, in which case AMRC shall pay an incremental royalty to WorldSpace
or AMSC, as the case may be, based on the royalty paid by WorldSpace or AMSC,
respectively, or (ii) with respect to which the relevant parties agree
otherwise.
5. Improvements to Licensed Technology. (a) AMRC grants to the
-----------------------------------
WorldSpace Group a royalty-free, non-exclusive and irrevocable license to use
and sublicense, world-wide, any and all improvements made by or for AMRC to the
WorldSpace Licensed Technology; provided, however, that any sublicense granted
-------- -------
by WorldSpace shall be subject to the consent of AMRC, which consent shall not
be unreasonably withheld.
(b) AMRC grants to AMSC a royalty-free, non-exclusive and irrevocable
license to use and sublicense, world-wide, any and all improvements made by or
for AMRC to the AMSC Licensed Technology; provided, however, that any sublicense
-------- -------
granted by AMSC shall be subject to the consent of AMRC, which consent shall not
be unreasonably withheld.
6. AMRC Technology. (a) AMRC grants to the WorldSpace Group and to
---------------
AMSC a royalty-free, non-exclusive and irrevocable license to any and all
technology (and all improvements thereto) hereafter developed by AMRC relating
to the AMRC System (the "AMRC-Developed Technology"), which AMRC-Developed
-------------------------
Technology may be used and sublicensed (i) worldwide outside the United States
and its territories or (ii) inside the United States and its territories only
(A) in the case of the WorldSpace Group, in connection with the WorldSpace
System, or (B) in the case of AMSC, in connection with the AMSC System (other
than in connection with any DARS satellite system).
(b) WorldSpace hereby grants to AMRC a royalty-free, non-exclusive and
irrevocable license to use and sublicense all improvements made by the
WorldSpace Group to
<PAGE>
such AMRC-Developed Technology for the development, implementation and
commercialization of the AMRC System.
(c) AMSC hereby grants to AMRC a royalty-free, non-exclusive and
irrevocable license to use and sublicense all improvements made by AMSC to such
AMRC-Developed Technology for the development, implementation and
commercialization of the AMRC System.
7. Third Party Technology. (a) In the event that AMRC obtains from
----------------------
any third party the right to use any technology which could be used in
connection with the development, implementation and commercialization of the
DARS satellite system for transmission in and over the geographic area of the
United States or its territories, AMRC shall make all reasonable efforts to
obtain for the WorldSpace Group and AMSC the right to use such technology in
connection with the development, implementation and commercialization (i)
outside the United States, of the WorldSpace System and the AMSC System,
respectively and (ii) inside the United States and its territories, of the AMSC
System (other than in connection with any DARS satellite system).
(b) In the event that WorldSpace or AMSC obtains from any third party
the right to use any technology which could be used in connection with the
development, implementation and commercialization of a DARS satellite system for
transmission in and over the geographic area of the United States or its
territories, WorldSpace or AMSC, as the case may be, shall make all reasonable
efforts to obtain for AMRC the right to use such technology in the United States
and its territories in connection with the development, implementation and
commercialization of the AMRC System.
8. Representations and Warranties. (a) Each Party hereby represents
------------------------------
and warrants to each of the other Parties as follows:
(i) it is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation;
(ii) it has the corporate power and authority to own its assets,
carry on its business and execute and deliver this Agreement and
to perform its obligations hereunder, including without
limitation to grant to the other Parties the rights granted
hereunder in accordance with the terms hereof;
(iii) it has taken all appropriate and necessary action to authorize
the execution, delivery and performance of this Agreement;
(iv) all consents, approvals, licenses and authorizations of, and all
filings and registrations with, any governmental or regulatory
authority or other third party necessary for the due execution,
delivery, performance and enforceability of this Agreement, have
been obtained and are in full force and effect; and
(v) this Agreement constitutes a legal, valid and binding
obligation, enforceable in accordance with its terms; the
execution, delivery and performance of this Agreement will not
violate any provision of any laws or regulations applicable to
it.
<PAGE>
(b) WorldSpace hereby represents and warrants that:
(i) it has valid and enforceable ownership rights in and to, or has
the rights from the appropriate third parties to license rights
in and to, the WorldSpace Licensed Technology, including but not
limited to any and all patents, copyrights, trade secrets,
designs, software, and any and all other technology therein;
(ii) it has not previously assigned, pledged or otherwise encumbered
any rights to the WorldSpace Licensed Technology in a manner
that conflicts with the rights granted herein;
(iii) to the best knowledge of WorldSpace, no element of the
WorldSpace Licensed Technology violates or infringes any patent,
copyright, trademark, trade secret or other proprietary right of
any third party; and
(iv) there are no judgments, orders, injunctions, decrees, awards or
settlements outstanding (whether rendered by a court, tribunal,
administrative agency or arbitral tribunal) against WorldSpace
or referencing WorldSpace by name or by which WorldSpace is
bound which affects the WorldSpace Licensed Technology or the
use of the WorldSpace Licensed Technology in any manner material
to the transactions contemplated hereby; and there is no
litigation, judicial or arbitral action, or claim involving the
WorldSpace Licensed Technology or the transaction contemplated
by this Agreement which is pending or, to the knowledge of
WorldSpace, threatened against WorldSpace.
(c) AMSC hereby represents and warrants that:
(i) it has valid and enforceable ownership rights in and to, the
AMSC Licensed Technology, including but not limited to any and
all patents, copyrights, trade secrets, designs, software, and
any and all other technology therein;
(ii) it has not previously assigned, pledged or otherwise encumbered
any rights to the AMSC Licensed Technology in a manner that
conflicts with the rights granted herein;
(iii) to the best knowledge of AMSC, no element of the AMSC Licensed
Technology violates or infringes any patent, copyright,
trademark, trade secret or other proprietary right of any third
party; and
(iv) there are no judgments, orders, injunctions, decrees, awards or
settlements outstanding (whether rendered by a court, tribunal,
administrative agency or arbitral tribunal) against AMSC or
referencing AMSC by name or by which AMSC is bound which affects
the AMSC Licensed Technology or the use of the AMSC Licensed
Technology in any manner material to the transactions
contemplated hereby; and there is no litigation, judicial or
arbitral action, or claim involving the AMSC Licensed Technology
or the
<PAGE>
transaction contemplated by this Agreement which is pending or,
to the knowledge of AMSC, threatened against AMSC.
(d) THE PARTIES ACKNOWLEDGE THAT THE WARRANTIES EXPRESSED HEREIN ARE
THE SOLE WARRANTIES AND ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR
IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, WHICH ARE HEREBY EXPRESSLY DISCLAIMED.
9. Certain Covenants. (a) Each Party agrees to use reasonable
-----------------
efforts to inform the other Parties promptly of the existence of any technology
or improvement referred to in Sections 5, 6 and 7 of which it becomes aware
which could be used in connection with the development, implementation and
commercialization of a DARS satellite system.
(b) Each Party agrees to make available to the other Parties any
detailed specifications required for such other Party to make use of the
technology licensed hereunder.
(c) WorldSpace agrees not to sell, assign or transfer to any third-
party any element of, or interest in, the WorldSpace Licensed Technology for
transmission in and over the geographic area of the United States and its
territories in a manner inconsistent with the licenses granted under this
Agreement.
(d) AMSC agrees not to sell, assign or transfer to any third-party any
element of, or interest in, the AMSC Licensed Technology for transmission in and
over the geographic area of the United States and its territories in a manner
inconsistent with the licenses granted under this Agreement.
(e) AMRC agrees not to sell, assign or transfer to any third-party any
element of, or interest in, the AMRC-Developed Technology in a manner
inconsistent with the licenses granted under this Agreement.
(f) Until such time as may otherwise be agreed by the Parties hereto,
WorldSpace shall provide to AMRC, promptly after the end of each fiscal quarter,
information regarding the costs incurred for, and the status of, any and all
technologies developed in connection with the MCM Technology.
10. Confidentiality. (a) The Parties recognize that in the course
---------------
of performance of this Agreement, either of them may disclose to the other
information about the disclosing Party's business or activities which such Party
considers proprietary and confidential including, without limitation, trade
secrets, marketing and business plans, customer lists, and information
concerning the operations of the Parties (all of such proprietary and
confidential information is hereinafter referred to as the "Confidential
------------
Information"). The Party who receives any Confidential Information (the
- -----------
"Receiving Party") agrees to maintain a confidential status for such
---------------
Confidential Information, to treat such Confidential Information in the same
manner as it treats its own Confidential Information, not to use any such
Confidential Information for any purpose other than the purpose for which it was
originally disclosed to the Receiving Party, and not to disclose any of such
Confidential Information to any third party, except to such vendors, consultants
and other parties necessary for such Party to conduct its business, or unless
such information: (i) is or has become available to the public from a source
other than the Receiving Party; (ii) was already known to the Receiving Party
from sources other than the other Party at
<PAGE>
the time it was disclosed to the Receiving Party; (iii) is disclosed to the
Receiving Party by a third party who is not under any legal obligation
prohibiting such disclosure; or (iv) is required to be disclosed by law.
(b) The Parties acknowledge that they may be required to disclose
Confidential Information to governmental agencies or authorities by law or in
connection with the obtaining of approvals for the Company, and each shall
endeavor to limit disclosure to that purpose. If either Party is required to
disclose Confidential Information pursuant to this Section, such Party will
immediately give the other Party written notice of any such disclosure, which
notice shall specify the substance of the disclosure. The Party making such a
disclosure shall take all reasonable steps to prevent further disclosure of such
Confidential Information.
(c) The provisions of this Section 10 shall survive the termination of
this Agreement for any reason whatsoever. Upon such termination, the Parties
shall return or destroy any Confidential Information which may have been
transmitted by the other Party, as well as any copy or other reproduction,
including without limitation, electronic data reproductions or representations.
1. 11. Termination and Default. (a) The term of this Agreement
-----------------------
shall commence on the date first written above and shall be automatically
renewed yearly thereafter, unless sooner terminated in accordance with this
Section 11.
(b) If any of WorldSpace or AMSC, on the one hand, or AMRC on the
other hand, shall:
(i) breach any of the terms and conditions of this Agreement, and
shall fail to remedy such breach within ninety (90) days after
an arbitrator duly appointed in accordance with Section 13
hereof determines that any of WorldSpace or AMSC, on the one
hand, or AMRC, on the other hand, has breached or violated any
of its material obligations hereunder, unless such breach is so
remedied; or
(ii) become insolvent or go into liquidation or receivership or be
admitted to the benefits of any procedures for the settlement or
postponement of debts or be declared bankrupt; or
(iii) become a party to dissolution proceedings;
then (except as otherwise expressly provided herein), by providing written
notice, (A) AMRC may terminate this Agreement (1) with respect to WorldSpace to
the extent WorldSpace is the subject of any matter covered by Subsection (i),
(ii) or (iii) above or (2) with respect to AMSC to the extent AMSC is the
subject of any matter covered by Subsection (i), (ii) or (iii) above; (B)
WorldSpace may terminate its obligations under this Agreement, to the extent
AMRC is the subject of any matter covered by Subsection (i), (ii) or (iii) above
or (C) AMSC may terminate its obligations under this Agreement, to the extent
AMRC is the subject of any matter covered by Subsection (i), (ii) or (iii)
above.
(c) After termination of this Agreement, AMRC shall return all
documents (and copies thereof) and other embodiments of the Licensed Technology
to WorldSpace or AMSC, as appropriate, or shall certify that such documents have
been destroyed.
<PAGE>
12. GOVERNING LAW. THIS AGREEMENT, INCLUDING ALL ANNEXES, SHALL BE
-------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OR CHOICE OF LAWS PROVISIONS THEREOF.
13. Arbitration. (a) Any controversy or claim arising out of or
-----------
relating to this Agreement or the breach hereof shall be settled by arbitration
in Washington, D.C. in accordance with the Expedited Arbitration Rules of
JAMS/Endispute. The award of the arbitrator, JAMS/Endispute, shall be binding
upon the parties hereto.
(b) Each Party hereby submits to the jurisdiction of any arbitral
tribunal referred to above, agrees that any award rendered by the arbitrators
against it may be executed against its assets in any jurisdiction and submits to
the jurisdiction of the courts in such jurisdiction in any legal proceedings
relating to the execution of such award.
14. LIMITATION OF LIABILITY. (a) NO PARTY HERETO NOR ITS DIRECTORS,
-----------------------
OFFICERS, EMPLOYEES, AGENTS, INDEPENDENT CONTRACTORS, PARTNERS OR STOCKHOLDERS
SHALL BE LIABLE TO ANY OTHER PARTY HERETO FOR ANY LOSS OR DAMAGE WHATSOEVER
(INCLUDING ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSS OR DAMAGE)
ARISING FROM THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE, UNLESS
------
(1) ARISING FROM THE WILLFUL MISCONDUCT OF SUCH PARTY, OR
(2) ARISING FROM THE GROSS NEGLIGENCE OF SUCH PARTY, IN WHICH CASE
SUCH LIABILITY SHALL BE LIMITED TO LOSSES OR DAMAGES OTHER THAN
----------
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSSES OR DAMAGES
IN AN AMOUNT NOT TO EXCEED THE ROYALTY PAYMENT, IF ANY, RECEIVED
BY SUCH PARTY WITH RESPECT TO THE RELEVANT TECHNOLOGY LICENSED BY
SUCH PARTY HEREUNDER.
(b) In the event of a claim of infringement of a third party's
intellectual property rights arising from the WorldSpace Licensed Technology,
WorldSpace will, to the extent consistent with its contractual, fiduciary,
regulatory and other obligations, cooperate with AMRC as may be reasonably
requested in the defense of such claim.
(c) In the event of a claim of infringement of a third party's
intellectual property rights arising from the AMSC Licensed Technology, AMSC
will, to the extent consistent with its contractual, fiduciary, regulatory and
other obligations, cooperate with AMRC as may be reasonably requested in the
defense of such claim.
(d) In the event of a claim of infringement of a third Party's
intellectual property rights arising for the AMRC Developed Technology, AMRC
will, to the extent consistent with its contractual, fiduciary, regulatory and
other obligations, cooperate with WorldSpace and/or AMSC, as the case may be, as
may be reasonably requested in the defense of such claim.
<PAGE>
15. Notices. Any and all notices or other communications or
-------
deliveries required or permitted to be given pursuant to any of the provisions
of this Agreement shall be deemed to have been duly given for all purposes if
sent by certified or registered mail, return receipt requested and postage
prepaid, hand delivered or sent by a nationally recognized overnight courier to
the address listed below or at such other address as any Party may specify by
notice given to the other Party in accordance with this Section 15.
Notices to AMRC shall be sent to:
AMRC Holdings, Inc.
1250 23rd Street, N.W.
Suite 57
Washington, D.C. 20037
Attn: Chief Financial Officer
Telephone: 202-969-6000
Facsimile: 202-969-6001
Notices to AMSC should be sent to:
American Mobile Satellite Corporation
10802 Parkridge Boulevard
Reston, VA 20191
Attn: General Counsel
Telephone: 703-758-6130
Facsimile: 703-758-6134
Notices to WorldSpace shall be sent to:
WorldSpace Management Corporation
2400 N Street, N.W.
Washington, D.C. 20037
Attn: Assistant General Counsel
Telephone: 202-969-6000
Facsimile: 202-969-6001
The date of giving of any such notice shall be the date of delivery when
delivered by hand or by overnight courier, or three days following the posting
of the mail.
16. Waiver. No failure or delay by any Party at any time to enforce
------
one or more of the terms, conditions or obligations of this Agreement shall
constitute a waiver of such terms, conditions or obligations or shall preclude
such Party from requiring performance by the other Party at any time. No waiver
of the provisions hereof shall be effective unless in writing and signed by the
Party to be charged with such waiver. No waiver shall be deemed a continuing
waiver or waiver in respect of any subsequent breach or default, either of
similar or different nature, unless expressly so stated in writing.
17. Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties hereto with respect to the subject matter contained
herein. This Agreement supersedes all prior agreements and understanding
between the parties with respect to such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized directors,
officers or representatives as of the date and year first above written.
WORLDSPACE MANAGEMENT CORPORATION
By /s/ Noah Samara
----------------------------
Name: Noah Samara
Title: Chairman & CEO
AMERICAN MOBILE SATELLITE CORPORATION
By /s/ Gary Parsons
----------------------------
Name: Gary Parsons
Title: Chairman & CEO
AMRC HOLDINGS, INC.
By /s/ Hugh Panero
----------------------------
Name: Hugh Panero
Title: President & CEO
AMERICAN MOBILE RADIO CORPORATION
By /s/ Hugh Panero
----------------------------
Name: Hugh Panero
Title: President & CEO
Attachments:
Annex 1 - Illustration of Royalty Payments contemplated under Section 4(c)
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the
omitted portions.
Annex 1
-------
Illustration of Royalty Payments Contemplated under Section 4(c)
----------------------------------------------------------------
[*****]
<PAGE>
AMENDMENT NO. 1 TO TECHNOLOGY LICENSING AGREEMENT
This AMENDMENT NO. 1 TO TECHNOLOGY LICENSING AGREEMENT (this
"Amendment") is entered into as of June 7, 1999, and amends that certain
---------
TECHNOLOGY LICENSING AGREEMENT (the "Technology Agreement") entered into on July
--------------------
30, 1998, but intended to be effective as of January 1, 1998, by and between
WorldSpace Management Corporation, a corporation organized under the laws of the
State of Delaware ("WorldSpace"), XM Satellite Radio Inc. (formerly known as
----------
American Mobile Radio Corporation ("AMRC")), a corporation organized under the
----
laws of the State of Delaware ("XM"), XM Satellite Radio Holdings Inc. (formerly
--
known as AMRC Holdings), a corporation organized under the laws of the State of
Delaware ("XM Holdings") and American Mobile Satellite Corporation, a
-----------
corporation organized under the laws of the State of Delaware ("American
--------
Mobile") (each a "Party" and together the "Parties").
----- -------
WHEREAS, XM is employing various technologies developed by WorldSpace
(and its affiliates) and AMSC in connection with the development and
implementation of XM's satellite digital audio radio system pursuant to a
license granted in October 1997 by the U.S. Federal Communications Commission
and
WHEREAS, XM is taking steps to commence the establishment of a Digital
Audio Radio Service ("DARS") satellite system in the United States and other
nations in North America in the footprint of XM's satellites under the license
granted to XM in October 1997 by the U.S. Federal Communications Commission (the
"XM System"), as such license may from time to time be modified or amended and
such other licenses as may be required by appropriate governmental agencies in
such other nations in North America in the footprint of XM's satellites; and
WHEREAS, WorldSpace recognizes that in connection with the
establishment of the XM System it will be necessary and/or desirable for XM to
have the use of certain technology comprised of patents, patent applications,
software, databases, know-how and the intellectual property rights therein owned
by, licensed to or developed from time to time by WorldSpace or any corporation,
partnership or other entity controlled by, controlling or under common ownership
or control with WorldSpace (a "WorldSpace Affiliate" and together with
WorldSpace, the "WorldSpace Group"; for purposes of this agreement WorldSpace
----------------
Inc., a minority shareholder in WorldSpace International Network Inc., the
parent company of WorldSpace , is recognized as a member of the WorldSpace
Group) and to be used in any digital radio broadcasting system being implemented
outside the United States by the WorldSpace Group or in which the WorldSpace
Group participates (such system, the "WorldSpace System"); and
-----------------
WHEREAS, the Parties have determined that it is desirable and
appropriate to clarify and amend certain provisions of the Technology Agreement
in connection with the
1
<PAGE>
entering into of the Exchange Agreement by American Mobile, WorldSpace, Inc. and
the other parties thereto;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Technology Transfer. (a) It was and remains the intent of XM,
-------------------
American Mobile and WorldSpace that no transfer of equipment or technology from
XM to WorldSpace (or any of its affiliates) or to American Mobile will be made
pursuant to the Technology Agreement or otherwise unless the transfer is
consistent with the requirements of the U.S. export control laws, including the
Export Administration Regulations and the International Traffic in Arms
Regulations.
(b) For the avoidance of doubt, the Technology Agreement is hereby
amended by the addition of new Section 18 thereto as follows:
18. Export Control. No transfer of equipment or technology (x) from
--------------
AMRC to WorldSpace or any WorldSpace Affiliate or to AMSC, (y) from
WorldSpace or any WorldSpace Affiliate to AMRC or AMSC or (z) from
AMSC to WorldSpace or any WorldSpace Affiliate or AMRC, will be made
pursuant to this Agreement or otherwise unless the transfer is
consistent with the requirements of the U.S. export control laws,
including the Export Administration Regulations and the International
Traffic in Arms Regulations.
(c) XM hereby confirms that it understands that it may be required to
enter into technical assistance agreements that meet the requirements of the
U.S. export control laws, including the Export Administration Regulations and
the International Traffic in Arms Regulations, in connection with access by
foreign nationals to data subject to U.S. export control regulations. XM
further understands that the export of certain information required for (i) the
development of its payload by Alcatel S.A. in France and (ii) the export of its
satellites for launch on the Sea Launch System are subject to the export control
licensing requirements imposed by applicable U.S. law and regulation, including
the Export Administration Regulations and the International Traffic in Arms
Regulations. In this connection, XM agrees to obtain, and will enable the
appropriate third parties to obtain, all necessary U.S. governmental approvals
for such technical assistance agreements and export licenses in a time frame
consistent with the scheduled launch of the XM Satellite Radio system.
(d) XM hereby covenants that any technical information it has in its
possession which is subject to the requirements of the U.S. export control laws,
including the Export Administration Regulations and the International Traffic in
Arms Regulations, will be retained in accordance with the XM Satellite Radio
Inc. Export Control Management Policy.
2
<PAGE>
2. Use of Technology. (a) The parties hereby confirm that it was
-----------------
and remains the intent of XM, American Mobile and WorldSpace that (i) XM be
permitted to use the WorldSpace Licensed Technology and AMSC Licensed Technology
for commercialization of the XM System anywhere in the footprint of XM's
satellites launched for the XM system, and (ii) any use by WorldSpace (or any of
its licensees or affiliates) of any XM-developed (or XM improved) technology
licensed to WorldSpace under the Technology Agreement be limited to U.S. use by
the WorldSpace Group at its U.S.-based facilities for the WorldSpace Group's
satellite DARS systems outside the United States. XM, American Mobile and
WorldSpace hereby agree to confirm their intent and to amend the Technology
Agreement as set forth in Section 2(b)-(g) hereof.
(b) The phrase "and other nations in North America in the footprint of
AMRC's satellites launched for the XM System (as defined in Amendment No. 1
hereto)" is hereby inserted after the words "United States" in the second line
of the first recital on page one of the Technology Agreement and the phrase "and
such other licenses as may be required by appropriate governmental agencies in
such other nations in North America in the footprint of AMRC's satellites
launched for the XM System " is hereby inserted after the word "amended" in the
fourth line of the first recital on page one of the Technology Agreement.
(c) The phrase "and other nations in North America in the footprint of
AMRC's satellites launched for the XM System" is hereby inserted after the word
"territories" appearing the fourth line of Section 2(a) of the Technology
Agreement.
(d) The phrase "and other nations in North America in the footprint of
AMRC's satellites launched for the XM System" is hereby inserted after the word
"territories" appearing the fourth line of Section 2(b) of the Technology
Agreement.
(e) The following proviso is hereby added to the end of Section 5(a)
of the Technology Agreement:
provided, further, that the license of the WorldSpace Group to use
-----------------
such improvements in the United States shall be limited to the use of
such improvements at the U.S.-based facilities for the WorldSpace
Group's satellite DARS systems outside the United States.
(f) The following parenthetical phrase is hereby added following the
words "AMSC Licensed Technology" in Section 5(b) of the Technology Agreement:
(other than in connection with any DARS satellite system)
3
<PAGE>
(g) The following parenthetical phrase is hereby added following the
words "WorldSpace System" in clause (ii)(A) of Section 6(a) of the Technology
Agreement :
(solely to the extent such technology (and improvements) is used in
the U.S.-based facilities for the WorldSpace Group's satellite DARS
systems outside the United States.)
3. Irrevocable License. The Parties hereby agree to amend the
-------------------
Technology Agreement by (i) deleting the phrase "grants to AMRC a license" in
the first line of Section 2(a) thereof, and inserts in its stead the phrase
"grants to AMRC an irrevocable license" and (ii) deleting the phrase "grants to
AMRC a license" in the first line of Section 2(b) thereof, and inserts in its
stead the phrase "grants to AMRC an irrevocable license".
4. Subsequently-Developed Technologies. The Parties hereby agree to
-----------------------------------
amend the Technology Agreement to exclude the licensing of certain technologies
developed after the fifth anniversary of the effective date of the Technology
Agreement as follows:
(a) Section 6(a) of the Technology Agreement is hereby amended by
striking the word "hereafter" and inserting in its place "within five years
after the date of this Agreement"
(b) The following phrase is hereby added following the phrase "AMRC
System" in the second line of Section 1(a)(iv)
(which technologies shall have been developed within five years after
the effective date of this Agreement)
(c) The Technology Agreement is hereby amended by the addition of new
Section 19 thereto as follows:
19. AMRC and the WorldSpace Group shall, to the extent mutually
desirable, enter into licensing arrangements on commercially
reasonable terms with respect to AMRC-Developed Technology and
technology developed by the WorldSpace Group, in each case developed
after the fifth anniversary of the effective date of this Agreement.
5. Rights on Termination. The Parties hereby agree to amend the
----------------------
Technology Agreement by deleting Section 11(c) therefrom.
6. Limitation on Damages. The Parties hereby confirm that in the
---------------------
event of any breach of the Technology Agreement by XM, the damages payable by XM
shall be limited
4
<PAGE>
to money damages only; accordingly equitable relief shall not be available and
XM's irrevocable right to use the technology licensed thereunder shall not be
terminated; provided however that this restriction on the application of
equitable relief as a remedy shall not apply to any breach relating to XM's
obligations to license technology or improvements to WorldSpace and AMSC
7. Effective Time. This Amendment shall be effective upon the
--------------
Closing under that certain Exchange Agreement dated as of June 6, 1999 between
American Mobile, XM Holdings and WorldSpace, Inc.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to be duly executed and delivered by their proper and duly authorized
directors, officers or representatives as of the date and year first above
written.
WORLDSPACE MANAGEMENT CORPORATION
By /s/ James R. Laramie
------------------------------------
Name: James R. Laramie
Title: Secretary
AMERICAN MOBILE SATELLITE CORPORATION
By /s/ Randy Segal
------------------------------------
Name: Randy Segal
Title: Senior Vice President
XM SATELLITE RADIO HOLDINGS, INC.
By /s/ Joseph M. Titlebaum
-------------------------------------
Name: Joseph M. Titlebaum
Title: SVP General Counsel and Secretary
XM SATELLITE RADIO INC.
By /s/ Joseph M. Titlebaum
-------------------------------------
Name: Joseph M. Titlebaum
Title: SVP General Counsel and Secretary
6
<PAGE>
Exhibit 10.6
***Confidential treatment has been requested for portions of this contract.
The copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*****]. A complete version of this
contract has been filed separately with the Securities and Exchange Commission.
SECOND AMENDED AND RESTATED
SATELLITE PURCHASE CONTRACT
FOR IN-ORBIT DELIVERY
By and Between
XM SATELLITE RADIO INC.
and
HUGHES SPACE AND COMMUNICATIONS
INTERNATIONAL, INC.
July 21, 1999
<PAGE>
SECOND AMENDED AND RESTATED
SATELLITE PURCHASE CONTRACT
FOR IN-ORBIT DELIVERY
By and Between
XM SATELLITE RADIO INC.
and
HUGHES SPACE AND COMMUNICATIONS INTERNATIONAL, INC.
PROPRIETARY NOTICE
------------------
The attached Contract and the information contained therein are
confidential and proprietary to XM Satellite Radio Inc. and Hughes Space and
Communications International, Inc., and shall not be published or disclosed to
any third party without the express written consent of a duly authorized
representative of XM Satellite Radio Inc. and Hughes Space and Communications
International, Inc.
<PAGE>
TABLE OF CONTENTS
SECOND AMENDED AND RESTATED
SATELLITE PURCHASE CONTRACT FOR IN-ORBIT DELIVERY
TERMS AND CONDITIONS
<TABLE>
<S> <C>
EXHIBIT A - SPACECRAFT PERFORMANCE SPECIFICATIONS
EXHIBIT B - STATEMENT OF WORK (FLOW)
EXHIBIT C - PRODUCT ASSURANCE PLAN
EXHIBIT D - TEST PLAN REQUIREMENTS [ON GROUND AND IN-ORBIT]
EXHIBIT E - RADIATION ENVIRONMENT SPECIFICATIONS
EXHIBIT F - LONG-LEAD ACTIVITIES AND ITEMS
EXHIBIT G - PAYMENT PLAN AND TERMINATION LIABILITY AMOUNTS
EXHIBIT G-1 -- PAYMENT PLAN FOR INTEREST ON IN-ORBIT
INCENTIVE AMOUNTS
EXHIBIT G-2 -- GROUND SPARE SATELLITE PAYMENT PLAN AND
TERMINATION LIABILITY AMOUNTS
EXHIBIT G-3 -- 4TH AND 5TH OPTIONAL SATELLITES PAYMENT
PLAN AND TERMINATION LIABILITY AMOUNTS
</TABLE>
<PAGE>
SECOND AMENDED AND RESTATED
SATELLITE PURCHASE CONTRACT FOR IN-ORBIT DELIVERY
By and Between
XM SATELLITE RADIO INC.
And
HUGHES SPACE AND COMMUNICATIONS INTERNATIONAL, INC.
TERMS AND CONDITIONS
<PAGE>
ATTACHMENTS, ANNEXES AND SCHEDULES
ATTACHMENTS AND ANNEXES
- -----------------------
<TABLE>
<S> <C>
Attachment A Form of Request for Payment
Annex I to Attachment A Form of Contractor Certificate
Schedule I to Annex I to Attachment A List of Exceptions
Schedule II to Annex I to Attachment A List of Disputes
Attachment B Key Personnel
</TABLE>
SCHEDULES
- ---------
<TABLE>
<S> <C>
Schedule 19.3 Capitalization and Subsidiaries
Schedule 19.4 Litigation
Schedule 19.5 Title to Properties and Assets
Schedule 19.6 Financial Statements
Schedule 19.7 Certain Actions
Schedule 19.8 Disclosed Liabilities
</TABLE>
<PAGE>
****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
TABLE OF CONTENTS
TERMS AND CONDITIONS
<TABLE>
<C> <S> <C>
1. DEFINITIONS AND CONSTRUCTION.................................................................... 3
1.1 Certain Definitions..................................................................... 3
1.2 Other Terms............................................................................. 14
1.3 Integration and Construction............................................................ 14
1.4 Headings; Number and Gender............................................................. 15
2. SCOPE OF WORK................................................................................... 16
2.1 General................................................................................. 16
2.2 Long-Lead Activities and Items.......................................................... 16
3. EFFECTIVE DATE OF CONTRACT (EDC); [*****]....................................................... 17
3.1 Effective Date of Contract (EDC)........................................................ 17
3.2 Contractor Work Commitment.............................................................. 17
3.3 [*****]; Expiration Thereof; Remedies................................................... 20
4. CONTRACT PRICE.................................................................................. 22
4.1 Contract Price.......................................................................... 22
4.2 Changes in Contract Price............................................................... 23
4.3 Taxes and Duties........................................................................ 23
5. PAYMENT......................................................................................... 24
5.1 Requests for Payment and Invoices....................................................... 24
5.2 Payment................................................................................. 25
5.3 Disputed Amounts........................................................................ 26
5.4 Set Off................................................................................. 28
5.5 Late Payment............................................................................ 28
5.6 Payments Current at Launch.............................................................. 28
5.7 Security Interest....................................................................... 28
6. ACCESS TO WORK.................................................................................. 30
6.1 Facilities.............................................................................. 30
6.2 Office Space............................................................................ 30
6.3 Security................................................................................ 30
6.4 Data and Documentation.................................................................. 31
6.5 Electronic Access....................................................................... 31
6.6 Meetings and Reviews.................................................................... 32
6.7 Laws.................................................................................... 32
6.8 No Relief............................................................................... 32
6.9 Major Subcontracts...................................................................... 33
6.10 Consultant Access....................................................................... 33
7. DELIVERY AND DELIVERY INCENTIVES................................................................ 34
8. INSPECTION AND FINAL ACCEPTANCE................................................................. 37
8.1 Preliminary Inspections................................................................. 37
8.2 Shipment Readiness Review............................................................... 37
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
8.3 Flight Readiness Review................................................................. 39
8.4 Launch Readiness Review................................................................. 40
8.5 In-Orbit Testing and Final Acceptance of Satellites..................................... 40
8.6 Final Acceptance of Ground Spare Satellite.............................................. 41
8.7 Satellite Control Center (SCC) Equipment and Software................................... 41
8.8 Dynamic Spacecraft Simulator and Communications Payload Simulator....................... 42
8.9 Data and Documentation.................................................................. 42
8.10 Launch and Early Operations (LEOP)...................................................... 43
8.11 Operations Support Services (OSS)....................................................... 43
8.12 Training................................................................................ 43
9. TITLE AND RISK OF LOSS.......................................................................... 45
9.1 Transfer of Title....................................................................... 45
9.2 Transfer of Risk of Loss................................................................ 45
10. LIQUIDATED DAMAGES FOR LATE DELIVERY............................................................ 46
10.1 Liquidated Damages...................................................................... 46
10.2 Remedy.................................................................................. 47
10.3 Termination for Unexcused Delay......................................................... 47
11. EXCUSABLE DELAY................................................................................. 49
11.1 Excusable Delay Defined................................................................. 49
11.2 Equitable Adjustments................................................................... 49
11.3 Maximum Excusable Delay; Termination.................................................... 50
12. IN-ORBIT PERFORMANCE INCENTIVE PAYMENTS......................................................... 51
12.1 Total Amount At Risk.................................................................... 51
12.2 In-Orbit Performance Incentives......................................................... 51
12.3 Calculation and Earning of Incentive Amounts............................................ 51
12.4 Disputed Performance.................................................................... 53
12.5 Roll-Over of Incentive Amounts.......................................................... 53
12.6 Payment and Interest.................................................................... 54
12.7 Interest on Roll-Over Incentive Amounts................................................. 55
12.8 Security for Performance Incentive Payments............................................. 56
12.9 Exclusive Remedy........................................................................ 57
13. CORRECTIVE MEASURES IN UNLAUNCHED SATELLITES AND OTHER DELIVERABLE ITEMS........................ 58
13.1 Notice of Defects....................................................................... 58
13.2 Duty to Correct......................................................................... 58
14. CHANGES IN SCOPE OF WORK........................................................................ 60
14.1 Changes Requested by Customer........................................................... 60
14.2 Changes Requested by Contractor......................................................... 60
14.3 Pricing of Changes...................................................................... 61
14.4 Storage................................................................................. 61
15. PERMITS AND LICENSES; COMPLIANCE WITH LAWS...................................................... 64
15.1 United States Permits, Licenses, and Laws............................................... 64
15.2 Non-United States Permits, Licenses, and Laws........................................... 64
15.3 Review of Applications.................................................................. 64
15.4 Contractor Violation of Law............................................................. 65
16. SUBCONTRACTS.................................................................................... 66
16.1 Major Subcontracts...................................................................... 66
16.2 Selection or Replacement of Major Subcontractors........................................ 66
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
16.3 No Privity of Contract.................................................................. 66
16.4 Subcontractor Relations................................................................. 66
17. PERSONNEL AND KEY PERSONNEL..................................................................... 68
17.1 Personnel Qualifications................................................................ 68
17.2 Key Personnel Positions................................................................. 68
17.3 Assignment of Key Personnel............................................................. 68
18. CONTRACTOR'S REPRESENTATIONS, COVENANTS, AND WARRANTIES......................................... 70
18.1 Organization; Good Standing and Qualification........................................... 70
18.2 Authorization........................................................................... 70
18.3 Warranties for Deliverable Items........................................................ 70
19. CUSTOMER'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................................ 74
19.1 Organization; Good Standing and Qualification........................................... 74
19.2 Authorization........................................................................... 74
19.3 Capitalization and Subsidiaries......................................................... 74
19.4 Litigation.............................................................................. 74
19.5 Title to Properties and Assets.......................................................... 75
19.6 Financial Statements.................................................................... 75
19.7 Certain Actions......................................................................... 75
19.8 Undisclosed Liabilities................................................................. 75
19.9 Compliance with Other Instruments....................................................... 76
19.10 Customer's Financial Strength........................................................... 76
19.11 Cross-Defaults.......................................................................... 76
19.12 Code.................................................................................... 76
19.13 Intellectual Property................................................................... 77
19.14 Other Contracts......................................................................... 77
19.15 Non-Misleading Statements............................................................... 77
19.16 Control of Customer..................................................................... 77
19.17 Customer Financial Covenant............................................................. 77
20. INTELLECTUAL PROPERTY RIGHTS.................................................................... 78
20.1 Ownership of IP and IP Rights........................................................... 78
20.2 License Rights.......................................................................... 78
20.3 Joint Program Inventions................................................................ 79
20.4 Survival of Intellectual Property Rights................................................ 80
21. INTELLECTUAL PROPERTY INFRINGEMENT INDEMNIFICATION.............................................. 81
21.1 Contractor Intellectual Property Indemnification........................................ 81
21.2 Customer Intellectual Property Indemnification.......................................... 81
21.3 Total Liability......................................................................... 82
22. CONFIDENTIAL INFORMATION........................................................................ 83
22.1 Confidentiality Obligations............................................................. 83
22.2 Exceptions.............................................................................. 83
22.3 No License.............................................................................. 84
22.4 Return of Confidential Information...................................................... 84
22.5 Inconsistent Legends.................................................................... 84
22.6 Survival of Confidentiality Obligations................................................. 84
23. NON-COMPETITION OBLIGATION...................................................................... 85
24. INDEMNIFICATION................................................................................. 86
24.1 Contractor's Indemnification............................................................ 86
24.2 Customer's Indemnification.............................................................. 86
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
24.3 Cross-Indemnification For Inter-Party Waiver of Liability............................... 87
24.4 Indemnification Procedures.............................................................. 87
24.5 Waiver of Subrogation................................................................... 88
24.6 Survival of Indemnifications............................................................ 88
25. INSURANCE....................................................................................... 89
25.1 General Obligations..................................................................... 89
25.2 Launch Insurance........................................................................ 89
25.3 Preparation of Claims................................................................... 90
26. LIMITATIONS OF LIABILITY........................................................................ 91
27. DISPUTE RESOLUTION.............................................................................. 93
27.1 Informal Dispute Resolution............................................................. 93
27.2 Arbitration............................................................................. 93
27.3 Litigation.............................................................................. 95
28. LAUNCH SERVICES................................................................................. 97
29. CUSTOMER'S RESPONSIBILITIES..................................................................... 102
30. OPTIONS......................................................................................... 103
30.1 Options Granted......................................................................... 103
30.2 Option to Delay Frequency Specification Beyond Two (2) Months........................... 103
30.3 Ground Spare Satellite.................................................................. 103
30.4 Launch Campaign and LEOP Services for Ground Spare Satellite and/or 4th and 5th
Optional Satellites................................................................... 106
30.5 4th and 5th Optional Satellites......................................................... 107
30.6 [RESERVED].............................................................................. 108
30.7 Reflectors for the Ground Spare Satellite............................................... 108
30.8 Optional Launch Vehicles................................................................ 108
30.9 Contract Adjustments.................................................................... 109
31. FAILURE TO MAKE ADEQUATE PROGRESS............................................................... 109
32. TERMINATION..................................................................................... 110
32.1 Termination for Customer's Convenience.................................................. 110
32.2 Termination For Contractor's Default.................................................... 112
32.3 Termination for Customer's Default...................................................... 114
32.4 Termination for Excusable Delay......................................................... 117
32.5 Time of the Essence..................................................................... 118
33. INTER-PARTY WAIVER OF LIABILITY................................................................. 119
34. GENERAL......................................................................................... 120
34.1 Assignment.............................................................................. 120
34.2 Entire Agreement........................................................................ 120
34.3 Amendments.............................................................................. 121
34.4 Waiver of Breach of Contract............................................................ 121
34.5 Severability............................................................................ 121
34.6 Applicable Law.......................................................................... 121
34.7 Notices................................................................................. 121
34.8 Parties Not Agents...................................................................... 122
34.9 Release of Information.................................................................. 122
34.10 Calculation of Interest................................................................. 123
</TABLE>
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<TABLE>
<C> <S> <C>
34.11 Survival................................................................................ 123
34.12 No Third-Party Beneficiaries............................................................ 124
34.13 Consents and Approvals.................................................................. 124
34.14 Lender Requirements..................................................................... 124
34.15 Covenant of Good Faith.................................................................. 125
34.16 Counterparts............................................................................ 125
35. OTHER BUSINESS.................................................................................. 126
</TABLE>
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SECOND AMENDED AND RESTATED
SATELLITE PURCHASE CONTRACT FOR IN-ORBIT DELIVERY
THIS SECOND AMENDED AND RESTATED SATELLITE PURCHASE CONTRACT (this
"Contract") is made and entered into as of the 21st day of July, 1999, by and
between XM SATELLITE RADIO INC., a Delaware corporation with its principal
offices located at 1250 23rd Street, Suite 57, N.W., Washington, D.C. 20037
(formerly named American Mobile Radio Corporation and hereinafter referred to as
"Customer"), and HUGHES SPACE AND COMMUNICATIONS INTERNATIONAL, INC., a Delaware
corporation with its principal offices located at 2260 E. Imperial Way, El
Segundo, California 90245, U.S.A. (hereinafter "Contractor"). As used in this
Contract, "Party" means either Customer or Contractor, as appropriate, and
"Parties" means Customer and Contractor.
WHEREAS, Customer is implementing a Digital Audio Radio Satellite ("DARS")
system designed to provide digital audio radio services to the continental
United States; AND
WHEREAS, Customer anticipates providing the business referred to above
through two (2) geostationary satellites; AND
WHEREAS, Contractor is a space technology company that designs,
manufactures, and integrates a range of space products, including satellites and
facilities for managing and controlling satellites; AND
WHEREAS, the Parties have reached agreement on the terms and conditions of
procurement by Customer from Contractor of two Hughes 702 Satellites, to be
delivered in-orbit, and related items, services and activities, including
satellite control center equipment and software, launch services, and long-lead
items for a Ground Spare Satellite, and options to purchase other additional
equipment and services, including additional satellite(s), as set forth and
further defined in this Contract; AND
WHEREAS, Customer and Contractor entered into a Satellite Purchase Contract
for In-Orbit Delivery dated March 20, 1998 (the "Original Satellite Purchase
Contract"), as amended by Amendment No. 1 dated May 6, 1998 and Amendment No. 2
dated June 5, 1998, and as amended and restated by the Amended and Restated
Satellite Purchase Contract dated June 17, 1999 (the "First Amended and Restated
Satellite Purchase Contract"; AND
WHEREAS, Customer officially changed its name from American Mobile Radio
Corporation to XM Satellite Radio Inc. on October 7, 1998, its office location,
points of contact and authorized representatives; AND
WHEREAS, the Parties have reached agreement on additional changes to the
First Amended and Restated Satellite Purchase Contract; AND
WHEREAS, this document amends and restates the First Amended and Restated
Satellite Purchase Contract and shall be the sole agreement between the Parties
as to the Work to be performed hereunder by Contractor.
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NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and intending to be legally bound hereby, the Parties agree as
follows:
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1. DEFINITIONS AND CONSTRUCTION
1.1 Certain Definitions.
In this Contract, the following terms shall have the meaning stated
hereunder:
(a) "Affiliate" means, with respect to an entity, any other entity
Controlling or Controlled by or under common Control with such entity.
(b) "Amendment to this Contract" or "Amendment" means a written agreement
modifying the terms of this Contract in accordance with Article 34.3
(Amendments).
(c) "Approval" means written approval. This term is as defined, whether or
not capitalized in this Contract.
(d) "ARP" or "After Receipt of Payment" means July 7, 1999, the date upon
which Contractor received Program Calendar Payment No. 1 in the amount of Sixty-
Eight Million Dollars ($68,000,000).
(e) "Associates" means, with respect to an entity, its directors, officers,
employees agents, consultants, and assigns.
(f) "Available for Shipment" means that a Spacecraft has successfully
passed all in-plant acceptance tests, has successfully undergone a Shipment
Readiness Review and has been declared ready to be shipped to the Designated
Launch Site.
(g) "Background Intellectual Property" means Intellectual Property first
made, developed, or created prior to the negotiation or performance of this
Contract and necessary to the use of any Deliverable Item.
(h) "Back-Up Satellite Control Center" means Customer's back-up satellite
control center, in addition to Customer's Primary Satellite Control Center,
located in the Washington, D.C. area.
(i) "Business Day" means any day other than the following: a Saturday,
Sunday, and any other day on which national banks are authorized to be closed in
New York City, New York.
(j) "Calendar Day" means any day.
(k) "Calendar Payment" means any of those payments listed as specific
calendar payments in Exhibit G (Payment Plan and Termination Liability Amounts).
(l) "Communications Payload Simulator" means the equipment, software, and
interfaces required to simulate a single Time Division Multiplexed (TDM) chain,
pursuant to the requirements of Exhibit B (SOW).
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<PAGE>
****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
(m) "Conduct Spacecraft Critical Design Review (SCDR)" means that ten (10)
Business Days prior to the date Contractor is ready to perform the SCDR,
Contractor shall provide to Customer (i) written notice that Contractor has
completed all necessary activities in order to proceed to SCDR, and (ii) the
Design Review Package, as further described in Exhibit B (SOW). Customer shall
then have five (5) Business Days upon receipt of such notice and Design Review
Package to review same and provide specific comments to Contractor. At the
Spacecraft Critical Design Review meeting, Contractor shall (i) identify,
compile, and maintain a uniform program listing of all action items through
closure, including identification of new items to be developed or items to be
modified in order to meet the requirements of this Contract, (ii) establish
detailed action plans to address and carry out all action items identified,
including timetables for performance and identification of responsible
personnel, and (iii) prepare and distribute SCDR minutes and action item
assignments, all of which demonstrate that each Spacecraft shall be Available
for Shipment to the Designated Launch Site no later than [*****] (with respect
to the first Spacecraft) and [*****] (with respect to the second
Spacecraft).
(n) "Conduct Spacecraft Preliminary Design Review (SPDR)" means that ten
(10) Business Days prior to the date Contractor is ready to perform the SPDR,
Contractor shall provide to Customer (i) written notice that Contractor has
completed all necessary activities in order to proceed to SPDR and (ii) the
Design Review Package, as further described in Exhibit B (SOW). Customer shall
then have five (5) Business Days upon receipt of such notice and Design Review
Package, to review same and provide specific comments to Contractor. At the
Spacecraft Preliminary Design Review meeting, Contractor shall (i) identify,
compile, and maintain a uniform program listing of all action items through
closure, including identification of new items to be developed or items to be
modified in order to meet the requirements of this Contract, (ii) establish
detailed action plans to address and carry out all action items identified,
including timetables for performance and identification of responsible
personnel, and (iii) prepare and distribute SPDR minutes and action item
assignments, all of which demonstrate that each Spacecraft shall be Available
for Shipment to the Designated Launch Site at no later than [*****] (with
respect to the first Spacecraft) and [*****] (with respect to the second
Spacecraft).
(o) "Confidential Information" means all information, of any nature and in
any form, whether written, oral or recorded or transmitted electronically or by
tape or other similar manner, regarding the business, finances, operations,
prospects, plans, or affairs of the Furnishing Party (including its Affiliates,
Subcontractors, or Consultants), and all data, processes, materials, and
software in source code and object code form, related documentation, and other
technical data that is confidential and embodies trade secrets and other
proprietary information of the Furnishing Party, which information is designated
in writing by the Furnishing Party as confidential, provided, however, that if
disclosed orally, such information must be confirmed and designated in writing
in summary form as confidential within thirty (30) Calendar Days of the time at
which oral disclosure took place. Confidential Information shall also include
Data and Documentation.
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<PAGE>
****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
(p) "Constructive Total Loss" and "Total Loss" shall have the meaning
ascribed to them in the policy for Launch Insurance.
(q) "Consultant" means a person or organization retained by Customer to
provide Customer with technical advice and related services and identified by
Customer to Contractor as such in accordance with Article 6 (Access to Work).
(r) "Contract" or "Second Amended and Restated Satellite Purchase Contract"
means the written instrument herein dated the day and year first written above,
including any Amendments made pursuant to Article 34.3 (Amendments), embodying
the agreement between Contractor and Customer and including the Terms and
Conditions, Exhibits (and Appendices thereto), Attachments, Annexes, and
Schedules annexed hereto and made a part of this Contract.
(s) "Contract Price" means the firm fixed price set forth in Article 4.1
(Contract Price).
(t) "Control" and its derivatives mean, with respect to an entity, the
legal, beneficial, or equitable ownership, directly or indirectly of fifty
percent (50%) or more of the capital stock (or other ownership interest if not a
corporation) of such entity ordinarily having voting rights or the power to
direct the management policies of such entity, whether through the ownership of
voting stock, by contract, or otherwise.
(u) "Correction Plan" means a plan submitted by Contractor that details the
means by which Contractor shall correct a failure to make adequate progress
toward completion of any Work under this Contract in accordance with Article 31
(Failure to Make Adequate Progress).
(v) "Customer Coverage Area" means the United States.
(w) "Cure Period" shall have the meaning set forth in Article 3.3 ([*****];
Expiration Thereof; Remedies).
(x) "Customer Personnel" means Customer employees, Consultants or
representatives, or Customer's Consultants' employees.
(y) "Data and Documentation" means that data and documentation to be
supplied by Contractor pursuant to the requirements of Exhibit B (SOW).
(z) "Defect" means (i) with respect to any Deliverable Item, and any and
all components thereof, any material defect or nonconformance in design,
material or workmanship, or failure to perform in accordance with the
specifications and requirements set out or referred to in this Contract; (ii)
with respect to services, a failure to meet any material specification or
requirement set forth in this Contract or to conform to a high standard
consistent with industry practice; (iii) any material error, omission or
inconsistency in Data and Documentation,
5
<PAGE>
including specifications and drawings, set forth in or required by this
Contract; and (iv) with respect to Training, a material procedural error.
(aa) "Deliverable Item" means the items listed in Table 7.1 of Article 7
(Delivery), and other items so identified in Exhibit B (Statement of Work) or
any Amendment to this Contract.
(bb) "Deliver" or "Delivery" or "Delivered" means, with respect to a
Deliverable Item, delivery by Contractor of a Deliverable Item in accordance
with the requirements of this Contract.
(cc) "Delivery Date(s)" means, with respect to a Deliverable Item, the
delivery date set forth in Table 7.1 of Article 7 (Delivery), as such date may
be extended, as appropriate, to reflect all periods during which an Excusable
Delay exists or any similar extension of time as may be agreed to by the Parties
in accordance with Article 34.3 (Amendments).
(dd) "Delivery Schedule" means the schedule for Delivery of the Work as set
forth in Table 7.1 of Article 7 (Delivery).
(ee) "Demand" means, in the context of Article 31 (Failure to Make Adequate
Progress), a demand made by Customer to Contractor for Contractor to provide a
Correction Plan in the event Contractor is failing to make adequate progress in
the performance of this Contract.
(ff) "Designated Launch Site" means, with respect to a Satellite, the
Launch facility provided by the Launch Agency.
(gg) "Dispute" has the meaning set forth in Article 27 (Dispute
Resolution).
(hh) "Dollars" means United States Dollars.
(ii) "Dynamic Spacecraft Simulator" has the meaning ascribed to it in
Exhibit B (SOW).
(jj) "Effective Date of Contract" or "EDC" means March 23, 1998, the date
set forth in Article 3.1 (Effective Date of Contract (EDC)).
(kk) "Excusable Delay" has the meaning set forth in Article 11 (Excusable
Delay).
(ll) "Exhibit" or "Exhibits" means any and all exhibits, and any appendices
thereto, to this Contract, which are attached hereto and incorporated herein.
<PAGE>
****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
(mm) "[*****] Payment" means that Milestone Payment that Customer shall pay
to Contractor on or before the final day of the [*****], plus any applicable
Cure Period, as such payment is further described in Exhibit G (Payment Plan and
Termination Liability Amounts).
(nn) "Final Acceptance" of a Deliverable Item has the meaning set forth in
Article 8 (Inspection and Final Acceptance).
(oo) "Financing Agreements" means any and all documents and agreements
evidencing and/or securing monies provided on a full or partial debt basis by
any Financing Entity to Customer to fund the construction, delivery, or Launch
of the Satellites or the purchase of Long-Lead Items for the Ground Spare
Satellite.
(pp) "Financing Entity" means any entity (other than Contractor, or parties
related to Contractor, or competitors of Contractor), e.g., commercial bank,
merchant bank, investment bank, commercial finance organization, corporation, or
partnership, providing money on a full or partial debt basis to Customer to fund
the construction, Delivery, or Launch of the Satellites or purchase of Long-Lead
Items for an Ground Spare Satellite.
(qq) "First Milestone Payment" means the first Milestone Payment identified
in Exhibit G (Payment Plan and Termination Liability Amounts), equaling [*****].
(rr) "Flight Readiness Review" or "FRR" shall have the meaning ascribed to
it in Article 8.3 (Flight Readiness Review).
(ss) "Foreground Intellectual Property" means Intellectual Property first
made, developed, or created in connection with this Contract that is embodied or
reflected in this Contract, in any Amendment thereto, or in any annexed Parts,
and incorporated into or employed in the use of any Deliverable Item.
(tt) "Furnishing Party" means the Party who furnishes Confidential
Information to the other Party.
(uu) "Ground Spare Satellite" shall refer to the satellite that Customer
may elect to purchase for on-ground Delivery pursuant to Article 30 (Options).
(vv) "Handover" shall have the meaning set forth in Article 8.5 (In-Orbit
Testing and Final Acceptance of Satellites).
(ww) "Incentive Amount" means any amount required to be paid pursuant to
Article 12 (In-Orbit Performance Incentive Payments).
(xx) "Including" and its derivatives (such as "include" and "includes")
shall mean including without limitation. This term is as defined, whether or not
capitalized in this Contract.
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(yy) "In-Orbit Testing" means the in-orbit tests and analyses Contractor
shall perform in accordance with Exhibit D (Test Plan Requirements).
(zz) "Insurers" means those entities providing Launch Insurance.
(aaa) "Intellectual Property" means all designs, methods, concepts,
layouts, software, inventions (whether or not patented or patentable),
processes, technical data and documentation, technical information and drawings,
and similar matter in which an Intellectual Property Right may subsist.
(bbb) "Intellectual Property Rights" means all common law and statutory
proprietary rights, including patent, patent application, patent registration,
copyright, trademark, service mark, trade secret, mask work rights, moral
rights, data rights and similar rights existing from time to time under the
intellectual property Laws of the United States, any state or foreign
jurisdiction or international treaty regime.
(ccc) "Intentional Ignition" means, with respect to a Satellite, the
meaning attributed to the term "Launch" in the Launch Agreement between
Contractor and Sea Launch; provided, however, where a Launch Vehicle other than
Sea Launch is used, the term "Intentional Ignition" shall have the meaning
attributed to it in the applicable Launch Agreement.
(ddd) "Launch" means, with respect to a Satellite, the meaning attributed
to it in the Launch Agreement between Contractor and Sea Launch, i.e., the point
in time when an electronic signal is sent to command the opening of any first
stage propellant valves. A Launch is deemed to have occurred even if there is a
Total Failure, Total Constructive Failure or Partial Failure of the Launch
Vehicle (as such terms are defined in the Launch Agreement).
(eee) "Launch Agency" means the entity selected by Contractor to perform
Launch Services, which entity shall be Sea Launch, provided Customer does not
exercise its option to select an alternate Launch Agency as provided in Article
28 (Launch Services) or paragraph (b) of Article 10.3 (Termination for Unexcused
Delay).
(fff) "Launch Agreement" means any Subcontract between Contractor and a
Launch Agency to perform the Launch Services for one or both of the Satellites.
(ggg) "Launch Campaign" means, with respect to a Satellite, those services
provided by Contractor in support of each Launch mission prior to Launch,
including packing and shipping the Satellite in an environmentally controlled
container to the Designated Launch Site, procuring and maintaining all-risk
ground insurance up to, but not including, Launch (as required by Article 25
(Insurance)), providing high-pressure injection of propellant into the
Satellite's fuel tanks, configuring the Satellite so as to render it Ready for
Launch, Launch Vehicle Interface Activities, and assisting the Launch Agency in
assuring the Satellite is properly integrated with the Launch Vehicle, all as
further defined in Exhibit B (SOW).
(hhh) "Launch Date" means the specific day within the Launch Period or
Launch Slot on which a Launch shall occur.
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(iii) "Launch Insurance" means, with respect to a Satellite, insurance that
covers the Satellite from the period beginning at Launch and ending no sooner
than determination of acceptability of the Satellite for insurance purposes or
determination of Constructive Total Loss or Total Loss. Such insurance shall
cover, with respect to such Satellite, all unpaid Milestone Payments, the
Incentive Amounts (except, in the case of Incentive Amounts, where Customer
elects to purchase an additional Satellite pursuant to Article 30 (Options)),
and all interest required to be paid on the foregoing.
(jjj) "Launch and Early Operations" or "LEOP" means, with respect to a
Satellite, those services provided by Contractor in support of each launch
mission after Launch and through Final Acceptance of the Pre-Eclipse Test Report
and Post-Eclipse Test Report, such as providing telemetry, tracking and control
to direct the Satellite into its Specified Orbital Location, positioning and
stabilizing the Satellite to hold its pointing position to the Earth, conducting
in-orbit tests (including payload In-Orbit Testing) and furnishing the Pre-
Eclipse Test Report and Post-Eclipse Test Report, pursuant to the requirements
of Exhibit B (SOW) and Exhibit D (Test Plan Requirements).
(kkk) "Launch Period" means the three-month period from November 1, 2000
through February 1, 2001, with respect to the first Satellite, and the three-
month period from February 15, 2001 through May 15, 2001, with respect to the
second Satellite, during which such periods the Launch of each Satellite is
scheduled to occur.
(lll) "Launch Readiness Review" shall have the meaning ascribed to it in
Article 8.4 (Launch Readiness Review).
(mmm) "Launch Services" means the Launch of a Launch Vehicle and related
services provided by a Launch Agency, including furnishing the Launch Vehicles,
launch support, and equipment and facilities, for the purpose of launching the
Satellites into orbit.
(nnn) "Launch Slot" means, with respect to a Satellite, the thirty (30)
Calendar Day period within its applicable Launch Period or prior to such Launch
Period that is selected by Contractor and Customer, and mutually agreed upon by
Contractor and the Launch Agency on or before twelve (12) months prior to the
Launch Period for such Satellite, during which such thirty (30) Calendar Day
period the Launch of such Satellite is scheduled to occur.
(ooo) "Launch Vehicle" means a launch vehicle provided by the Launch Agency
to Launch either of the Satellites, which Launch Vehicle shall be a Sea Launch,
or, in the event Customer exercises its option to select an alternate Launch
Vehicle for either or both Satellites, pursuant to Article 28 (Launch Services),
or in accordance with paragraph (b) of Article 10.3 (Termination for Unexcused
Delay), the Launch Vehicle shall be the alternate Launch Vehicle selected by
Customer.
(ppp) "Launch Vehicle Interface Activities" means, with respect to a
Satellite, those services to be provided by Contractor, prior to Launch, in
support of each Launch, including analysis support, interface drawing support,
and technical meeting support, required by the Launch Vehicle Agency, and launch
pad activity support, pursuant to the requirements of Exhibit B (SOW).
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<PAGE>
****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
(qqq) "Law" or "Laws" means any laws, including rules, regulations, codes,
injunctions, judgments, orders, ordinances, decrees, rulings, and charges
thereunder, of any federal, state, local or municipal government of any country
(and all agencies thereof) having jurisdiction over any portion of the Work.
(rrr) "London Inter-Bank Offer Rate" or "LIBOR" means the rate per annum
shown, on the third (3rd) London Business Day preceding the day of commencement
of an interest calculation period, on page 3750 of the Dow Jones & Company
Telerate screen or any successor page as the composite offered rate for London
interbank deposits in an amount approximately equal to the amount on which the
interest is to be applied for a three-month period (the "Rate Base"), as shown
under the heading "USD" as of 11:00 a.m. (London Time); provided that in the
event no such rate is shown, LIBOR shall be the rate per annum (rounded to the
nearest 1/100th of one percent) based on the rates at which U.S. dollar deposits
approximately equal in principal amount to the Rate Base and for a three-month
period are displayed on page "LIBO" of the Reuters Monitor Money Rates Service
or such other page as may replace the LIBO page on that service for the purpose
of displaying London interbank offered rates of major banks as of 11:00 a.m.
(London time) (it being understood that if at least two such rates appear on
such page, the rate will be the arithmetic mean of such displayed rates);
provided that in the event fewer than two such rates are displayed, or if no
such rate is relevant, LIBOR shall be the rate per annum equal to the rate
offered by Credit Suisse, New York Branch, at approximately 11:00 a.m. (London
Time) to prime banks in the London interbank market on deposits in U.S. dollars
in an amount approximately equal in principal amount to the aggregate principal
balance of the Rate Base for a three-month period.
(sss) "Long-Lead Activities" means those activities to be performed by
Contractor, a list of which is to be set forth in Exhibit F (Long-Lead
Activities and Items), in accordance with the requirements of Article 2.2 (Long-
Lead Activities and Items).
(ttt) "Long-Lead Items" means the Satellite components, materials,
hardware, equipment and other related items that Contractor shall procure in
performance of the Long-Lead Activities.
(uuu) "Losses" means all losses, liabilities, damages, royalty payments and
claims, and all related costs and expenses (including reasonable legal fees and
disbursements and costs of investigation, expert fees, litigation, settlement,
judgment, interest, and penalties).
(vvv) "Major Calendar Payment" means, with respect to each Satellite, the
payment of [*****] to be made by Customer to Contractor with respect to each
Launch Vehicle in accordance with paragraph (c)(1) of Article 5.1(Requests for
Payment and Invoices) herein and Exhibit G (Payment Plan and Termination
Liability Amounts).
(www) "Major Subcontract" means a Subcontract related to the performance of
this Contract and valued at Two Million Five Hundred Thousand Dollars
($2,500,000) or more.
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****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
(xxx) "Major Subcontractor" means a Subcontractor who is a party to a Major
Subcontract.
(yyy) "Material Adverse Effect" means any material adverse change in (i)
the legality, validity, or enforceability of this Contract or (ii) the ability
of Customer or Contractor to perform this Contract.
(zzz) "Milestone" means a portion of the definitive, measurable Work upon
completion of which a payment is to be made in accordance with Exhibit G
(Payment Plan and Termination Liability Amounts).
(aaaa) "Milestone Payment" means any of those payments listed as specific
milestone payments in Exhibit G (Payment Plan and Termination Liability
Amounts).
(bbbb) "Mission Support Services" means, with respect to a Satellite,
twenty-four (24) hour on-call Contractor support services for each day of the
actual operational lifetime of the Satellites (including operation of the
Satellite beyond the Orbital Design Life) delivered hereunder, as such services
are more fully described in Exhibit B (SOW).
(cccc) "[*****]" means the period of [*****] Calendar Days commencing the
day after EDC.
(dddd) "Operations Support Services" or "OSS" means, with respect to a
Satellite, those support services to be provided by Contractor, as requested by
Customer, beginning upon Handover of each Satellite and ending three (3) months
after Handover, which services shall be provided concurrently with LEOP through
Final Acceptance of the Post-Eclipse Test Report.
(eeee) "Orbital Design Life" means, with respect to a Satellite, the
contracted for design and performance life of fifteen (15) years for each
Satellite, commencing upon Handover.
(ffff) "Partial Loss" shall have the meaning ascribed to it in the policy
of Launch Insurance.
(gggg) "Pending" means, with respect to a legal action, lawsuit, proceeding
or investigation, an action, suit, proceeding, or investigation as to which
Customer has knowledge or received written notice.
(hhhh) "Post-Eclipse Test Report" means, with respect to a Satellite, that
so-named document that is a Deliverable Item under Exhibit B (SOW), the
requirements of which are set forth in Exhibit D (Test Plan Requirements).
(iiii) "Pre-Eclipse Test Report" means, with respect to a Satellite, that
so-named document that is a Deliverable Item under Exhibit B (SOW), the
requirements of which are set forth in Exhibit D (Test Plan Requirements).
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(jjjj) "Primary Satellite Control Center" means Customer's satellite
control facility located in Washington, D.C.
(kkkk) "Program Invention" means any invention, discovery, or improvement
conceived of and first reduced to practice in the performance of the Work under
this Contract. Information relating to Program Inventions shall be treated as
proprietary information in accordance with the provisions of this Contract.
(llll) "Properly Operated Satellite" means a Satellite which is being
monitored and commanded by Customer in accordance with the applicable Data and
Documentation for operations (as such Data and Documentation may be amended by
the Parties) furnished by Contractor to Customer under this Contract.
(mmmm) "Quarterly Incentive Payment Amount" means, with respect to each
Satellite, an amount equal to Two Hundred Eight Thousand Three Hundred Thirty-
Three Dollars and Thirty-Three Cents ($208,333.33) (that is, Twelve Million Five
Hundred Thousand Dollars ($12,500,000) divided by sixty (60) (that is, 15 years
x 4 quarters per year)), as may be adjusted in accordance with the terms of this
Contract.
(nnnn) "Ready for Launch" means, with respect to a Satellite, the time of
successful completion by Contractor of the on-ground testing and delivery of
the on-ground preliminary checklist report, including successful completion of
launch site satellite testing and physical integration with the Launch Vehicle,
including Flight Readiness Review and Launch Readiness Review, in accordance
with Exhibit B (SOW) and Exhibit D (Test Plan Requirements), such that the only
activity remaining prior to Launch is the Launch countdown.
(oooo) "Receiving Party" means the Party who receives Confidential
Information from the Furnishing Party.
(pppp) "Request for Payment" means a request for payment from Contractor in
the form of Attachment A hereto.
(qqqq) "Satellite" means each of the two (2) Hughes 702 satellites to be
Delivered by Contractor to Customer pursuant to this Contract and that conforms
to all the requirements of this Contract.
(rrrr) "Satellite Control Center(s)" means, collectively, the Primary
Satellite Control Center and Back-Up Satellite Control Center, and,
individually, the Primary Satellite Control Center or Back-Up Satellite Control
Center.
(ssss) "Satisfactorily Operating Satellite" means, with respect to a
Satellite, that such Satellite meets or exceeds the performance specifications
set forth in Exhibit A (Satellite Performance Specifications).
(tttt) "Satellite Control Centers (SCC) Equipment and Software" means the
equipment and software to be Delivered to, and installed by Contractor in, the
Primary Satellite Control Center and the Back-Up Satellite Control Center in
accordance with the requirements of Exhibit B (SOW).
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(uuuu) "Shipment Readiness Review" shall have the meaning ascribed to it in
Article 8.2 (Shipment Readiness Review).
(vvvv) "Similar Satellite System" means any digital audio broadcasting
satellite system in S-band, using an access mode to the satellite and a digital
format substantially as described in Exhibit A (Spacecraft Performance
Specifications).
(wwww) "Similar Satellite Service" means digital audio broadcasting
satellite service provided by a Similar Satellite System.
(xxxx) "Spacecraft" means Satellite.
(yyyy) "Spacecraft Performance Specifications" means the technical
specifications set forth in Exhibit A (Spacecraft Performance Specifications),
as may be amended pursuant to this Contract.
(zzzz) "Specified Orbital Location" means, with respect to each Satellite,
the geostationary synchronous orbital location specified in Exhibit A
(Spacecraft Performance Specifications).
(aaaaa) "Statement of Work" or "SOW" means the Work described in Exhibit B
to this Contract and to be provided by Contractor, as may be amended pursuant to
this Contract.
(bbbbb) "Subcontract" means a contract awarded by Contractor to a
Subcontractor or a contract awarded by a Subcontractor.
(ccccc) "Subcontractor" means a person, firm, corporation, or business
entity that has been awarded a Subcontract.
(ddddd) "Termination Liability Amounts" means the amounts listed as
Termination Liability Amounts in Exhibit G (Payment Plan and Termination
Liability Amounts) of this Contract, as may be amended pursuant to this
Contract.
(eeeee) "Test Plan" means the test plans set forth in Exhibit D (Test Plan
Requirements), as may be amended pursuant to this Contract.
(fffff) "Test Requirements" means the test plans and test procedures set
forth in Exhibit D (Test Plan Requirements), as may be amended pursuant to this
Contract.
(ggggg) "Total Amount at Risk" means a total firm-fixed sum of Twenty-Five
Million Dollars ($25,000,0000) eligible to be earned by Contractor as
performance incentive payments ($12,500,000 per Satellite) pursuant to Article
12 (In-Orbit Performance Incentive Payments), as such Total Amount at Risk may
be adjusted in accordance with Article 12.1 (Total Amount at Risk).
(hhhhh) "Training" means the training to be provided under this Contract,
including training for operation of the Satellites in geostationary orbit, as
more fully described in Exhibit B (SOW).
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(iiiii) "Work" means all design, development, construction, manufacturing,
labor, services, and acts, including tests to be performed, and any and all
Deliverable Items, including the Satellites, Satellite Control Center Equipment
and Software, Dynamic Spacecraft Simulator, Communications Payload Simulator,
Long-Lead Activities and Items, Data and Documentation, Launch Campaign, Launch
Services, LEOP services, OSS, MSS, Training, and equipment, materials, articles,
matters, services, and things to be furnished and rights to be transferred under
this Contract, or any Subcontract entered into by Contractor, all as further
described in Exhibit B (SOW).
1.2 Other Terms.
Other terms in this Contract are defined in the context in which they are
used and shall have the meanings there indicated.
1.3 Integration and Construction.
The documents listed below in this Article 1.3 (Integration and
Construction), including any Exhibits, Attachments, Schedules, and Annexes, as
amended from time to time in accordance with Article 34.3 (Amendments),
constitute this Contract and shall be deemed to constitute one fully integrated
agreement between the Parties. In the event of any conflict or inconsistency
among the provisions of the various documents of this Contract, such conflict or
inconsistency shall be resolved by giving a descending level of precedence to
the documents in the order set forth below:
(a) Terms and Conditions
(b) Exhibit G - Payment Plan and Termination Liability Amounts
(c) Exhibit G-1 - Payment Plan for Interest on In-Orbit Incentive Amounts
(d) Exhibit G-2 - Ground Spare Satellite Payment Plan and Termination
Liability Amounts
(e) Exhibit G-3 - 4th and 5th Optional Satellites Payment Plan and
Termination Liability Amounts
(f) Exhibit B - Statement of Work (SOW)
(g) Exhibit A - Spacecraft Performance Specifications
(h) Exhibit D - Test Plan Requirements
(i) Exhibit C - Product Assurance Plan
(j) Exhibit E - Radiation Environment
(k) Exhibit F - Long-Lead Activities and Items
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1.4 Headings; Number and Gender.
The Article headings are for convenience of reference only and shall not be
considered in interpreting the text of this Contract. Words in the singular
include the plural and vice versa, and words imputing the masculine gender
include the feminine and neuter genders where the context so requires.
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<PAGE>
2. SCOPE OF WORK
2.1 General.
(a) In accordance with the requirements of this Contract, Contractor shall
sell and Customer shall purchase the Work.
(b) Contractor shall furnish and perform the Work in accordance with the
provisions of this Contract and in the manner specified in the following
documents:
<TABLE>
<S> <C> <C>
(1) Terms and Conditions
(2) Exhibit A - Spacecraft Performance Specifications
(3) Exhibit B - Statement of Work (SOW)
(4) Exhibit C - Product Assurance Plan
(5) Exhibit D - Test Plan Requirements (On-Ground and In-Orbit)
(6) Exhibit E - Radiation Environment
(7) Exhibit F - Long-Lead Activities and Items
(8) Exhibit G - Payment Plan and Termination Liability Amounts
(9) Exhibit G-1 - Payment Plan for Interest on In-Orbit Incentive Amounts
(10) Exhibit G-2 - Ground Spare Satellite Payment Plan and Termination
Liability Amounts
(11) Exhibit G-3 - 3rd and 4th Optional Satellites Payment Plan and Termination
Liability Amounts
</TABLE>
(c) Exhibits A, B, C, D, E, F, G, G-1, G-2, and G-3 are attached to and
incorporated into these Terms and Conditions.
2.2 Long-Lead Activities and Items.
The preliminary list of Long-Lead Items is attached to this Contract as
Exhibit F (Long-Lead Activities and Items). The final list shall be provided by
Contractor on or before September 31, 1999.
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****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
3. EFFECTIVE DATE OF CONTRACT (EDC; [*****])
3.1 Effective Date of Contract (EDC).
This Contract shall be effective as of, and the effective date of this
Contract (the "Effective Date of Contract" or "EDC") shall be, March 23, 1998.
3.2 Contractor Work Commitment.
Beginning upon EDC and continuing for the term of the [*****], Contractor
shall commence the Work in full compliance with the requirements of this
Contract and perform sufficient Work to maintain the Delivery Dates for the
Satellites. Such Work during the [*****] shall be comprised of the completion or
provision, as the context indicates, of the following work effort as may be more
fully described in Exhibit B (SOW):
(a) program kickoff meeting;
(b) System Requirements Status Review and release of Satellite Payload and
Bus specifications;
(c) release of performance specifications for: communications receivers, IF
processors, output combiner, TWTA, and frequency generator;
(d) subcontract, or select vendor for, TWTA electronic power converters;
(e) mutually agree upon EIRP requirements and finalize Exhibit A
(Spacecraft Performance Specifications) (that is, close "TBRs," "TBSs," and
"TBDs");
(f) detailed payload block diagram;
(g) payload panel layout;
(h) detailed mass budget;
(i) detailed power budget;
(j) top level propellant budgets for all potential alternate Launch
Vehicles;
(k) preliminary field-of-view drawings for all sensors and all antennas;
and
(l) preliminary list of Long-Lead Activities and Items for the Ground Spare
Satellite.
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****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
3.3 [*****]; Expiration Thereof; Remedies.
(a) The [*****] shall terminate upon the earlier of (i) receipt of the
[*****] Payment (as more fully described in Exhibit G (Payment Plan and
Termination Liability Amounts)) by Contractor, or (ii) [*****] Calendar Days
from EDC plus any applicable cure period not to exceed sixty (60) Calendar Days
(the "Cure Period"). Prior to expiration of the [*****], Customer shall provide
Contractor with a status report of Customer's funding plans for the first six
(6) months of Milestone Payments under this Contract.
(b) In the event Contractor has not received the [*****] Payment on
or before the date of expiration of the [*****] and Contractor has completed the
work effort required by Article 3.2 (Contractor Work Commitment) above,
the following shall apply during the Cure Period:
(1) Contractor shall be entitled to stop Work;
(2) the Delivery Schedule shall be adjusted on a day-for-day basis,
together with adjustments for associated delays related to
establishment of Launch Periods and Launch Slots;
(3) the Payment Plan set forth in Exhibit G (Payment Plan and
Termination Liability Amounts) shall be adjusted in accordance
with the revised Delivery Schedule; and
(4) the Contract Price shall be increased by an aggregate total of
[*****] during the Cure Period, on a daily pro rata basis in
accordance with the following table:
<TABLE>
<CAPTION>
Table 3.3(b)
Contract Price Increases
----------------------------------------------------------------------------
Following [*****] Increase (USD)
(Cure Period)
----------------------------------------------------------------------------
<S> <C>
1st 30 Calendar Days [*****]
(or daily pro-rated portion
thereof (daily rate of [*****])
----------------------------------------------------------------------------
2nd 30 Calendar Days [*****]
(or daily pro-rated portion
thereof (daily rate of [*****])
----------------------------------------------------------------------------
</TABLE>
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****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
For example, if Contractor receives the [*****] Payment on the fortieth
(40th) Calendar Day after expiration of the [*****], the Contract Price shall be
increased by [*****] (that is, [*****] for the first thirty (30) Calendar Days
plus [*****] for the ten (10) Calendar Days in excess of the first thirty (30)
Calendar Days ([*****] multiplied by 10 for the last ten (10) Calendar Days)).
In the event the above Contract Price increases are incurred, the Parties
shall mutually agree to appropriate amendments to Exhibit G (Payment Plan and
Termination Liability Amounts).
(c) In the event Contractor does not receive the [*****] Payment on or
before the expiration of the Cure Period and Contractor has completed the work
specified in Article 3.2 (Contractor Work Commitment) above, the following shall
apply:
(1) Contractor shall be entitled to retain the first [*****]
Milestone Payments and the Calendar Payment for Long-Lead Items
made during such [*****] in full;
(2) With the exception of Contractor's Intellectual Property,
Contractor shall deliver to Customer all inventory, technical
documents and all work in process relating to the Work developed
or produced by Contractor during the [*****], provided that all
payments (other than the [*****] Payment) have been made by
Customer; and
(3) this Contract shall terminate and the Parties shall have no
further obligations to each other, except as expressly set forth
in Article 22 (Confidential Information).
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****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4. CONTRACT PRICE
4.1 Contract Price.
(a) In accordance with this Contract, Customer shall pay Contractor for
the Work the Contract Price set forth in Table 4.1 below. The Contract Price
shall be paid in accordance with Article 5 (Payment).
(b) The total Contract Price is allocated as follows:
<TABLE>
<CAPTION>
Table 4.1
Contract Price
- ----------------------------------------------------------------------------------------------------------------------
Item (USD)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. 1st and 2nd Satellites
$ [*****]
- ----------------------------------------------------------------------------------------------------------------------
2. Launch Services for the 1st and 2nd Satellites $ [*****]
- ----------------------------------------------------------------------------------------------------------------------
3. Operations Support Services for 1st Satellite $ [*****]
- ----------------------------------------------------------------------------------------------------------------------
4. Operations Support Services for 2nd Satellite $ [*****]
- ----------------------------------------------------------------------------------------------------------------------
5. Communications Payload Simulator, Satellite Control Centers Equipment and
Software, Dynamic Spacecraft Simulator $ [*****]
- ----------------------------------------------------------------------------------------------------------------------
6. Long-Lead Activities and Items for Ground Spare Satellite
$ [*****]
- ----------------------------------------------------------------------------------------------------------------------
CONTRACT PRICE $ 447,513,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) In addition to the Deliverable Items identified in Table 4.1 above, the
Contract Price includes:
(1) all related Training and Data and Documentation;
(2) on-ground insurance covering the Work up to, but not including,
Launch of the Launch Vehicles;
(3) transportation, including air shipment, to the Launch Site and
other related charges;
(4) Launch Campaigns for the first and second Satellites;
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(5) LEOP for the first and second Satellites;
(6) Mission Support Services for the first and second Satellites;
(7) pre-Launch deferred payments; and
(8) Incentive Amounts.
(d) The Contract Price does not include:
(1) Launch Insurance;
(2) any interest on the pre-Launch deferred payments;
(3) any interest on the Incentive Amounts; and
(4) Ground Software source code license.
4.2 Changes in Contract Price.
This is a firm-fixed price Contract. Except as otherwise expressly
provided in this Contract, the Contract Price is not subject to any escalation
or to any adjustment or revision.
4.3 Taxes and Duties.
The Contract Price includes all applicable taxes and duties related to the
Work in effect as of the Effective Date of Contract, and thereafter, including
all taxes on the import of any Satellite, or component part thereof, or any
other component of the Work into any United States, French, Chinese and/or
Japanese jurisdictions, if applicable, for Launch or other purpose, personal
property taxes, imposts, sales, use, excise, value added, and all other import
and export taxes levied in connection with the performance of the Work, wherever
the Work is being carried out.
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****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
5. PAYMENT.
5.1 Requests for Payment and Invoices.
(a) Customer shall make Milestone Payments, Major Calendar Payments and
other Calendar Payments to Contractor in accordance with the Payment Plan set
forth in Exhibit G (Payment Plan and Termination Liability Amounts).
(b) With the exception of the First Milestone Payment, which shall have been
paid on or before EDC, and the [*****] Payment, which shall be paid to
Contractor no later than the last day of the [*****] or the last day of
the Cure Period, if any, as required by Article 3 (Effective Date of Contract
(EDC); [*****]), each Milestone Payment shall be due upon Contractor completing
the applicable Milestone and submitting to Customer a Request for Payment,
accompanied by a certificate in the form of Annex I to Attachment A hereto
together with such supporting data as Contractor deems necessary or appropriate.
A Milestone shall not be regarded as completed, and no payment shall be made,
until all the Work relevant to that Milestone has been completed and documented
in accordance with applicable specifications and procedures and all the relevant
documentation and Training required under this Contract for such Milestone has
been provided to Customer.
(c) With the exception of Program Calendar Payment No. 1, which shall be
paid on or before July 9, 1999, Contractor shall, with respect to each Calendar
Payment, provide Customer with a Request for Payment at least ten (10) Calendar
Days but no more than forty-five (45) Calendar Days in advance of the date when
such payment is required to be made by Customer pursuant to Exhibit G (Payment
Plan and Termination Liability Amounts); provided, however, each Major Calendar
Payment shall be subject to satisfaction by Contractor of the following
conditions precedent:
(1) with respect to the Major Calendar Payment applicable to the first
Launch Vehicle, as specified in Exhibit G (Payment Plan and
Termination Liability Amounts), Contractor will invoice Customer
[*****] Calendar Days prior to the date of the scheduled Launch;
(2) with respect to the Major Calendar Payment applicable to the
second Launch Vehicle, as specified in Exhibit G (Payment Plan and
Termination Liability Amounts), Contractor will invoice Customer
[*****] Calendar Days prior to the date of the scheduled Launch;
(3) with each such invoice for a Major Calendar Payment, Contractor
shall provide certification that the official Launch manifest, as
established by the Launch Agency, provides that the Launch Date
for such Launch
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****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
Vehicle is no more than [*****] Calendar Days from the due date of the
Major Calendar Payment for the first launch and no more than [*****]
Calendar Days from the due date of the relevant Major Calendar Payment
for the second Launch.
(d) Contractor shall telefax and airmail signed copies of each Request for
Payment, invoice and accompanying certificate and any supporting data to:
XM Satellite Radio Inc.
1250 23rd Street, N.W., Suite 57
Washington, DC 20037
Attention: Mr. Heinz Stubblefield
Sr. Vice President and CFO
Fax Number: 202-969-7113
5.2 Payment.
(a) Milestone Payments, Major Calendar Payments and Other Calendar
--------------------------------------------------------------
Payments.
--------
(1) Customer shall pay Contractor in full each Milestone Payment,
Major Calendar Payment, and other Calendar Payments, as set forth
in Exhibit G (Payment Plan and Termination Liability Amounts),
within thirty (30) Calendar Days after delivery, in accordance
with the procedures and upon satisfaction of the conditions set
forth in Article 5.1 (Requests for Payment and Invoices), of a
Request for Payment, accompanied by a certificate in the form of
Annex I to Attachment A hereto, with respect to a Milestone
Payment, and of an invoice, with respect to any Major Calendar
Payment or other Calendar Payment, by wire transfer to the
following bank account:
Bank: Bank of America
Address: Concord, California, U.S.A.
Account No.: [*****]
(2) In no event shall the cumulative Milestone Payments made to
Contractor for the Work at any point in time exceed the
cumulative amounts specified up to that point in time for
Milestone Payments for the Work as set forth in Exhibit G
(Payment Plan and Termination Liability Amounts), as may be
modified from time to time pursuant to Article 34.3 (Amendments).
(3) In the event of early completion by Contractor of a Milestone in
advance of such Milestone completion date as set forth in Exhibit
G (Payment Plan and Termination Liability Amounts), Customer
shall not be obligated to
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<PAGE>
make the corresponding Milestone Payment to Contractor in advance
of the payment due date therefore as set forth in Exhibit G.
(4) Notwithstanding the foregoing, Customer, in its sole discretion,
may agree to make a partial payment to Contractor for the partial
completion of a Milestone event.
(5) Major Calendar Payments are to be made by Customer if the
conditions precedent thereto are met by Contractor
notwithstanding if Contractor is otherwise in default of this
Contract under Article 32.2 (Termination for Contractor's
Default); the Parties intend that Customer's remedy in such event
is termination of this Contract (in which case no payments would
be made) and not withholding of Major Calendar Payments.
(6) Except for disputed amounts under Article 5.3 (Disputed Amounts),
all payments made by Customer to Contractor prior to and
including the Major Calendar Payments and other Calendar Payments
shall be deemed fully earned by Contractor upon receipt of such
payments.
(b) Other Payments. Except as otherwise expressly stated herein, all
--------------
other payments by Customer due Contractor shall be made by wire transfer to the
bank account identified in paragraph (a) above within thirty (30) Calendar Days
after receipt by Customer of a telefaxed Request for Payment (followed by an
airmailed original received by Customer within five (5) Calendar Days of receipt
of such telefaxed request).
5.3 Disputed Amounts.
(a) If Customer does not agree that the Milestone associated with a
Request for Payment has been satisfactorily completed, Customer shall give
written notice to Contractor within ten (10) Calendar Days after receipt by
Customer of a Request for Payment. Upon receipt of such notice, the Parties'
respective Program Managers shall meet and use good faith efforts to resolve
such disagreement.
(b) If the Parties' Program Managers fail to resolve such disagreement
within thirty (30) Calendar Days after receipt by Customer of the Request for
Payment, Customer shall deposit, subject to paragraph (d) below, within five (5)
Calendar Days after expiration of the aforementioned thirty (30) Calendar Day
period, all or a portion of the disputed Milestone Payment, in accordance with
Table 5.3 below, into a separate, interest-bearing account to be established by
Contractor at Contractor's commercial bank to hold solely and separately from
all other corporate funds ("In-House Escrow Account"), any such amounts that may
be disputed hereunder up to the limitations set forth in paragraph (c) below.
(c) In no event shall any disputed amounts deposited into the In-House
Escrow Account exceed the limitations set out below in Table 5.3:
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****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<CAPTION>
Table 5.3
Schedule of Disputed Amounts that may be Deposited in the In-House Escrow Account
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Period in which Disputed Amounts Arise Limitation on Disputed Amounts that may be Deposited
in the In-House Escrow
Account
- -----------------------------------------------------------------------------------------------------------------
EDC through the last day of the ninth (9th) month [*****]
following EDC
- -----------------------------------------------------------------------------------------------------------------
The first day of the tenth (10th) month following EDC [*****]
through the last day of the eleventh (11th) month
following EDC
- -----------------------------------------------------------------------------------------------------------------
The first day of the twelfth (12th) month following EDC [*****]
to the date of Launch of the second Satellite (excluding Incentive Amounts)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(d) To the extent, if any, the aggregate of disputed Milestone Payment
amounts exceeds the applicable limitation for the period in which the dispute
over the Milestone Payment arises, Customer shall pay to Contractor the excess
over the applicable limitation, pending resolution of the dispute in accordance
with the provisions of this Article 5.3 (Disputed Amounts).
(e) The respective Chief Executive Officers of each Party shall meet to
resolve the dispute within five (5) Calendar Days after the aforementioned
thirty (30) Calendar Days following receipt by Customer of the Request for
Payment.
(f) Withheld amounts shall remain in the In-House Escrow Account, or if any
amounts are paid to Contractor pursuant to paragraph (d) above, Contractor shall
retain such amounts, until the Chief Executive Officers resolve the dispute
relating to such disputed payments. In the event the Chief Executive Officers
cannot resolve such dispute, the Parties may, upon mutual agreement, seek
resolution of such dispute pursuant to Article 27.2 (Arbitration). In any event,
such unresolved dispute shall be referred to arbitration pursuant to Article
27.2 (Arbitration) after six (6) months following the date upon which such
dispute was referred to the Chief Executive Officers. Contractor agrees that
prior to the resolution of any dispute, including any disputes ultimately
resolved in favor of Contractor, Contractor shall not remove or use any amounts
deposited in the In-House Escrow Account.
(g) In the event it is determined by the Chief Executive Officers or
any arbitral tribunal that the payment deposited in the In-House Escrow Account
or any part thereof is due and payable to Contractor, Contractor may then
release that amount from such Account for Contractor's use and retain all
interest accrued thereon. In the event it is determined by the Chief Executive
Officers or any arbitral tribunal that the withheld payment or any part thereof
is due and payable to Customer, such amount shall be refunded to Customer within
five (5) Calendar Days after such determination, including, to the extent of the
Chief Executive Officers' determination, any amounts paid by Customer, under
paragraph (d) above, in excess of the
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limitation on disputed amounts otherwise eligible to be placed in the In-House
Escrow Account, together with interest on the total thereof to be calculated in
accordance with Article 34.10 (Calculation of Interest).
5.4 Set Off.
In the event one Party has not paid the second Party any amount that is due
and payable to the second Party under this Contract, such second Party shall
have the right to set off such amount against payments due to the first Party,
provided any amount in dispute pursuant to Article 5.3 (Disputed Amounts) shall
not be considered eligible for setoff while the dispute is being resolved.
5.5 Late Payment.
(a) The Parties acknowledge and agree that, with respect to any Milestone
Payments, Major Calendar Payments, and other Calendar Payments, Contractor may
suffer damages as the result of any delayed receipt of such payments and the
rapid decrease, over time, of the value of the Work. Accordingly, the Parties
agree that time is of the essence in the receipt by Contractor of Milestone
Payments, Major Calendar Payments, and other Calendar Payments, properly due
Contractor, and, subject to Article 32.3 (Termination for Customer's Default),
Contractor may, upon a default in such payment by Customer, immediately and
without further notice to Customer, exercise all its rights and remedies in
accordance with the terms of this Contract.
(b) For any payment under this Contract that is overdue, the Party entitled
to such payment shall also be entitled to interest on such payment for each day
the payment is overdue until the day payment is made, such interest to be
calculated in accordance with Article 34.10 (Calculation of Interest), unless
expressly provided otherwise in this Contract.
5.6 Payments Current at Launch.
(a) With respect to any Milestone, Major Calendar Payment, or other
Calendar Payment, Contractor may suspend performance if Customer does not comply
with the provisions of Article 5.3 (Disputed Amounts).
(b) Contractor shall not be required to proceed to Launch of a Satellite
unless (i) Customer is current on all payments due at that point in time with
respect to such Satellite, (ii) any and all disputes related to any Milestone
Payment and pertaining only to such Satellite to be Launched are resolved, and
(iii) any such Milestone Payment amount (related to such Satellite) held in
escrow pursuant to Article 5.3 (Disputed Amounts) is released to Contractor, if
it is ultimately determined that Contractor is entitled to such payments.
5.7 Security Interest.
(a) Until Contractor's receipt of the Major Calendar Payments, or as
provided in paragraph (c) below, whichever occurs first, Customer hereby grants
Contractor a first priority security interest in any right, title, or interest
Customer may have or be deemed to have in the Work to secure Customer's
obligations to Contractor under this Contract. Until Contractor's receipt of the
Major Calendar Payments, Customer shall have no interest in the Work, except as
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<PAGE>
specifically provided in this Article 5.7 (Security Interest) and in paragraph
(c) of Article 32.2 (Termination for Contractor's Default).
(b) The Parties agree that, upon Contractor's reasonable request, Customer
shall sign and permit Contractor to file, for precautionary purposes,
appropriate Uniform Commercial Code financing statements or any similar document
having the same effect in foreign countries, reflecting Contractor's right,
title, and interest to the Deliverable Items prior to receipt of the Major
Calendar Payments, provided that Contractor, at its sole expense, shall be
responsible for preparing such financing statements and terminating such
financing statements as required by this Article 5.7 (Security Interest).
(c) Subject to Article 5.6 (Payments Current at Launch), Contractor agrees
to release and terminate its security interest, and to terminate any related
financing statements, in accordance with the following:
(1) with respect to the first Satellite, Contractor's security
interest therein shall be released and terminated upon Launch of
the first Satellite;
(2) with respect to the second Satellite and all other Deliverable
Items under this Contract, Contractor's security interest in the
second Satellite and all other Deliverable Items comprising the
Work, shall be released and terminated upon Launch of the second
Satellite; and
(3) with respect to a Launch Vehicle, Contractor's security interest
therein shall be released and terminated upon Contractor's receipt
of the Major Calendar Payment applicable to such Launch Vehicle.
(d) Customer represents and warrants that, prior to release of Contractor's
security interest in accordance with this Article 5.7 (Security Interest),
Customer's assets do not and will not secure the liabilities of any parent
entity, or any other person or other entity.
(e) The preceding representations and warranties of Customer apply, with
respect to the first Satellite, only prior to Launch of the first Satellite,
and, with respect to the second Satellite and all other Deliverable Items, only
prior to Launch of the second Satellite. Such representations and warranties of
Customer shall not apply to any financing entered into by Customer or Customer's
Affiliates to obtain the funding for a Major Calendar Payment required pursuant
to this Contract which results in the Major Calendar Payment being made
substantially concurrently with such financing being obtained for such payment.
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6. ACCESS TO WORK
6.1 Facilities.
(a) Subject to Article 6.10 (Consultant Access), Contractor shall provide
Customer Personnel reasonable access to all Work (including work-in-progress,
documentation, and testing) at the facilities of Contractor and the
Subcontractors, during regular business hours, or such other times as Work is
being performed under this Contract, provided such access does not unreasonably
interfere with such Work and access to Work is coordinated through Contractor's
program office.
(b) The Parties agree that Customer Personnel shall be provided fifteen
(15) non-escort permanent badges and twenty-five (25) escort permanent badges to
agreed work areas where the Work is being performed, subject to Customer
identifying such personnel to Contractor and such personnel satisfying
Contractor's normal security clearance requirements.
(c) Contractor shall arrange with the Launch Agency(ies) for Customer VIPs
to attend the Launch of a Satellite, subject to any limitations of
such Launch Agency.
6.2 Office Space.
Contractor shall provide office space and facilities at Contractor's
facilities for the accommodation of up to six (6) Customer Personnel.
Contractor shall make reasonable work space available for such Customer
Personnel at environmental test facilities (if located off site) and shall use
reasonable efforts to ensure that facilities are provided for up to two (2) such
Customer Personnel at other selected Major Subcontractors' plants on a temporary
basis to attend meetings or witness tests, except that (i) with respect to
facilities at a Designated Launch Site, Contractor shall use reasonable efforts
to ensure that office space facilities are provided for up to five (5) Customer
Personnel and, in the case of a Launch by Sea Launch, Contractor shall ensure
that two (2) Customer Personnel are entitled to a berth on a viewing boat for an
extended period of time prior to and during Launch and (ii) the facilities at
the Payload Subcontractor (Alcatel) shall be on a permanent basis. At a
minimum, Contractor shall provide desks, chairs, office supplies, local
telephone service, reasonable long distance telephone usage, car parking
facilities, and access to meeting rooms, copying machines and facsimile
equipment, and, as available, access to and use of video conferencing facilities
at Contractor's facilities. Customer shall reimburse Contractor for all long
distance telecommunications charges, whether incurred in connection with voice
or facsimile transmission or video conferencing.
6.3 Security.
Customer Personnel visiting any facility of Contractor or a Subcontractor
(i) will abide by Contractor's security regulations and/or those of its
Subcontractors and any and all applicable Laws of the jurisdiction in which a
Contractor or Subcontractor facility is located, provided, however, Customer
Personnel are advised in writing of any such security regulations prior to such
visits; (ii) subject to Article 20 (Intellectual Property Rights) and Article 22
(Confidential Information), will use any information received in connection with
the access provided hereunder only in the performance of this Contract; and
(iii) will not remove any documents,
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materials, or other items from any facility of Contractor or its Subcontractors
(other than Data and Documentation and other documents delivered to Customer
Personnel for Customer's use and with no requirement to return to Contractor)
without the express written consent of Contractor's Program Manager.
6.4 Data and Documentation.
(a) Customer Personnel will have reasonable access at the facilities of
Contractor and the Subcontractors, for evaluation and inspection purposes only,
to (i) Data and Documentation; (ii) Work-in-progress, technical and schedule
data and documentation relevant to the Work; (iii) drawings, circuit diagrams
and schematics, specifications, standards or process descriptions relevant to
the Work; and (iv) data and documentation provided to Contractor by its
Subcontractors relevant to the Work. To facilitate Customer's work in this
respect, Contractor will allow Customer Personnel reasonable access to all
indexes related to the materials set forth in this paragraph (a).
(b) Subject to Article 6.3 (Security), where the materials described in
paragraph (a) are necessary for evaluation of designs, performance
considerations, assessment of test plans and test results, or for any other
purpose connected with the design, qualification, testing, Final Acceptance, or
operation of the Work, or any part thereof, and the components thereto,
Contractor will, subject to Article 22 (Confidential Information), make
available to Customer Personnel copies of such documentation on the reasonable
request of Customer Personnel at no charge to Customer.
(c) All Data and Documentation shall be in the English language.
(d) Any data provided by a Party to the other Party in electronic form
shall be embodied in, or in a form compatible with, commercially available
software.
6.5 Electronic Access.
(a) With respect to electronically generated information, Contractor will
provide Customer with a copy of and/or electronic access (via the Internet,
Contractor e-mail, proprietary or otherwise, or as agreed upon) to such
information as is necessary to keep Customer advised, on a current basis, of
program issues, decisions, and problems. Contractor shall provide Customer
Personnel access to Contractor's electronic mail systems through the Internet,
such access to be at Customer's cost. If requested in writing by Customer,
Contractor shall establish secure data links between its and Customer's
facilities such that Customer has remote electronic access to those project-
related documents identified in Exhibit B (SOW); provided, however, Contractor
shall be required to provide such links for a high-data transfer rate (such as
for satellite telemetry) only on an as needed basis, with each Party bearing the
costs of establishing the link at its end.
(b) Contractor will also provide Customer Personnel with "real time" access
to all measured data for the Work taken at Contractor's and/or Subcontractors'
facilities on a non-interference, no-cost basis.
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6.6 Meetings and Reviews.
(a) Customer Personnel shall be entitled to attend the meetings and reviews
(including meetings and reviews held by electronic means) of Contractor and of
Contractor with any Subcontractor(s) where such meetings and reviews (or
portions of such meetings and reviews) are related to Customer's project
schedule, management, engineering, design, manufacturing, integration, testing,
or Launch and shall have the right to participate in and make recommendations,
but not to control, give directions or assign actions, in all meetings and
reviews at the system, subsystem and unit level, as well as in internal program
reviews. Contractor shall (i) submit an agenda at least ten (10) Calendar Days
in advance of the meeting or review, (ii) take minutes, (iii) maintain an action
items list, and (iv) circulate the minutes and action items to Customer within
five (5) Calendar Days following the meeting or review.
(b) In the event a meeting or review is convened at the facilities of
Contractor or a Subcontractor relating to the Work, Contractor shall, except as
otherwise provided in these Terms and Conditions of this Contract, provide
reasonable advance notice in writing to Customer (e.g., one week for regularly
scheduled meetings) and shall make reasonable and appropriate arrangements to
facilitate the entry of Customer Personnel to the meeting place.
(c) Notwithstanding the foregoing, Customer and Contractor acknowledge and
agree that a large number of meetings, including impromptu meetings, will be
held during the normal course of performance of this Contract and that, in all
instances of meetings relating to this Contract, notice to Customer or
Customer's presence at all such meetings may not be practicable. Accordingly,
Contractor is not required to provide notice to Customer of such impromptu,
unscheduled, informal and otherwise casual meetings (informal meetings),
provided that Contractor shall supply to Customer within a reasonable time
following any such informal meeting, any material notes, decisions, actions
items or other such product of such informal meetings that would otherwise be
provided to Customer at meetings Customer would normally attend.
6.7 Laws.
Contractor's obligations under this Article 6 (Access to Work) shall be
subject to any and all applicable Laws of any country, state, or territory
having jurisdiction over the Work, and to Contractor's standard security rules
and regulations; provided, however, Contractor shall use its best efforts to
ensure its internal security rules and regulations do not unduly restrict access
or viewing by Customer Personnel.
6.8 No Relief.
The inspection, examination, observation, agreement to or approval, waiver
or deviation by Customer with respect to any design, drawing, specification, or
other documentation produced under this Contract shall not relieve Contractor
from fulfilling its contractual obligations or result in any liability being
imposed on Customer, unless and to the extent such waiver, deviation, agreement,
or approval specifically provides in writing for such relief to Contractor or
such imposition of liability on Customer.
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6.9 Major Subcontracts.
Contractor shall require that any Major Subcontract entered into
substantially concurrently with or following the execution of this Contract
include a provision substantially similar to this Article 6 (Access to Work) to
ensure Customer's rights under this Contract, but Contractor shall not be
required to amend any bulk procurement contract to include such provision.
6.10 Consultant Access.
Customer shall submit to Contractor the individual name(s) and citizenship
information pertaining to any proposed representatives or Consultants who
require access to any premises and/or any Contractor or Subcontractor
proprietary information, and Contractor shall have the right to approve such
access for such representatives or Consultants. Contractor shall approve or
disapprove of any such individual name(s) submitted by Customer for such access
within five (5) Business Days of Customer's submission except in the case of
submissions made during Contractor's end-of year Holiday shutdown, in which case
Contractor shall provide such approval or disapproval within ten (10) Business
Days. Such approval shall not be withheld by Contractor unless (i) Contractor
reasonably believes such representative or Consultant is employed by, or is an
Affiliate of a direct competitor of Contractor, or (ii) Contractor has knowledge
of incidents in which such representative or Consultant demonstrated behavior or
activity that, in Contractor's reasonable judgment, is incompatible with
Contractor's ability to achieve the objectives of this Contract. In the event
Contractor disapproves of a representative or Consultant proposed by Customer,
Contractor shall provide Customer with an explanation, which need not be
written, of its reasons for disapproval.
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
7. DELIVERY AND DELIVERY INCENTIVES
(a) Deliverable Items, as listed in Table 7.1 below, shall be Delivered by
Contractor to the destinations indicated, on or before the dates
("Delivery Dates") specified in such Table, as such Delivery Dates may
be adjusted in accordance with this Contract.
<TABLE>
<CAPTION>
Table 7.1
Delivery Schedule
- ------------------------------------------------------------------------------------------------------------------------
Deliverable Item Delivery Date or Performance Date Place of Delivery
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. 1st Satellite, Launch December 31, 2000* Specified Orbital Location for
Campaign, Launch Services, the Satellite, and other
and LEOP (1st Satellite locations for the provision of
through Handover) services as specified in Exhibit
B (SOW)
- ------------------------------------------------------------------------------------------------------------------------
2. Pre-Eclipse Test Report with [*****] following completion of Customer's Facilities
respect to the 1st Satellite In-Orbit Testing
- ------------------------------------------------------------------------------------------------------------------------
3. Post-Eclipse Test Report [*****] following the end of the Customer's Facilities
with respect to the 1st first full eclipse period after
Satellite Launch
- ------------------------------------------------------------------------------------------------------------------------
4. 2nd Satellite, Launch April 11, 2001* Specified Orbital Location for
Campaign, Launch Services, the Satellite, and other
and LEOP (2nd Satellite locations for the provision of
through Handover) services as specified in Exhibit
B (SOW)
- ------------------------------------------------------------------------------------------------------------------------
5. Pre-Eclipse Test Report with [*****] following completion of Customer's Facilities
respect to the 2nd Satellite In-Orbit Testing
- ------------------------------------------------------------------------------------------------------------------------
6. Post-Eclipse Test Report [*****] following the end of the Customer's Facilities
with respect to the 2nd first full eclipse period after
Satellite Launch
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Table 7.1
Delivery Schedule
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
7. Operations Support Services [*****] Primary Satellite Control Center,
Washington, DC or Back-Up
Satellite Control Center
- ------------------------------------------------------------------------------------------------------------------------
8. Mission Support Services [*****] Contractor's Facilities
- ------------------------------------------------------------------------------------------------------------------------
9. Communications Payload [*****] Customer's facilities in
Simulator** Washington, DC
- ------------------------------------------------------------------------------------------------------------------------
10. Satellite Control Centers [*****] Customer's Primary and Back-Up
Equipment and Software*** Satellite Control Centers in
Washington, DC area
- ------------------------------------------------------------------------------------------------------------------------
11. Dynamic Spacecraft Simulator [*****] Primary Satellite Control Center,
Software and Hardware Washington, D.C.
- ------------------------------------------------------------------------------------------------------------------------
12. Training Per Exhibit B (SOW) Per Exhibit B (SOW)
- ------------------------------------------------------------------------------------------------------------------------
13. Data & Documentation Per Exhibit B (SOW) Per Exhibit B (SOW)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Assumes (i) Customer makes Program Calendar Payment No.1 on or before July 9,
1999 and (ii) Customer makes timely payment in respect of Engineering Model
Reflector Work Nos. 1, 2 and 3 in accordance with Exhibit G (Payment Plan and
Termination Liability Amount).
** In case of a problem with the Satellite, the engineering models delivered
with the Communications Payload Simulator will be returned to Contractor, at
Contractor's cost, for investigation and testing.
*** If after final definition of the training program provided for in Exhibit B
of this Contract, Customer determines, in its reasonable discretion, that the
[*****] time period available for on-site operator training at Customer's
facilities is not sufficient, Contractor agrees to install, at [*****],
software that is the then current release of the Satellite Control Center
Software to be provided under this Contract in order to provide additional time
for such training.
(b) Contractor understands and agrees that, with respect to the Delivery
Dates for all Deliverable Items, whether those items are set out in this
Contract or subsequent Amendments to this Contract, time is of the essence under
this Contract. Nothing in the foregoing sentence shall in any way modify either
the specific remedies for default specified elsewhere in this Contract,
including Article 10 (Liquidated Damages for Late Delivery), Article 32.2
(Termination for
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Contractor's Default), or Article 10.3 (Termination for Unexcused Delay), or the
specific dispute resolution requirements specified in this Contract.
(c) Packing and shipping shall be in accordance with standard commercial
practices of the aerospace industry and applicable Laws and shall be
effected in such a manner so as to ensure that the item reaches its
destination undamaged.
(d) Contractor's obligation to Deliver the Work in accordance with the
Delivery Schedule set forth in Table 7.1 above is conditioned upon the
following occurring on or before July 9, 1999: (i) Contractor receives
Program Calendar Payment No. 1 in the amount of Sixty-Eight Million
Dollars ($68,000,000) and (ii) Customer raises a minimum of [*****] in
financing.
(e) If Contractor Launches both the first Satellite and the second
Satellite on or before December 31, 2000, Customer shall pay Contractor
an amount equal to Six Million Dollars ($6,000,000) (in addition to the
Contract Price) on or before thirty (30) Calendar Days after Launch of
the second Satellite.
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8. INSPECTION AND FINAL ACCEPTANCE
8.1 Preliminary Inspections.
Preliminary inspections of all Work may be made by Customer or its
designated representative at Contractor's or a Subcontractor's facility. All
such inspections shall be made in the presence of a representative of
Contractor. In the event Customer informs Contractor in writing of any Defects
in the Work, Contractor shall remedy such Defects pursuant to the procedures to
remedy Defects as set forth in Article 13 (Corrective Measures in Unlaunched
Satellites and Other Deliverable Items).
8.2 Shipment Readiness Review.
(a) Prior to shipment of each Satellite to the Designated Launch Site,
Contractor shall conduct a Shipment Readiness Review in accordance with the
requirements contained in Exhibit B (SOW) and Exhibit D (Test Plan Requirements)
at Contractor's plant. The Shipment Readiness Review shall consist of reviewing
the Satellite's ground test results in accordance with Exhibit D (Test Plan
Requirements). Contractor shall provide Customer at least fifteen (15) Business
Days advance written notice of the first Shipment Readiness Review for each
Satellite. Customer shall have the right to witness such review and the right to
either concur or not concur that the Satellite under review meets the
requirements of this Contract and is ready for shipment.
(b) The Shipment Readiness Review shall verify:
(1) the Satellite's ground testing has been completed in accordance
with Exhibit D ( Test Plan Requirements); and
(2) except as provided in paragraph (c) below, all Defects have
been corrected; and
(3) the Satellite, ground support equipment for handling and/or
transporting the Satellite in preparation for Launch, and
supporting documentation are ready for shipment based on an
inspection of the Satellite and such ground support equipment and
an examination of such supporting documentation; and
(4) all ground equipment, consisting of the Satellite Control Center
Equipment and Software, Dynamic Spacecraft Simulator, and
Communications Payload Simulator, have been Delivered.
(c) It is the intent of the Parties that all Work that can be accomplished
at Contractor's facility will be completed prior to shipment to the Designated
Launch Site. Notwithstanding that intent, Contractor may, with respect to
certain limited Defects, conclude that such Defects can be effectively remedied
after shipment, in which case Contractor may, after receipt of written approval
from Customer, ship a Satellite to the Designated Launch Site where such Defects
shall be remedied.
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separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
(d) Successful completion of the Shipment Readiness Review for each
Satellite shall arise upon the occurrence of any of the following:
(1) The Shipment Readiness Review demonstrates compliance in all
respects with the provisions of paragraph (b) above; Customer
shall notify Contractor of its acceptance of the Shipment
Readiness Review within a maximum of three (3) Business Days
following completion of such review; or
(2) The Shipment Readiness Review complies in all respects with
paragraph (b) above, save for minor non-conformances or
discrepancies that have not been corrected but which Contractor
demonstrates to Customer's satisfaction at the review have no
adverse effect upon the performance of the Satellite; Customer
shall notify Contractor of its acceptance of the Shipment Readiness
Review and the waiver of its right to compel correction within
three (3) Business Days following completion.
(e) If the Shipment Readiness Review reveals any Defects that require
correction, Customer shall, within three (3) Business Days after such review,
notify Contractor in writing of its rejection of the Shipment Readiness Review
and request correction of such Defects. Contractor shall, at its expense,
promptly correct the Defects referred to therein and, promptly following such
correction, shall notify Customer that the corrections have been made and shall
invite Customer to send Customer Personnel to attend an inspection at which they
will be entitled to verify such corrections have been satisfactorily made
(second round Shipment Readiness Review). Customer shall be given at least three
(3) Business Days written notice of such inspection. The provisions of this
Article 8.2 (Shipment Readiness Review) shall thereafter apply similarly to that
inspection as if that inspection was the original Shipment Readiness Review. In
the event of any disagreement between Customer and Contractor relating to the
second round Shipment Readiness Review, the Senior Executive Level
representatives of the Parties shall use best reasonable efforts promptly to
resolve such dispute.
(f) In the event of any waiver by Customer of its right to compel
correction of a Defect, Contractor shall nevertheless provide Customer with a
written price proposal for the cost of correction of such Defect at the time of
waiver ("Baseline Correction Cost").
(g) Notwithstanding anything to the contrary herein, Contractor shall
correct any Defects previously waived by Customer, if requested by Customer and
if time permits consistent with the Launch schedule. In such event, Contractor
and Customer agree that the cost of such correction shall be shared as follows:
Contractor shall be solely responsible for the cost of correction of the
previously waived Defect up to the Baseline Correction Cost. If the cost of
correction of the previously waived Defect exceeds the Baseline Correction Cost,
Contractor and Customer [*****] above and beyond the Baseline
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****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Correction Cost, up to a maximum aggregate increased cost amount of [*****].
Any cost of correction in excess of the Baseline Correction Cost [*****], shall
be the sole responsibility of Customer.
(h) Upon successful completion of the Shipment Readiness Review, such
Satellite shall be deemed to be Available for Shipment and shall be shipped to
its applicable Designated Launch Site.
8.3 Flight Readiness Review.
(a) Prior to integration of each Satellite with a Launch Vehicle at the
Designated Launch Site, a Flight Readiness Review (FRR) shall be conducted by
Contractor in accordance with Exhibit B (SOW) and Exhibit D (Test Plan
Requirements). Contractor shall give Customer at least five (5) Business Days
written notice of the FRR. The purpose of the FRR is for Contractor to confirm
that each Satellite is ready to be integrated with a Launch Vehicle. Prior to
integration of such Satellite with a Launch Vehicle, any Defects in such
Satellite or other equipment as may remain from the Shipment Readiness Review,
or resulting from shipment or otherwise discovered during Satellite launch
preparations, shall have been remedied pursuant to the procedures to remedy
Defects as set forth in Article 13 (Corrective Measures in Unlaunched Satellites
and Other Deliverable Items).
(b) Successful completion of the FRR shall arise upon the occurrence of any
of the following:
(1) The FRR demonstrates compliance in all respects with the provisions
of this Contract; Customer shall notify Contractor in writing of
its acceptance of the FRR at the FRR; or
(2) The FRR demonstrates compliance with the provisions of this
Contract, save for minor non-conformances or discrepancies that
have not been corrected but that Contractor, at the review,
demonstrates to Customer's satisfaction have no adverse effect upon
the performance of the Satellite; Customer shall notify Contractor
in writing of its acceptance of the FRR and the waiver of its right
to compel correction at the FRR.
(c) If the FRR reveals any Defects that require correction, Customer
shall, at the FRR, notify Contractor in writing of its rejection of the FRR and
request correction of such Defects. Contractor shall, at its expense, correct
such Defects and, following such correction, shall notify Customer that the
corrections have taken place and invite Customer to send Customer Personnel to
attend an inspection to verify that such corrections have been satisfactorily
made (second round FRR). Customer shall be given at least three (3) Business
Days written notice of such inspection. Customer shall notify Contractor in
writing of its acceptance or rejection of the second round FRR at the second
round FRR. In the event of any disagreement between Customer and Contractor
relating to the second round FRR, the Senior
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Executive Level representatives of the Parties shall use reasonable efforts
promptly to resolve such dispute.
(d) In the event of any waiver by Customer of its right to compel
correction of a Defect, Contractor shall nevertheless provide Customer with a
written price proposal for the cost of correction of such Defect at the time of
waiver ("Baseline Correction Cost").
(e) Notwithstanding anything to the contrary herein, Contractor shall
correct any Defects previously waived by Customer, if requested by Customer and
if time permits consistent with the Launch schedule. In such event, Contractor
and Customer agree that the cost of such correction shall be shared as follows:
Contractor shall be solely responsible for the cost of correction of the
previously waived Defect up to the Baseline Correction Cost. If the cost of
correction of the previously waived Defect exceeds the Baseline Correction Cost,
Contractor and Customer [*****] above and beyond the Baseline Correction Cost,
up to a maximum aggregate increased cost amount of [*****]. Any cost of
correction in excess of the Baseline Correction Cost [*****] shall be the sole
responsibility of Customer.
(f) Upon successful completion of the FRR, the Satellite shall be released
by Customer for integration with the Launch Vehicle.
8.4 Launch Readiness Review.
In accordance with the provisions of Exhibit B (SOW), Contractor shall
support the Launch Agency during the Launch Agency's Launch Readiness Review.
In the event any Defect in the Satellite is discovered during the Launch
Readiness Review, Contractor shall correct such Defects in accordance with
Article 13 (Corrective Measures in Unlaunched Satellites and Other Deliverable
Items).
8.5 In-Orbit Testing and Final Acceptance of Satellites.
(a) In-Orbit Testing.
-----------------
(1) Upon arrival of each Launched Satellite at its Specified Orbital
Location, Contractor shall perform tests and analyses on such
Satellite in accordance with the In-Orbit Test Plan, developed by
Contractor and approved by Customer, pursuant to the requirements of
Exhibit B (SOW) and Exhibit D (Test Plan Requirements) to determine
whether and to what extent such Satellite meets the requirements set
forth in such In-Orbit Test Plan.
(2) For each Satellite, promptly upon completion of Pre-Eclipse In-Orbit
Testing, Contractor shall conduct an in-orbit acceptance review and
provide a documentation package setting forth the in-orbit test data
required by, and in a condition fully conforming to, the requirements
of Exhibit B (SOW) and Exhibit D (Test Plan Requirements). "Handover"
of
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a Satellite shall occur upon completion of Pre-Eclipse In-Orbit
Testing and provision of such In-Orbit Acceptance Test Review
documentation package. Customer may begin commercial use of a
Satellite upon Handover of such Satellite.
(3) Subject to Article 8.10 (Launch and Early Operations (LEOP)), promptly
upon completion of Pre-Eclipse In-Orbit Testing, but no later than
sixty (60) Calendar Days after Launch, Contractor shall furnish
Customer with the Pre-Eclipse Test Report in full compliance with the
requirements of this Contract.
(4) Promptly upon completion of In-Orbit Testing and one full eclipse
period, Contractor shall furnish Customer with the Post-Eclipse Test
Report in full compliance with the requirements of this Contract;
provided, however, in the case of a Constructive Total Loss,
Contractor may so furnish such Post-Eclipse Test Report prior to one
full eclipse period.
(b) Final Acceptance of Pre-Eclipse and Post-Eclipse Test Reports and
-----------------------------------------------------------------
Satellites.
------------
(1) Final Acceptance of the Pre-Eclipse Test Report and Post-Eclipse
Test Report shall be in accordance with the provisions of
paragraph (c) of Article 8.9 (Data and Documentation).
(2) Except as provided in Article 14.4(h)(i) (Storage), Final
Acceptance of each Satellite shall occur upon successful
completion of In-Orbit Testing following arrival of the Satellite
at its Specified Orbital Location and confirmed by Contractor
providing to Customer the Pre-Eclipse and Post-Eclipse Test
Reports in a condition fully conforming to the provisions of this
Contract.
(c) In all circumstances in which a Satellite is a Constructive Total Loss
or Total Loss, Contractor shall have no further acceptance obligations with
respect to such Satellite, except to provide a loss investigation report.
8.6 Final Acceptance of Ground Spare Satellite.
Final Acceptance of the Ground Spare Satellite, if the option to
purchase the Ground Spare Satellite is exercised pursuant to Article 30
(Options), shall occur when such Ground Spare Satellite is Available for
Shipment, unless, within a reasonable period of time (to permit Contractor to
conduct the necessary actions to support a Launch of the Ground Spare Satellite)
prior to the Available for Shipment date for the Ground Spare Satellite,
Customer notifies Contractor that it intends to launch the Ground Spare
Satellite. In such event, Final Acceptance of such Ground Spare Satellite
shall be determined in accordance with the appropriate provisions of this
Contract or as otherwise mutually agreed by the Parties.
8.7 Satellite Control Center (SCC) Equipment and Software.
Final Acceptance of SCC Equipment and Software shall occur only upon (i)
Contractor furnishing the SCC Equipment and Software at the places specified in
Table 7.1 of Article 7
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(Delivery), and (ii) completion of acceptance testing in accordance with Exhibit
B (SOW) and a Test Plan to be mutually developed by the Parties and approved by
Customer no later than [*****] demonstrating the SCC Equipment and Software are
furnished in a condition fully conforming to the provisions of this Contract.
The SCC Equipment and Software shall be deemed to be in a condition fully
conforming to the provisions of this Contract unless rejected by Customer in
writing within fifteen (15) Business Days after Delivery of the SCC Equipment
and Software. If the SCC Equipment and Software are unacceptable, Customer
shall, within the said fifteen (15) Business Days, notify Contractor in writing
in which respects the SCC Equipment and Software contain any Defects.
Contractor shall promptly correct the Defects referred to therein and notify
Customer that the corrections have been made. The provisions of this
Article 8.7 (Satellite Control Center (SCC) Equipment and Software) shall
thereafter apply to the corrected SCC Equipment and Software.
8.8 Dynamic Spacecraft Simulator and Communications Payload Simulator.
Final Acceptance of each of the Dynamic Spacecraft Simulator and
Communications Payload Simulator ("Simulators") shall occur only upon (i)
Contractor furnishing the Simulators at the places specified in Table 7.1 of
Article 7 (Delivery) and (ii) completion of acceptance testing in accordance
with Exhibit B (SOW) and a Test Plan to be mutually developed by the Parties and
approved by Customer no later than [*****] demonstrating each Simulator is
furnished in a condition fully conforming to the provisions of this Contract. A
Simulator shall be deemed to be in a condition fully conforming to the
provisions of this Contract unless rejected by Customer in writing within
fifteen (15) Business Days after receipt of said Simulator. If a Simulator is
unacceptable, Customer shall, within the said fifteen (15) Business Days, notify
Contractor in writing in which respects the Simulator contains any Defects.
Contractor shall promptly correct the Defects referred to therein and notify
Customer that the corrections have been made. The provisions of this Article
8.8 (Dynamic Spacecraft Simulator and Communications Payload Simulator) shall
thereafter apply to the corrected Simulator.
8.9 Data and Documentation.
(a) Final Acceptance of Data and Documentation, or any part thereof, shall
occur only when the Data and Documentation, or such part thereof, have been
furnished to Customer in a condition fully conforming to the provisions of this
Contract. Any Data and Documentation furnished to Customer shall be accompanied
by written notice from Contractor specifying that portion of the Data and
Documentation being furnished.
(b) Data and Documentation, or any part thereof, other than Data and
Documentation that requires approval and acceptance by Customer in accordance
with (c) below, shall be deemed to be in a condition fully conforming to the
provisions of this Contract unless rejected by Customer in writing within
fifteen (15) Business Days after receipt of said Data and Documentation, or part
thereof. If such Data and Documentation, or part thereof, not requiring approval
and acceptance by Customer, are unacceptable, Customer shall, within the said
fifteen
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(15) Business Days, notify Contractor in writing in which respects the
Data and Documentation, or part thereof, contain any Defects. Contractor shall
promptly correct the Defects referred to therein and shall notify Customer that
the corrections have been made. The provisions of this Article 8.9 (Data and
Documentation) shall thereafter apply to the corrected Data and Documentation.
(c) Final Acceptance of any Data and Documentation requiring approval by
Customer in accordance with Exhibit B (SOW) shall occur when such approval has
been granted by Customer in writing. Customer shall notify Contractor in writing
of its acceptance or rejection of such Data and Documentation within fifteen
(15) Business Days after receipt of such Data and Documentation by Customer;
failing such response, the Parties shall be deemed forthwith to be in dispute
and their rights shall be determined in accordance with the provisions of
Article 27 (Dispute Resolution).
8.10 Launch and Early Operations (LEOP).
Final Acceptance of LEOP services for each Satellite shall occur upon
Contractor furnishing to Customer LEOP services in accordance with the Delivery
Schedule and in a condition fully conforming to the provisions of this Contract,
including furnishing the Pre-Eclipse Test Report and Post-Eclipse Test Report in
accordance with Article 8.5 (In-Orbit Testing and Final Acceptance of
Satellites). LEOP services shall be deemed to be in a condition fully
conforming to the requirements of this Contract unless rejected by Customer in
writing within ten (10) Business Days after the date Customer has knowledge of
the non-conforming condition. If the LEOP services furnished are unacceptable,
Customer shall, within the said ten (10) Business Days, notify Contractor in
writing in which respects the LEOP services contain any Defects. Contractor
shall correct such Defects, to the extent possible, within fifteen (15)
Calendar Days of receipt of notice and shall notify Customer that the
corrections have been made. The provisions of this Article 8.10 (Launch and
Early Operations (LEOP)) shall thereafter apply to the corrected LEOP services.
8.11 Operations Support Services (OSS).
Final Acceptance of OSS shall occur upon Contractor furnishing to Customer
OSS in accordance with the Delivery Schedule and in a condition fully conforming
to the provisions of this Contract. OSS shall be deemed in a condition fully
conforming to the requirements of this Contract unless rejected by Customer in
writing within five (5) Business Days after the date Customer has knowledge of
the non-conforming condition. If the OSS furnished are unacceptable, Customer
shall, within the said five (5) Business Days, notify Contractor in writing in
which respects the OSS contains any Defects. Contractor shall promptly correct
such Defects and shall notify Customer that the corrections have been made. The
provisions of this Article 8.11 (Operations Support Services (OSS)) shall
thereafter apply to the corrected OSS.
8.12 Training.
Final Acceptance and Delivery of Training, or any part thereof, shall occur
upon Contractor furnishing Training to Customer, or such part thereof, in
accordance with the Delivery Schedule and in a condition fully conforming to the
provisions of this Contract. Any
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Training furnished to Customer shall be accompanied by written notice from
Contractor specifying that portion of the Training being furnished. Training, or
any part thereof, shall be deemed to be in a condition fully conforming to the
requirements of this Contract unless rejected by Customer in writing within five
(5) Business Days after the date Customer has knowledge of the non-conforming
condition. If such Training or part thereof is unacceptable, Customer shall,
within the said five (5) Business Days, notify Contractor in writing in which
respects the Training, or part thereof, contains any Defects. Contractor shall
promptly correct such Defects and shall notify Customer that the corrections
have been made. The provisions of this Article 8.12 (Training) shall thereafter
apply to the corrected Training.
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9. TITLE AND RISK OF LOSS
9.1 Transfer of Title.
Transfer of title, free and clear of all liens and encumbrances of any
kind, to each Deliverable Item (other than Satellites) shall pass to Customer at
Final Acceptance of such Deliverable Item. Transfer of title, free and clear of
all liens and encumbrances of any kind, to each Satellite shall pass to
Customer at the time of Handover of such Satellite, or, in the event of a
Constructive Total Loss or Total Loss of such Satellite, at the time of such
Constructive Total Loss or Total Loss, or, in the event such Satellite is placed
in storage, as provided in Article 14.4 (Storage).
9.2 Transfer of Risk of Loss.
Risk of loss or damage to each Deliverable Item shall pass to Customer at
Final Acceptance of such Deliverable Item; provided, however, risk of loss or
damage to each Satellite and its Launch Vehicle shall pass at Launch of such
Launch Vehicle; provided, however, in the event a Satellite is placed in
Storage, risk of loss or damage to such Satellite shall pass in accordance with
Article 14.4 (Storage).
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
10. LIQUIDATED DAMAGES FOR LATE DELIVERY.
10.1 Liquidated Damages.
(a) The Parties acknowledge and agree that failure to meet the Delivery
Dates specified in Article 7 (Delivery) will cause substantial financial loss or
damage being sustained by Customer. The Parties further acknowledge and agree
that the following liquidated damages are believed to represent a genuine
estimate of the loss that would be suffered by Customer by reason of any such
delay (which losses would be difficult or impossible to calculate with
certainty). The liquidated damages in this Article 10.1 (Liquidated Damages) are
in addition to the liquidated damages for delay in the launch of the Satellites
described in paragraph (e) of Article 28 (Launch Services).
(b) In the event Contractor fails to deliver any Satellite on or before the
ninety-seventh (97th) Calendar Day following its respective Delivery Date, as
such date may be adjusted in accordance with this Contract (the "Grace Period
Expiration Date"), Contractor agrees to pay Customer with respect to such
Satellite, as liquidated damages and not as a penalty, the following amounts for
the period beginning on the first (1st) day following the Grace Period
Expiration Date and continuing for a period thereafter not to exceed one hundred
eighty (180) Calendar Days (the "Damages Period"):
(1) [*****] for each Calendar Day during the period commencing on the
first (1st) Calendar Day of the Damages Period for such Satellite
and continuing through the one hundred twentieth (120th) Calendar
Day of the Damages Period;
(2) [*****] for each Calendar Day during the period commencing on the
one hundred twenty-first (121st) Calendar Day of the Damages
Period for such Satellite and continuing through the one hundred
eightieth (180th) Calendar Day of the Damages Period.
(c) The total amount of liquidated damages for failure to meet the Delivery
Date for a Satellite shall not exceed Eight Million Dollars ($8,000,000); the
total aggregate amount of liquidated damages for failure to meet the Delivery
Dates of the two Satellites shall not exceed Sixteen Million Dollars
($16,000,000).
(d) The liquidated damages amounts (daily and maximum amounts) set forth in
paragraphs (b) and (c) above shall, at Customer's request, be adjusted pro rata
should the Satellite portion of the Contract Price be modified pursuant to an
Amendment to this Contract.
(e) With regard to liquidated damages for late delivery of a Satellite
pursuant to this Article 10.1 (Liquidated Damages), a delay caused by a Launch
Agency shall be deemed a Contractor Excusable Delay for the first one hundred
eighty (180) Calendar Days of such delay;
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
any Launch Agency delay after such one hundred eighty (180) Calendar Days shall
not be deemed an Excusable Delay for the purposes of calculating Contractor's
liquidated damages under this Article 10 (Liquidated Damages for Late Delivery).
10.2 Exclusive Remedy.
Except as otherwise specifically provided in this Contract, the liquidated
damages provided in this Article 10 (Liquidated Damages for Late Delivery) shall
be the sole and exclusive remedy for late Delivery of a Satellite and shall be
in lieu of all monetary damages of any kind, provided Customer may terminate
this Contract in accordance with Article 32.2 (Termination for Contractor's
Default).
10.3 Termination for Unexcused Delay.
(a) In the event the Damages Period for any Satellite has expired and the
maximum total liquidated damages for such Satellite have been levied,
Customer may exercise its right to terminate this Contract, in whole or in
part, for cause pursuant to the provisions of Article 32.2 (Termination for
Contractor's Default), in which case Customer's rights shall be governed by
the provisions of that Article.
(b) If, at [*****], the Launch Agency has failed to establish the Launch
Slot for the first Satellite to begin no later than [*****], then Customer may
exercise its right to terminate this Contract, in whole or in part, for cause
pursuant to Article 32.2 (Termination for Contractor's Default), in which case,
Customer's rights and obligations shall be governed by such Article. The
foregoing shall also apply if, with respect to the second Satellite, at [*****],
the Launch Agency has failed to establish the Launch Slot for the second
Satellite to begin no later than [*****]. Provided Contractor is able to
schedule Launch for each Satellite on another Launch Vehicle prior to [*****] as
to the first Satellite and [*****] as to the second Satellite, Contractor shall,
as agreed by Customer, schedule such Launch on either an H-IIA or Long March 3B
Launch Vehicle (at no additional cost to Customer) or on another Launch Vehicle.
If Launch is scheduled on a Launch Vehicle other than an H-IIA or Long March 3B
Launch Vehicle, Customer shall pay the difference between the amount Customer is
required to pay for the Sea Launch Launch Vehicle and the cost of such other
Launch Vehicle, including Contractor's reasonable financing costs. In the event
Customer, in accordance with the provisions of this Contract, terminates the
launch portion of this Contract for either or both of the first Satellite and/or
the second Satellite, then (i) the Parties shall amend those portions of this
Contract related to such termination (e.g., transfer of title and risk of loss,
delivery schedule, acceptance, liquidated damages, termination liability and
this Article 10.3(b)) as appropriate to reflect an on-ground delivery of the
relevant Satellite, (ii) Contractor shall perform, without charge (except to the
extent included in the Contract Price), Launch Campaign, Mission Support and
LEOP Services for any launch services substituted by Customer for the Launch
Services terminated hereunder, provided, however, Customer shall pay Contractor
for those extra costs incurred by Contractor as a result of providing Launch
Campaign, Mission Support and LEOP Services to a
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location other than one contemplated hereunder, (iii) Customer shall pay
Contractor for those extra costs incurred by Contractor as a result of shipping
the applicable Satellite to a launch site other than one contemplated hereunder,
and (iv) if requested by Customer, Contractor shall perform launch management
services for the substituted launch services at a price mutually agreed by the
Parties.
(c) Liquidated damages shall not accrue for the late Delivery of any
portion of the Work after termination of this Contract for Contractor's default,
in accordance with its terms. Notwithstanding the foregoing, Customer's right to
terminate this Contract, as permitted by this Contract, due to Contractor's late
Delivery shall not prejudice Customer's right to collect those liquidated
damages that accrued to Customer prior to any such termination.
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11. EXCUSABLE DELAY
11.1 Excusable Delay Defined.
(a) With respect to Contractor's performance of its obligations under this
Contract, an "Excusable Delay" shall be any delay in the performance of the
Work, in whole or in part, caused by an event that is beyond the reasonable
control of Contractor, its Subcontractors or their respective Affiliates,
including any acts of government in its sovereign capacity (including the
refusal, suspension, withdrawal, or non-renewal of export or import licenses
essential to the performance of the Contract); any acts of a Launch Agency
(deemed to be an Excusable Delay under paragraph (e) of Article 10.1 (Liquidated
Damages)); war (whether declared or undeclared), outbreak of national
hostilities, invasion or sabotage; fire, earthquake, flood, epidemic, explosion,
or quarantine restriction; strike or work slow down (other than at Contractor's
or a Subcontractor's facilities) not reasonably within Contractor's control;
freight embargoes; acts of God; or failure by Customer to meet its
responsibilities under this Contract where such Customer failure inhibits
Contractor's ability to satisfy its Delivery obligations under this Contract;
provided written notice is given to Customer, in writing, within ten (10)
Business Days after Contractor shall have first learned of the occurrence of
such an event. Notwithstanding the foregoing, failure by Contractor to provide
such notice shall not prevent such an event from qualifying as an Excusable
Delay provided Customer's Program Manager has actual notice of such event by
means of publicly and commonly available sources (e.g., national or global
coverage of major natural disaster) prior to Customer suffering any prejudice
from Contractor's failure to provide such notice. Such notice to be provided by
Contractor, as required by the preceding provisions, shall include a detailed
description of the portion of the Work known to be affected by such delay. In
all cases, Contractor shall use best reasonable efforts to avoid or minimize
and/or work around such delay through the implementation of any work-around
plans, alternate sources, or other means Contractor may utilize or expect to
utilize to minimize a delay in performance of the Work. Contractor shall also
provide Customer prompt written notice when the event constituting an Excusable
Delay appears to have ended.
(b) In the event Customer disputes the Excusable Delay, Customer shall
inform Contractor in writing within ten (10) Business Days from the date of
receipt of written notice of the event constituting an Excusable Delay and, if
the Parties have not resolved the dispute within ten (10) Business Days of
Contractor's receipt of written notice from Customer, the dispute shall be
resolved pursuant to Article 27 (Dispute Resolution).
11.2 Equitable Adjustments.
(a) In the event of an Excusable Delay under Article 11.1 (Excusable Delay
Defined), there shall be an equitable adjustment to the Delivery Schedule and
Delivery Dates set forth in Table 7.1 of Article 7 (Delivery) (unless the
Excusable Delay is caused by Contractor's failure to provide Customer with the
assistance required by the third sentence of paragraph (a) of Article 25.2
(Launch Insurance)); provided, however, Contractor acknowledges and agrees that
the occurrence of an Excusable Delay shall not entitle Contractor to an increase
in the Contract Price unless the Excusable Delay is caused directly by
Customer's failure to meet its responsibilities under this Contract, including
those detailed in Article 29 (Customer's Responsibilities ), in which event
there shall be an equitable adjustment to the Contract Price only for
incremental
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costs incurred by Contractor as a result of such Excusable Delay, such
incremental costs to be invoiced to Customer in reasonable detail.
(b) Any adjustment made pursuant to this Article 11.2 (Equitable
Adjustments) shall be formalized by the execution of an Amendment to this
Contract wherein such adjustments shall be recorded.
(c) In the event of an adjustment in the Delivery Date of any Satellite
due solely to Excusable Delay, there shall be an adjustment in the Delivery Date
of any Satellite or Ground Spare Satellite, if ordered, subsequently to be
Delivered only to the extent such Delivery Date is impacted by the Excusable
Delay and only to the extent necessary to permit at least one hundred twenty
(120) Calendar Days between the Delivery of the subject Satellite and any
subsequent Satellite or Ground Spare Satellite, if ordered; provided, however,
in the event the Excusable Delay (of either the first or second Satellite) is
caused by a Launch Agency Delay, the Delivery Date for the Ground Spare
Satellite, if ordered, shall not be extended under this paragraph (c).
(d) The occurrence of an Excusable Delay arising from any act or omission
of Customer as set forth herein shall not entitle Customer to an adjustment in
the payment schedule set forth in Exhibit G (Payment Plan and Termination
Liability Amounts).
11.3 Maximum Excusable Delay; Termination.
(a) The maximum total amount of Excusable Delay (not including Excusable
Delay caused directly by Customer's failure to meet its responsibilities under
this Contract) shall be four hundred eighty-five (485) Calendar Days.
(b) Customer may terminate this Contract (in whole or in part as to the
following parts: first Satellite and related Launch Services, second Satellite
and related Launch Services, and Long-Lead Items), pursuant to Article 32.4
(Termination for Excusable Delay) if and when it becomes reasonably certain that
the aggregate of Excusable Delays (except those Excusable Delays caused directly
by Customer's failure to perform its responsibilities under this Contract) will
exceed four hundred eighty-five (485) Calendar Days.
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12. IN-ORBIT PERFORMANCE INCENTIVE PAYMENTS.
12.1 Total Amount At Risk.
The Total Amount At Risk shall be placed at risk by Contractor against
failure of the Satellites to meet the criteria set forth or referenced in
Article 12.3 (Calculation and Earning of Incentive Amounts).
12.2 In-Orbit Performance Incentives.
Contractor represents that each Satellite will meet the criteria set forth
or referenced in Article 12.3 (Calculation and Earning of Incentive Amounts)
during the Orbital Design Life of each Satellite. To the extent any Satellite
satisfies the criteria set forth or referenced in Article 12.3 (Calculation and
Earning of Incentive Amounts), Customer shall pay Contractor Incentive Amounts,
to be calculated as specified in Article 12.3 (Calculation and Earning of
Incentive Amounts). The total aggregate amount of incentives paid by Customer
to Contractor for any and all Satellites shall not exceed the Total Amount At
Risk, plus interest thereon calculated pursuant to Article 12.6(b) of this
Contract.
12.3 Calculation and Earning of Incentive Amounts.
The Total Amount at Risk shall be earned by Contractor and paid by Customer
to Contractor in the manner and to the extent provided in this Article 12.3
(Calculation and Earning of Incentive Amounts) and paid by Contractor to
Customer in accordance with Article 12.6 (Payment and Interest).
(a) Adjustments in Incentive Amounts.
--------------------------------
[Reserved.]
(b) Quarterly Incentive Payment Amounts.
-----------------------------------
(1) For each Satellite during its Orbital Design Life, a daily pro
rata portion of the Quarterly Incentive Payment Amount shall be
earned by Contractor on a daily basis during each calendar
quarter for each day that such Satellite is a Satisfactorily
Operating Satellite, provided that assessment and calculation of
performance shall be performed at the end of each calendar month,
and such earned portion of the Quarterly Incentive Payment Amount
shall be invoiced on a quarterly-in-arrears basis, for, and as of
the last day of, each calendar quarter. Contractor shall begin to
earn Quarterly Incentive Payment Amounts upon Handover of the
Satellite to Customer.
(2) For purposes of this paragraph (b), to the extent during any
quarterly period a Satellite is not a Satisfactorily Operating
Satellite due to Customer's failure to operate a Satellite as a
Properly Operated Satellite, Contractor's entitlement to payment
of the Quarterly Incentive Payment Amount shall not be affected.
Any amounts earned by Contractor under
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filed separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the
omitted portions.
this paragraph (b) shall be paid by Customer to Contractor in
accordance with Article 12.6 (Payment and Interest).
(3) Notwithstanding the foregoing, [*****] will result in a
negotiation as to whether Contractor shall earn the entire daily
pro rata portion of the Quarterly Incentive Payment Amount or a
portion thereof. In the event [*****], Contractor shall earn the
daily pro rata portion of the Quarterly Incentive Payment Amount
calculated in accordance with paragraph (b)(1) of Article 12.3
(Calculation and Earning of Incentive Amounts) above. [*****],
will result in a negotiated reduction of Incentive Amounts or
such other equitable adjustment as may be agreed to by the
Parties. In arriving at an equitable adjustment, factors to be
considered include [*****]. For example, (A) [*****], Contractor
shall earn no portion of the daily pro rata portion of the
Quarterly Incentive Payment for such day; (B) [*****], the
Parties shall negotiate in good faith an adjustment to the daily
pro rata portion of the Quarterly Incentive Payment Amount for
that day; (C) [*****], the Parties shall negotiate in good faith
an adjustment to the daily pro rata portion of the Quarterly
Incentive Payment Amount that may be earned [*****]; and (D)
[*****], the Parties shall negotiate in good faith a permanent
adjustment to the daily pro rata portion of the Quarterly
Incentive Payment Amount.
(4) In the event Customer continues to operate a Satellite for
commercial purposes beyond the Orbital Design Life of such
Satellite, Contractor shall be entitled to earn, for each quarter
beyond such Orbital Design Life, a Quarterly Incentive Payment
Amount in accordance with this paragraph (4); provided, however,
in no event shall Contractor be entitled to any Quarterly
Incentive Payment Amount if the cumulative Incentive Amounts,
excluding interest, earned by Contractor exceed the Total Amount
at Risk. Contractor shall not be entitled to interest on any
Incentive Amounts earned pursuant to this paragraph (4).
(c) Constructive Total Loss.
-----------------------
(1) In the event a Satellite is a Constructive Total Loss after
successful injection of the Satellite into its specified orbit by
the Launch Vehicle, Contractor shall not be entitled to be paid
Incentive Amounts pursuant to this Article 12 (In-Orbit
Performance Incentive Payments) with respect to such Satellite.
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12.4 Disputed Performance.
In the event of a dispute as to the performance of a Launched Satellite,
Customer shall provide Contractor with such technical data, reports, analyses,
and records as are available to support Customer's determination and Contractor
shall be given thirty (30) Calendar Days to verify the data. If, following such
thirty (30) Calendar Day period, Contractor continues to disagree with
Customer's determination and is able to present evidence to the contrary, then
Customer shall consider such evidence and consult with Contractor. In the
event the Parties do not reach agreement, the Parties agree to have an
independent determination of the Satellite's technical status performed by a
mutually-acceptable technically-qualified third party. The costs incurred in
retaining the third party shall be shared equally between Contractor and
Customer. The Parties agree that before reference to such mutually-acceptable
technically-qualified third party, an informal forum between the Parties' Chief
Executive Officers shall take place to attempt resolution of said dispute. In
the event such efforts to resolve the dispute are unsuccessful, the Parties
shall proceed under Article 27.2 (Arbitration). The foregoing independent
determination may be used by either Party in any arbitration under Article 27.2
(Arbitration), but such determination shall not be binding upon the arbitrators.
12.5 Roll-Over of Incentive Amounts.
(a) In the event the first Satellite Launched pursuant to this Contract is
a Constructive Total Loss or Total Loss for reasons not attributable to
Contractor, all Incentive Amounts applicable to such Satellite shall be eligible
to be earned by Contractor following the Launch and In-Orbit Testing of the
Ground Spare Satellite for each quarter during its Orbital Design Life that the
Ground Spare Satellite is a Satisfactorily Operating Satellite. Earning and
payment of such Incentive Amounts shall be in accordance with Article 12.3
(Calculation and Earning of Incentive Amounts), together with interest on such
Incentives Amounts calculated in accordance with Article 12.7 (Interest on Roll-
Over Incentive Amounts).
(b) In the event the second Satellite Launched pursuant to this Contract
is a Constructive Total Loss or Total Loss for reasons not attributable to
Contractor, but the first Satellite Launched was not a Constructive Total Loss
or Total Loss, all Incentive Amounts applicable to such second Satellite shall
be eligible to be earned by Contractor following the Launch and In-Orbit Testing
of the Ground Spare Satellite for each quarter that the Ground Spare Satellite
is a Satisfactorily Operating Satellite. Payment of such Incentive Amounts shall
be in accordance with Article 12.3 (Calculation and Earning of Incentive
Amounts), together with interest on such Incentives Amounts calculated in
accordance with Article 12.7 (Interest on Roll-Over Incentive Amounts).
(c) In the event both the first and second Satellites Launched pursuant to
this Contract are Constructive Total Losses or Total Losses for reasons not
attributable to Contractor, then Contractor shall be eligible to earn the
Incentive Amounts applicable to the first Satellite in accordance with paragraph
(a) above, and with respect to the second Satellite, Contractor shall receive
payment from Customer of the total Incentive Amount applicable to such second
Satellite (that is, $12,500,000) within thirty (30) Calendar Days following
receipt by Customer of any applicable Launch Insurance proceeds therefor unless
Customer ordered an optional fourth Satellite (pursuant to Article 30 (Options))
prior to Launch of the second Satellite, in which case such Incentive Amounts
shall be rolled-over to such optional fourth Satellite. Earning and payment of
such amounts shall be in accordance with Article 12.3 (Calculation and Earning
of Incentive Amounts), together with interest on such amounts to be calculated
in accordance with Article 12.7 (Interest on Roll-Over Incentive Amounts).
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(d) In the event Customer has not ordered the Ground Spare Satellite or an
Optional Satellite prior to the Launch of a Satellite, Customer shall insure the
Incentive Amounts as part of the Launch Insurance purchased by Customer.
12.6 Payment and Interest.
(a) Payment.
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Any payment required to be made by Customer to Contractor in respect of a
Satellite for a Quarterly Incentive Payment Amount shall be invoiced on a
quarterly-in-arrears basis and paid in accordance with Article 5.2 (Payment).
(b) Interest.
--------
(1) Interest shall be paid on any Quarterly Incentive Payment Amount
with respect to a Satellite, such interest to be calculated over
the period commencing upon Handover of such Satellite by Customer
("Quarterly Incentive Commencement Date") and ending on the last
day of the quarter when the Quarterly Incentive Payment Amount is
invoiced, at a rate equal to [*****] compounded annually, as
calculated in accordance with the following formula: I/n/ =
(Quarterly Incentive Payment Amount earned during a quarter) *
[(1+[*****])/n*0.25/ - 1], where "n" = quarter number = 1 to 60.
For example, (A) if a Satellite meets the criteria of a
Satisfactorily Operating Satellite during the entire first
quarter following the Quarterly Incentive Commencement Date for
such Satellite, Contractor shall be entitled to payment of the
Quarterly Incentive Payment Amount plus interest on such amount
from the Quarterly Incentive Commencement Date to the last day of
the first quarter (that is, the Quarterly Incentive Payment
equals: $208,333 plus the quantity $208,333 times the quantity
[*****], raised to the 1 times 0.25 power, minus 1) resulting in
a quarterly financing charge of [*****], and a total Quarterly
Incentive Payment Amount of [*****]; or (B) if the Satellite
meets the criteria of a Satisfactorily Operating Satellite during
the entire twenty-fifth (25th) quarter following the Quarterly
Incentive Commencement Date for such Satellite, Contractor shall
be entitled to payment of the Quarterly Incentive Payment Amount
plus interest on such amount from the Quarterly Incentive
Commencement Date for such Satellite to the last day of the
twenty-fifth (25th) quarter (that is, the Quarterly Incentive
Payment Amount equals: $208,333 plus the quantity $208,333 times
the quantity [*****], raised to the twenty-five (25) times 0.25
power, minus 1) resulting in a quarterly financing charge of
[*****], and a total Quarterly Incentive Payment Amount of
[*****].
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separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
(2) Exhibit G-1 (Payment Plan for Interest on In-Obit Incentive
Amounts) sets forth an interest calculation that assumes
Contractor has earned all Quarterly Incentive Payment Amounts.
The actual Quarterly Incentive Payment Amount earned by
Contractor, and the interest thereon, will be calculated in
accordance with this Article 12 (In-Orbit Performance Incentive
Payments).
12.7 Interest on Roll-Over Incentive Amounts.
The Incentive Amounts rolled-over to the Ground Spare Satellite pursuant to
paragraphs (a) and/or (b) of Article 12.5 (Roll-Over of Incentive Amounts) shall
bear interest as calculated in accordance with this Article 12 (In-Orbit
Performance Incentive Payments) from the date of declaration of Constructive
Total Loss or Total Loss and ending on the last day of the quarter when the
Quarterly Incentive Payment Amount is invoiced, as more fully provided in
paragraph (b) of Article 12.6 (Payment and Interest). Interest on rolled-over
Incentive Amounts shall be invoiced and paid on a quarterly-in-arrears basis.
For example, (a) if the first Quarterly Incentive Payment Amount is earned five
(5) quarters after Constructive Total Loss or Total Loss, the Quarterly
Incentive Payment Amount earned during each quarter (QIPA) plus interest thereon
(the sum equals QIPA/n/) is calculated as follows:
QIPA/n/ = QIPA * (1+ [*****]) /(n + x) * 0.25/
where: n = quarter number = 1 to 60 commencing with Quarterly
Incentive Commence Date, and
x = number of days from Constructive Total Loss or Total
Loss to Quarterly Incentive Commencement Date converted into
quarters.
therefore, QIPA/1/ = $208,333 * (1 + [*****]) /(1 + 4) * 0.25/
= [*****];
(b) if the first Quarterly Incentive Payment Amount is earned five (5)
quarters and twenty (20) days after Constructive Total Loss or Total Loss, the
Quarterly Incentive Payment Amount earned during each quarter (QIPA) plus
interest thereon (the sum equals QIPAn) is calculated as follows:
QIPA/n/ = QIPA * (1+ [*****]) /(n + x) * 0.25/
where: n = quarter number = 1 to 60 commencing with Quarterly
Incentive Commence Date, and
x = number of days from Constructive Total Loss or Total
Loss to Quarterly Incentive Commencement Date converted into
quarters.
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****** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
therefore, QIPA/1/ = $208,333 * (1 + [*****]) /(1 + 4.22) * 0.25/
= [*****].
12.8 Security for Performance Incentive Payments.
(a) In the event Customer does not order the Ground Spare Satellite,
Contractor and Customer agree that, as assurance of the payment of Incentive
Amounts as such amounts may be earned by Contractor and become payable by
Customer, Customer must demonstrate to Contractor, no later than four (4) months
prior to the Launch of the first Satellite, that Customer has a minimum of
[*****] in liquid assets (e.g., cash, cash equivalents and current receivables),
or, at Contractor's option, non-current assets (e.g., property, plant,
equipment) with a market value of at least [*****] and a reasonable expectation
that such market value can be realized within one hundred eighty (180) Calendar
Days of a decision to liquidate. In the case of non-current assets, Customer
shall also grant to Contractor a perfected security interest in such non-current
assets, up to a maximum interest in the amount of [*****], and shall cause all
appropriate documents and financial statements to be filed in order to give
effect to such security interest. Contractor's perfected security interest in
such non-current assets, if granted, shall be released by Contractor if Customer
performs its obligations with respect to payment of all earned Incentive
Amounts, including interest thereon, in accordance with the terms of this
Contract, for a period of twenty-four (24) months commencing upon the date that
the first Quarterly Incentive Payment Amount is due with respect to the first
Launched Satellite. In the event the first Satellite is a Constructive Total
Loss or Total Loss, the requirements of this paragraph (a) shall apply to the
second Satellite.
(b) In the event Customer Launches the Ground Spare Satellite as an
additional Satellite (not a replacement) within a period of two (2) years
following the date upon which the first Quarterly Incentive Payment Amount is
due with respect to the first Launched Satellite, Customer shall demonstrate to
Contractor, no later than four (4) months prior to the Launch of the Ground
Spare Satellite, that Customer has a minimum of [*****] in liquid assets (e.g.,
cash, cash equivalents and current receivables), or, at Contractor's option,
non-current assets (e.g., property, plant, equipment) with a market value of at
least [*****] and a reasonable expectation that such market value can be
realized within one hundred eighty (180) Calendar Days of a decision to
liquidate. In the case of non-current assets, Customer shall also grant to
Contractor a perfected security interest in such non-current assets, up to a
maximum interest in the amount of [*****], and shall cause all appropriate
documents and financial statements to be filed in order to give effect to such
security interest. Contractor's perfected security interest in such non-current
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assets, if granted, shall be released by Contractor if Customer performs its
obligations with respect to payment of all earned Incentive Amounts, including
interest thereon, in accordance with the terms of this Contract, for a period of
twenty-four (24) months commencing upon the date that the first Quarterly
Incentive Payment Amount is due with respect to the first Launched Satellite.
(c) Contractor expressly acknowledges and agrees that Customer shall not
be required, at any time, to provide a stand-by, irrevocable, or other form of
letter of credit, or any equivalent or external guarantees, in order to secure
Customer's payment obligations with respect to Incentive Amounts, as such
amounts are earned by Contractor.
12.9 Exclusive Remedy.
The rights and remedies under this Article 12 (In-Orbit Performance
Incentive Payments) are exclusive for the failure of any Satellite after Launch
to meet the criteria set forth or referenced in Article 12.3 (Calculation and
Earning of Incentive Amounts) and in substitution of any other rights and
remedies either Party may have under this Contract or otherwise at law as a
result of such failure.
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13. CORRECTIVE MEASURES IN UNLAUNCHED SATELLITES AND OTHER DELIVERABLE ITEMS
13.1 Notice of Defects.
(a) Customer may notify Contractor in writing when it in good faith
reasonably demonstrates any Defect exists in any Deliverable Item or component
part thereof. In the event Contractor disagrees with Customer or Customer
Personnel as to the existence or nature of a Defect, Contractor shall so advise
Customer in writing. In such event, the Parties shall negotiate in good faith to
determine what Defect, if any, exists and any action required to remedy such
Defect. Except to the extent written waivers are made pursuant to the provisions
of Article 8 (Inspection and Final Acceptance), Customer's failure to notify
Contractor of any Defect shall not constitute a waiver of any rights of Customer
or obligations of Contractor under this Contract with respect to any such
Defects.
(b) Contractor shall advise Customer as soon as practicable by telephone
and confirm in writing any event, circumstance, or development that materially
threatens the quality of any Deliverable Items or component parts thereof,
including any Satellite, or threatens the Delivery Dates established therefor.
(c) Without limiting the generality of the foregoing, if the data
available from any Launched Satellite or from other satellites of a similar
class shows that any Satellite contains a Defect, Contractor shall promptly
inform Customer of such Defect.
13.2 Duty to Correct.
(a) Without limiting the obligations of Contractor or the rights of
Customer under this Contract, prior to Launch of any Satellite or Delivery of
any other Deliverable Item, Contractor shall, at its expense, promptly correct
any Defect related to any Deliverable Item or component thereof that Contractor
or Customer discovers during the course of the Work or from other spacecraft of
a class similar to the satellites being built by Contractor, and notwithstanding
that a payment may have been made in respect thereof, and regardless of prior
reviews, inspections, approvals, or acceptances. This provision is subject to
the right of Contractor to have any items containing a Defect returned at
Contractor's expense to Contractor's facility for Contractor to verify and
correct the Defect.
(b) At Contractor's expense, Contractor shall use reasonable efforts to
correct any such Defect in any Launched Satellite delivered in-orbit hereunder,
to the greatest extent that such Defect may be corrected by on-ground means,
including transmission by Contractor of commands to such Satellite(s), to
eliminate or mitigate any adverse impact resulting from any such Defect, to
establish work-around solutions, or to otherwise resolve such Defect. Contractor
shall coordinate and consult with Customer concerning such on-ground resolution
of Defects in Launched Satellites.
(c) Contractor shall fulfill the foregoing obligations at its own cost and
expense, including all costs arising from charges for packaging, shipping,
insurance, taxes, and other matters associated with the corrective measures,
unless it is reasonably determined after
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investigation that Customer directly caused the Defect in question, in which
case Customer shall pay all such costs.
(d) If Contractor fails to correct any Defect with respect to those
Satellites that have not been Launched or with respect to any other Deliverable
Item within a reasonable time after notification from Customer and after the
Parties have followed the provisions of Article 13.1 (Notice of Defects) above,
Customer may, by separate contract or otherwise, correct or replace such items
or services, and, unless it is reasonably determined after investigation that
Customer directly caused the Defect in question, Contractor shall pay to
Customer the reasonable cost of such correction or replacement. The amount
payable by Contractor shall be verified at Contractor's request by an
internationally recognized firm of accountants appointed by Contractor. The
costs of such verification shall be paid by Contractor. The verification of such
correction cost shall be without prejudice to the right of either Party in any
arbitration proceeding and shall not be binding upon the arbitrators.
(e) Contractor acknowledges and agrees that it shall not be entitled to
payment for any additional costs incurred as a consequence of any Defect where
the Defect arises directly from Contractor's fault. If correction of any Defect
causes a delay in the Delivery of any Work, despite the efforts of Contractor to
correct the Defect, the provisions of Article 10 (Liquidated Damages for Late
Delivery) shall apply as appropriate in addition to the remedies in this Article
13 (Corrective Measures in Unlaunched Satellites and Other Deliverable Items)
and Article 31 (Failure to Make Adequate Progress).
(f) After notification of a Defect to Contractor, Customer, in its sole
discretion, may elect in writing, pursuant to Article 34.4 (Waiver of Breach of
Contract), not to require correction or replacement of such items or services or
to waive the Defects noted for the Satellites that have not been Launched, if
any. In such event, Contractor shall promptly provide Customer with a written
price proposal for the cost of correction of such Defect at the time of waiver.
(g) Subject to the provisions of any applicable Law, Contractor agrees to
enforce any manufacturer's warranty given to it in connection with any Work to
be provided under this Contract, and upon Customer's written request, Contractor
shall assign to Customer such warranty protection to correct any defective Work
not otherwise corrected by Contractor.
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14. CHANGES IN SCOPE OF WORK
14.1 Changes Requested by Customer.
(a) Subject to paragraphs (b), (c), and (d) below, Customer shall be
entitled to direct, during the performance of this Contract, any change within
the general scope of this Contract, including any change that will add, delete,
or change the Work, affect the design of the Satellites, change the method of
shipping or packing, or the place or time of Delivery, or will affect any other
requirement of this Contract.
(b) Any change directed by Customer as described in paragraph (a) above
shall be submitted in writing to Contractor. Contractor shall respond to such
directed change in writing to Customer within thirty (30) Calendar Days after
such directed change and shall include in such response the details of the
impact of such change on the Contract Price, Delivery Schedule, performance
specifications, or other terms of this Contract.
(c) Customer shall notify Contractor in writing, within thirty (30)
Calendar Days after receipt of Contractor's response, whether or not Customer
agrees with and accepts Contractor's response. If Customer agrees with and
accepts Contractor's response, Contractor shall proceed with the performance of
this Contract as changed immediately upon the execution by both Parties of an
Amendment reflecting such changes.
(d) If the Parties cannot agree on a reasonable price or revised Delivery
Schedule, performance specifications, or other item, as occasioned by Customer's
directed change, and Customer still desires the directed change, Customer shall
direct Contractor to proceed with the change and Customer shall pay Contractor's
proposed price and accept the revised Delivery Schedule or performance
specifications or other item pending any decision to the contrary under Article
27 (Dispute Resolution). Contractor shall proceed with the Work as changed and
Customer may dispute the reasonableness of the proposed price, revised Delivery
Schedule, performance specification, or other item under Article 27 (Dispute
Resolution). In the event it is determined pursuant to such dispute resolution
or by the Parties' mutual written agreement that Customer is entitled to a full
or partial refund of amounts paid under this paragraph (d), Customer shall be
entitled to interest on such refunded amounts, such interest running from the
date of payment by Customer to the date of refund at the interest rate set forth
in Article 34.10 (Calculation of Interest).
14.2 Changes Requested by Contractor.
(a) Subject to paragraphs (b) and (c) below, Contractor may request,
during the performance of this Contract, any change within the general scope of
this Contract, including any change that will add or delete Work, affect the
design of the Satellites, change the method of shipping or packing, or the place
or time of Delivery, or will affect any other requirement of this Contract.
(b) Any changes as described in paragraph (a) above requested by
Contractor shall be submitted in writing to Customer at least sixty (60)
Calendar Days prior to the proposed date of the change. If such Contractor
requested change causes an increase or decrease or other impact
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in the Contract Price, Delivery Schedule, performance specifications, or other
terms of this Contract, Contractor shall submit, with such request, a written
proposal identifying such change and the impact thereof on the Contract Price,
Delivery Schedule, performance specifications, or other terms of this Contract.
(c) Customer shall notify Contractor in writing, within thirty (30)
Calendar Days after receipt of the requested change proposal, whether or not
Customer agrees with and accepts such change and the price/schedule/performance
or other impact thereof. If Customer agrees with and accepts Contractor's
requested change and such impact thereof, Contractor shall proceed with the
performance of this Contract as changed and an Amendment to this Contract
reflecting the change proposal shall be executed by the Parties.
14.3 Pricing of Changes.
When calculating the change in the Contract Price caused by changes in the
Work pursuant to this Article 14 (Changes in Scope of Work), such calculation
shall be consistent with Contractor's standard labor rates and general
administrative and overhead rates then in effect at the time of the change.
14.4 Storage.
(a) Storage of a Satellite shall be for a period of either (A) no longer
than six (6) months ( "Short Term Storage") or (B) more than six (6) months but
no longer than three (3) years ("Medium Term Storage"); Short Term Storage shall
be at Contractor's facilities and satisfy the requirements of the storage plan
to be developed by Contractor in accordance with Exhibit B (SOW). Medium Term
Storage will be at a mutually agreed-to facility, and such facility shall be
appropriate for the planned duration of storage.
(b) In the event Contractor places a Satellite in storage, Contractor
shall pay for any associated costs and expenses of such storage, unless
Contractor places such Satellite in storage due to reasons attributable to
Customer.
(c) In the event Contractor places a Satellite in storage due to reasons
attributable to Customer, Customer shall pay Contractor reasonable storage
costs, and any related costs that increase the Contract Price or extend the
Delivery Schedule shall be addressed in an Amendment pursuant to Article 14.1
(Changes Requested by Customer) above.
(d) For a Satellite placed in storage, Customer shall pay Contractor any
Milestone Payment related to Shipment Readiness Review upon arrival of the
Satellite at the storage site.
(e) In the event Contractor places a Satellite into storage pursuant to
this Article 14.4 (Storage) for reasons not attributable to Contractor for more
than twelve (12) months, Contractor shall be entitled to receive, and Customer
shall pay to Contractor, all payments due and owing, less all costs not incurred
with respect to the Launch Campaign, LEOP, In-Orbit Testing, MSS, and OSS for
such Satellite, but including the Incentive Amounts applicable to such
Satellite. In the event such Satellite is Launched, those Incentive Amounts
previously paid by Customer to Contractor shall be retained by Contractor,
subject to the following:
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(1) Contractor shall earn such Incentive Amounts in accordance with
Article 12.3 (Calculation and Earning of Incentive Amounts); and
(2) any Incentive Amounts not earned by Contractor pursuant to
Article 12.3 (Calculation and Earning of Incentive Amounts) shall
be repaid by Contractor to Customer as set forth below.
Repayment by Contractor of any unearned Incentive Amounts under this
paragraph (e) shall be due thirty (30) Calendar Days after the date of receipt
by Contractor of a telefaxed invoice (which shall be followed by the airmailed
original) from Customer. Interest shall be paid (at the rate specified in
Article 34.10 (Calculation of Interest) on any amounts not paid when due.
Customer's invoice shall be accompanied by sufficient information to support
Customer's claim. Contractor shall be deemed to have accepted the invoice ten
(10) Business Days after receipt of Customer's invoice unless, within such time
period, Contractor notifies Customer of a dispute. Any disputes as to the
performance of a Launched Satellite shall be resolved in accordance with the
provisions of Article 12.4 (Disputed Performance). Contractor shall pay any
undisputed portion of an invoice.
(f) In the event Contractor places any Satellite into storage under this
Article 14.4 (Storage) and such storage is required for reasons attributable to
Contractor, the warranty periods for such Satellite and its batteries (and in
the case of the first Satellite to be Delivered hereunder, the SCC Equipment and
Software, Dynamic Satellite Simulator, and Dynamic Spacecraft Simulator) under
Article 18.3 (Warranties for Deliverable Items) shall be extended on a day-for-
day basis for the length of such storage period.
(g) In the event a Satellite has been in such storage for three (3) years,
or Customer decides prior to the end of such three (3) years not to Launch such
Satellite, the following shall apply:
(1) Contractor shall be entitled to receive within thirty (30)
Calendar Days after the earlier of, receipt of destorage
notification from Customer or the end of the three (3) year
period, all payments due and owing, not otherwise paid to
Contractor pursuant to paragraph (e) above, including Incentive
Amounts, less all costs not incurred with respect to the Launch
Campaign, LEOP, In-Orbit Testing, MSS, and OSS for such
Satellite; and
(2) Contractor shall promptly Deliver to Customer, at Customer's
expense, such Satellite to a location specified by Customer in
the State of Florida or the State of Delaware, or in such other
location as may be mutually agreed upon by the Parties.
Customer's expenses shall include any applicable state sales tax
for such storage.
(h) Final Acceptance shall occur and title and risk of loss shall pass,
with respect to any Satellite placed in storage in accordance with this Article
14.4 (Storage) as follows: (i) if paragraph (g) applies, upon arrival of the
Satellite at the location specified by Customer, in which case, notwithstanding
Article 4.3 (Taxes and Duties) any and all taxes and duties in connection with
such delivery shall be borne and paid by Customer, or (ii) if the Satellite is
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Launched, (x) risk of loss shall pass at Launch and (y) title, free and clear of
any liens and encumbrances shall pass at Final Acceptance and Final Acceptance
shall occur in accordance with Article 8.5(b).
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15. PERMITS AND LICENSES; COMPLIANCE WITH LAWS
15.1 United States Permits, Licenses, and Laws.
(a) Contractor shall, at its own expense, obtain all United States
Government approvals, permits, and licenses, including any required for export
from or import into the United States, as may be required for the performance of
the Work. Customer agrees to cooperate with Contractor in Contractor's efforts
to obtain any such approvals, permits, or licenses.
(b) Contractor shall, at its expense, perform the Work in accordance with
all applicable Laws of the United States and the conditions of all applicable
United States Government approvals, permits, or licenses.
(c) Without limiting the generality of the foregoing, Contractor will not,
directly or indirectly, take any action that would cause Customer to be in
violation of U.S. anti-boycott laws under the U.S. Export Administration Act,
the U.S. Internal Revenue Code, or any regulation thereunder. In its performance
of this Contract, Contractor will not, directly or indirectly, make, offer, or
agree to make or offer any loan, gift, donation, or other payment, whether in
cash or in kind, for the benefit or at the direction of any candidate,
committee, political party, government or its subdivision, or any individual
elected, appointed, or otherwise designated as an employee or officer thereof,
for the purpose of influencing any act or decision of such entity or individual
or inducing such entity or individual to do or omit to do anything, in order to
obtain or retain business or other benefits except as may be expressly permitted
under the Foreign Corrupt Practices Act and the regulations promulgated
thereunder.
15.2 Non-United States Permits, Licenses, and Laws.
(a) Contractor shall, at its expense, obtain all non-United States
Government approvals, permits, and licenses, as may be required for the
performance of the Work, including those that may be required for Contractor to
perform the Work in compliance with the Laws of any country from which any
Satellite shall be launched. Customer agrees to cooperate with Contractor in
Contractor's efforts to obtain any such non-United States Government approvals,
permits, or licenses.
(b) Contractor shall, at its expense, perform the Work in accordance with
all applicable Laws of any country, state, territory, or jurisdiction, and the
conditions of all applicable non-United States Government approvals, permits, or
licenses.
15.3 Review of Applications.
Contractor shall review with Customer any application Contractor makes to
any government department, agency, or entity for any approval, permit, license,
or agreement, as may be required for performance of the Work, prior to
submission of such application. Contractor shall provide Customer a minimum of
three (3) Business Days to review such application prior to submission to such
governmental entity, and Contractor shall in good faith consider any comments
and proposed revisions made by Customer for incorporation into such application.
Customer shall reasonably cooperate with Contractor in Contractor's efforts to
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procure all such approvals, permits, licenses, and agreements.
15.4 Contractor Violation of Law.
Customer shall not be responsible in any way for the consequences, direct
or indirect, of any violation by Contractor, its Subcontractors, or their
respective Affiliates or Associates of any Law or of any country whatsoever.
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16. SUBCONTRACTS
16.1 Major Subcontracts
(a) Contractor has represented that in the performance of the Work
required by this Contract it will be necessary for Contractor or its
Subcontractors to enter into the Major Subcontracts with certain of the entities
identified in Exhibit D (Test Plan Requirements) hereto. Contractor shall select
the Major Subcontractors only from those entities approved by Customer and
listed in Exhibit D (Test Plan Requirements), and, to the extent permitted by
the Subcontractor agreement, Customer shall be provided with copies of the
technical content and a copy of the full text of any Major Subcontract
(excluding price and payment schedule) promptly upon execution thereof, and upon
Customer's request.
(b) As of the Effective Date of Contract, the approved list of Major
Subcontractors is as specified in Exhibit D (Test Plan Requirements). Contractor
shall notify Customer promptly in writing upon selection of a Major
Subcontractor and upon any change in any Major Subcontractor, said change to be
only from the list of alternatives in Exhibit D (Test Plan Requirements).
(c) Customer's acknowledgment or approval of any Major Subcontractor or
Subcontractor shall not relieve Contractor from any obligations or
responsibilities under this Contract.
16.2 Selection or Replacement of Major Subcontractors.
Contractor shall notify Customer if a Subcontractor identified in Exhibit D
(Test Plan Requirements) is substituted for another Major Subcontractor on the
list in Exhibit D (Test Plan Requirements); however, Customer's approval of such
termination or substitution shall not be required. Subcontractors shall be
selected based upon the offering of the best combination of reliability,
quality, price, and delivery time.
16.3 No Privity of Contract.
Nothing in this Contract shall be construed as creating any contractual
relationship between Customer and any Subcontractor. Contractor is fully
responsible to Customer for the acts or omissions of Subcontractors and all
persons used by Contractor or a Subcontractor in connection with performance of
the Work. Any failure by a Subcontractor to meet its obligations to Contractor
shall not constitute a basis for Excusable Delay, except as provided in Article
11 (Excusable Delay), and shall not relieve Contractor from meeting any of its
obligations under this Contract.
16.4 Subcontractor Relations.
By appropriate written agreement, Contractor shall use commercially
reasonably efforts to require each Major Subcontractor, to the extent of the
Work to be performed by such Major Subcontractor, to be bound to Contractor by
the terms of this Contract and to assume toward
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Contractor all the obligations and responsibilities that Contractor, by this
Contract, assumes toward Customer except to the extent otherwise provided in
Article 6.9 (Major Subcontracts).
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17. PERSONNEL AND KEY PERSONNEL
17.1 Personnel Qualifications.
Contractor shall assign properly qualified and experienced personnel to the
program contemplated under this Contract, and Contractor shall use best
reasonable efforts to retain such personnel on Customer's program for the
duration of such program.
17.2 Key Personnel Positions.
Key personnel ("Key Personnel") shall be the personnel filling the
following or equivalent positions:
(1) Contractor Program Manager;
(2) Contract Manager;
(3) Spacecraft Systems Engineer;
(4) Payload Program Manager;
(5) Payload Chief Systems Engineer;
(6) Production, Integration and Test Manager;
(7) Product Assurance Manager, provided that such Product Assurance
Manager shall not be engaged in more than two (2) programs during
the performance of this Contract; and
(8) Launch Services Manager.
17.3 Assignment of Key Personnel.
(a) Contractor will assign individuals from within Contractor's
organization to the Key Personnel positions to carry out the Work.
(b) Key Personnel will be familiar with programs similar to Customer's
program.
(c) Before assigning an individual to any Key Personnel positions, whether
as an initial assignment or a subsequent assignment, Contractor shall notify
Customer of the proposed assignment, shall introduce the individual to
appropriate Customer representatives and, upon request, provide such
representatives with the opportunity to interview the individual and shall
provide Customer with the individual's resume. If Customer in good faith objects
to the qualifications of the proposed individual within fifteen (15) Business
Days after being notified thereof, then Contractor agrees to discuss such
objections with Customer and resolve such concerns on a mutually agreeable basis
or; if unable to do so, to select another candidate acceptable to Customer. The
Key Personnel that have been approved as of the Effective Date of Contract are
listed in Attachment B (Key Personnel). Should the individuals filling the
positions
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of Key Personnel leave such positions for whatever reason, Contractor shall
follow the procedures set forth in this Article 17.3 (Assignment of Key
Personnel) to select replacement personnel.
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18. CONTRACTOR'S REPRESENTATIONS, COVENANTS, AND WARRANTIES
18.1 Organization; Good Standing and Qualification.
Contractor represents and warrants that:
(a) it is a corporation duly organized, validly existing and in good
standing under the Laws of Delaware;
(b) it has all requisite power and authority to own and operate its
material properties and assets and to carry on its respective business as now
conducted in all material respects; and
(c) it is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure to so qualify would have a Material
Adverse Effect.
18.2 Authorization.
Contractor represents and warrants that:
(a) it has all requisite corporate power and authority to enter into this
Contract and to carry out the transactions contemplated by this Contract;
(b) the execution, delivery, and performance of this Contract and the
consummation of the transactions contemplated by this Contract have been
authorized by the requisite corporate action of Contractor and do not conflict
with any other agreement or obligation to which it is a party or which binds its
assets; and
(c) this Contract is a valid and binding obligation of Contractor,
enforceable in accordance with its terms, except Contractor makes no
representation or warranty as to the enforceability of remedies due to
applicable bankruptcy, insolvency, moratorium, reorganization, or similar laws
relating to or affecting the enforcement of creditor's rights or by reason of
general principles of equity.
18.3 Warranties for Deliverable Items.
(a) Satellites.
----------
Contractor represents that each Satellite furnished under this Contract
shall be free from Defects other than Defects waived in writing by Customer.
This representation shall begin on the date of Handover of a Satellite and
Customer's exclusive remedy for breach of this representation is set forth in
Article 12 (In-Orbit Performance Incentive Payments).
(b) SCC Equipment and Software.
---------------------------
Contractor represents and warrants that the SCC Equipment and Software
Delivered under this Contract shall be free from Defects other than Defects
waived in writing by Customer. This warranty shall begin on the date of Final
Acceptance of the respective Deliverable Item and run for one (1) year.
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(c) Communications Payload Simulator and Dynamic Spacecraft Simulator.
-----------------------------------------------------------------
Contractor represents and warrants that each of the Communications Payload
Simulator and Dynamic Spacecraft Simulator Delivered under this Contract shall
be free from Defects other than Defects waived in writing by Customer. This
warranty shall begin on the date of Final Acceptance of the respective
Deliverable Item and run for one (1) year.
(d) Data and Documentation.
----------------------
Contractor represents and warrants that the Data and Documentation to be
furnished hereunder shall be free from Defects. This warranty shall begin on
the date of Final Acceptance of the last portion of the Data and Documentation
to achieve Final Acceptance and run for a period of one (1) year. A Customer
claim under this warranty clause shall not affect the validity of Final
Acceptance.
(e) Batteries.
---------
Contractor represents and warrants that the batteries to be furnished
hereunder shall be free from Defects. In the event any Satellite is required to
be placed in storage prior to its Launch, Contractor shall, upon removal of such
Satellite from storage, (i) test the batteries to ensure the batteries are free
from Defects, other than Defects waived in writing by Customer, and conform to
the applicable specifications and requirements set forth in Exhibit A (Satellite
Performance Specifications) and (ii) certify to Customer that the Batteries are
so conforming. This warranty shall begin on the date of cell activation and run
for a period of two (2) years or until Launch of the Satellite, whichever occurs
earlier.
(f) Services.
--------
Contractor represents and warrants it will perform the Work in accordance
with the highest professional standards of the commercial aerospace and
satellite communications industry practice for work similar in type, scope, and
complexity to the Work.
(g) Title.
-----
Contractor represents and warrants it shall provide good and salable in
commerce title free and clear of any liens and encumbrances of any kind, at the
time title passes to Customer pursuant to Article 9 (Title and Risk of Loss).
(h) Intellectual Property.
---------------------
Contractor represents and warrants that (i) it is either the owner of, or
authorized to use and incorporate, any Intellectual Property utilized or
incorporated in any Deliverable Item or the manufacture of any Deliverable Item;
(ii) Customer shall not be required to pay any license fees or royalties apart
from those included in the Contract Price for use of any Intellectual Property
utilized or incorporated in any Deliverable Item or the manufacture of any
Deliverable Item; and (iii) neither the Work nor any Intellectual Property
(other than Customer's Intellectual Property) utilized or incorporated in any
Deliverable Item or the manufacture of any Deliverable Item shall infringe any
Intellectual Property Right of any third party, provided that Contractor makes
no representations as to infringement with respect to (x) any software or item
that is used or
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combined with any other software or item or modified by an entity other than
Contractor or Subcontractor when the infringement would have not occurred but
for such combination, use, or modification, unless such combination, use or
modification was identified in Exhibit A (Technical Specifications), and (y) any
software or item made according to the written requests, instructions or
specifications of Customer to the extent the infringement arises from compliance
with such written requests, instructions or specifications. As of EDC,
Contractor is not aware of any claim or potential claim to the contrary by any
third party. This warranty shall begin upon Final Acceptance of the Work
embodying the subject Intellectual Property and continue for the operating life
of the Satellites and Long-Lead Items, and any optional Satellites which may be
provided hereunder.
(i) Code.
----
Contractor represents and warrants that (i) it shall use commercially
reasonable efforts to ensure that no viruses or similar items are coded or
introduced into the Work; (ii) it shall not introduce into the Work any code
that would have the effect of disabling or otherwise shutting down all or any
portion of the Work; (iii) it shall not develop, or seek to gain access to the
Work through, any special programming devices or methods, including trapdoors or
backdoors, to bypass any Customer security measures protecting the Work; and
(iv) the operation of the Work shall not be affected by the change of date on or
after January 1, 2000. This warranty shall begin upon Final Acceptance of the
Work embodying the code at issue and continue for the operating life of the
Satellites and Ground Spare Satellite, and any optional Satellites which may be
provided hereunder.
(j) Remedies.
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(1) Notwithstanding anything to the contrary herein, Customer shall
have the right at any time during the period of the warranties
set forth in this Article 18.3 (Warranties for Deliverable Items)
to require that any Work not conforming in any material respect
to this Contract be promptly corrected or replaced (at
Contractor's option and expense) with conforming Work, subject to
paragraph (g) of Article 8.2 (Shipment Readiness Review) and
paragraph (e) of Article 8.3 (Flight Readiness Review). If
Contractor fails or is unable to correct or replace such
defective Work within a reasonable period after notification from
Customer, Customer may then require Contractor to repay such
portion of the Contract Price as is equitable under the
circumstances in lieu of repairing or replacing such defective
Work.
(2) During the operational lifetime of the Satellites, Contractor
shall provide the following for software delivered under this
Contract: with respect to software for ground equipment delivered
hereunder, Contractor shall correct errors, including modifying
code and making operational modifications, in such software as
required for the Satellites to operate in accordance with Exhibit
A (Spacecraft Performance Specifications) for the operating life
of the Satellites; and with respect to flight firmware and
software, Contractor shall, to the extent feasible, correct such
firmware
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and software as required for the Satellites to operate
in accordance with Exhibit A (Spacecraft Performance
Specifications) for the operational lifetime of the Satellites.
During the operational lifetime of the Satellites, Contractor
shall, in a timely manner, provide access to engineering,
software and operations support personnel, including and/or
involving Contractor's Subcontractors and vendors, where
feasible, for the purpose of resolving errors, problems, or
issues relating to the ground equipment, software, data, and
operations products to be Delivered pursuant to this Contract.
(3) In the event Contractor, for whatever reason, fails to perform
its obligations under paragraph (2) above, with respect to any
flight or ground software delivered under this Contract, which
software Contractor either owns or has rights in, Contractor
agrees to provide Customer access to the source code and related
documentation for such software so as to enable Customer to
perform tasks contemplated by paragraph (2) above. With respect
to other software (that is, software that Contractor does not own
or have rights in), Contractor shall use its reasonable best
efforts to provide Customer with similar access to source code
and related documentation for such software. Contractor shall
ensure that all of Contractor's source code for the flight
firmware and software and ground software is appropriately
maintained, stored, catalogued, and archived as necessary to
maintain such source code to object code integrity.
(k) SUBJECT TO ARTICLE 21.1 (CONTRACTOR INTELLECTUAL PROPERTY
INDEMNIFICATION), THE WARRANTIES SET FORTH IN THIS ARTICLE 18.3 (WARRANTIES FOR
DELIVERABLE ITEMS) ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY, AND THE REMEDY
PROVIDED IN PARAGRAPH (j) ABOVE AND ARTICLE 12 (IN-ORBIT PERFORMANCE INCENTIVE
PAYMENTS) ARE THE SOLE REMEDY FOR FAILURE BY CONTRACTOR TO COMPLY WITH
PARAGRAPHS (a) THROUGH (f), (h) AND (i) ABOVE AND TO FURNISH THE ITEMS REQUIRED
TO BE FURNISHED ABOVE FREE FROM MATERIAL DEFECTS IN MATERIAL OR WORKMANSHIP. ALL
OTHER WARRANTIES OR CONDITIONS IMPLIED BY ANY STATUTORY ENACTMENT OR RULE OF LAW
WHATSOEVER ARE EXPRESSLY EXCLUDED AND DISCLAIMED.
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19. CUSTOMER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
19.1 Organization; Good Standing and Qualification.
Customer represents and warrants that:
(a) it is duly organized, validly existing and in good standing under the
Laws of the State of Delaware;
(b) it has all requisite power and authority to own and operate its
material properties and assets and to carry on its respective business as now
conducted in all material respects; and
(c) it is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure to so qualify would have a Material
Adverse Effect.
19.2 Authorization.
Customer represents and warrants that:
(a) it has all requisite corporate power and authority to enter into this
Contract and to carry out the transactions contemplated by this Contract;
(b) the execution, delivery, and performance of this Contract and the
consummation of the transactions contemplated by this Contract have been duly
authorized by the requisite corporate action of Customer and do not conflict
with any other agreement or obligation to which it is a party or which binds its
assets; and
(c) this Contract is a valid and binding obligation of Customer,
enforceable in accordance with its terms, except Customer makes no
representation or warranty as to the enforceability of remedies due to
applicable bankruptcy, insolvency, moratorium, reorganization, or similar laws
relating to or affecting the enforcement of creditor's rights or by reason of
general principles of equity. Notwithstanding the foregoing, in the event of
Customer's bankruptcy, insolvency, moratorium, reorganization, or equity
proceeding, Customer shall use its best efforts to have this Contract confirmed
according to its terms.
19.3 Capitalization and Subsidiaries.
As of the Effective Date of Contract, Customer does not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity or have any subsidiaries,
except those listed on Schedule 19.3 attached hereto.
19.4 Litigation.
As of the Effective Date of Contract, except as provided on Schedule 19.4
attached hereto, there are no actions, suits, or proceedings or investigations
Pending, or, to the knowledge of Customer, threatened against Customer in an
amount that would be considered material such that Customer would be required to
disclose if it were subject to the Securities and Exchange Act of 1934, as
amended. In addition, Customer does not currently intend to initiate such an
action.
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19.5 Title to Properties and Assets.
Customer owns its material properties and assets, other than leased
properties, free and clear of all liens, charges, and encumbrances, except for
(i) such encumbrances and liens that arise in the ordinary course of business
and do not materially impair Customer's ownership or use of such property or
assets, (ii) liens created by this Contract, and (iii) liens listed on Schedule
19.5 attached hereto.
19.6 Financial Statements.
Customer has delivered to Contractor the unaudited consolidated statements
of operations, changes in shareholders' equity and cash flows for 1997 (the
"Financial Statements") as set forth in Schedule 19.6. The Financial Statements
have been prepared in accordance with GAAP consistently applied and present
fairly in all material respects the consolidated financial condition, cash flow,
results of operations and changes in stockholders equity of Customer and its
subsidiaries for such periods. Except as disclosed in Schedule 19.6 attached
hereto, from January 1, 1998 to the Effective Date of Contract, there has not
been (a) any material adverse change to the financial condition of Customer or
any of its subsidiaries, or (b) any damage, destruction, or loss, whether or not
covered by insurance, which has had a Material Adverse Effect. Except as
disclosed in the Financial Statements or in Schedule 19.6, as of the Effective
Date of Contract Customer is not a guarantor or indemnitor of any material
indebtedness of any other person, firm or corporation.
19.7 Certain Actions.
Except as set forth on Schedule 19.7 attached hereto, from January 1, 1998
to the Effective Date of Contract, Customer has not incurred any indebtedness of
Five Hundred Thousand Dollars ($500,000) or more, or sold, exchanged, or
otherwise disposed of any of its material assets or rights.
19.8 Undisclosed Liabilities.
As of the Effective Date of Contract, except as set forth on Schedule 19.8
or on any other Schedule attached hereto, Customer is not subject to any
liabilities of any nature, whether absolute, contingent, or otherwise (whether
or not required to be accrued or disclosed under the accounting disclosure
standards applicable to Customer or under the Securities and Exchange Act of
1934, as amended) that have had or can reasonably be expected to have a Material
Adverse Effect, except to the extent set forth or provided in the Financial
Statements. Except as set forth in Schedule 19.8 or any other Schedule hereto,
all debts, liabilities, and obligations incurred by Customer, after the date of
the Financial Statements, were incurred in the ordinary course of business and
are in amounts less than Five Hundred Thousand Dollars ($500,000).
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19.9 Compliance with Other Instruments.
As of the Effective Date of Contract, Customer is not in violation of its
Certificate of Incorporation or its By-Laws, or, to the knowledge of Customer,
in material default of any instrument, judgment, order, writ, decree, oral or
written contract, or other agreement to which it is a party or by which it is
bound or of any provision of federal, state, or local law, statute, rule, or
regulation applicable to Customer as of the Effective Date of Contract where
such violation or default will have a Material Adverse Effect. The execution,
delivery, and performance of this Contract and the consummation of the
transactions contemplated hereby will not (i) result in any such violation or be
in conflict with the Certificate of Incorporation or the By-Laws of Customer,
(ii) be in conflict with any instrument, judgment, order, writ, or decree, (iii)
be in conflict with any contract or other agreement or be an event that results
in the creation of any lien, charge, or encumbrance upon any material asset of
Customer other than as provided in this Contract, where such conflict or
creation would have a Material Adverse Effect, or (iv) cause Customer to violate
any federal, state, or local law, statute, rule, or regulation.
19.10 Customer's Financial Strength.
Contractor and Customer acknowledge and agree that Contractor, in entering
into this Contract, is relying on the separate existence and financial strength
of Customer alone and not of any Affiliate of Customer.
19.11 Cross-Defaults.
(a) Customer represents and warrants that, as of the Effective Date of
Contract, it is not a party to any Financing Agreements that contain a provision
that a default by any third party in such third party's obligations will be a
default under any of Customer's Financing Agreements where enforcement of such
provision is likely to have a material adverse effect on the ability of Customer
to make any payment required by this Contract or have a material adverse effect
on the security held by Contractor under this Contract.
(b) Customer represents and warrants that, as of EDC, its assets do not
secure the liabilities of any person or entity other than Customer.
(c) Customer agrees that it shall not agree to a provision in any agreement
that a default by any third party's obligations will be a default under any of
Customer's Financing Agreements or grant a security interest in its assets to
secure the obligations of any other parties.
(d) Contractor shall have the power and authority to file financing
statements of public record giving third parties notice of the representations
and warranties of this Article 19.11 (Cross Defaults).
19.12 Code.
Customer represents and warrants that (i) it shall use commercially
reasonable efforts to ensure that no viruses or similar items are coded or
introduced into the code it provides Contractor; and (ii) it shall not introduce
into any such provided code any code that would have
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the effect of disabling or otherwise shutting down all or any portion of the
Work. This warranty shall begin upon Final Acceptance of the Work embodying the
code at issue and continue for the operating life of the Satellites and the
Long-Lead Items.
19.13 Intellectual Property.
Customer represents and warrants that (i) it is either the owner of, or
authorized to use and incorporate, any Intellectual Property provided by
Customer (or others on behalf of Customer); (ii) Customer shall not require
Contractor to pay any license fees or royalties for the use of any Intellectual
Property of Customer; and (iii) Customer's Intellectual Property and/or any
modifications of Contractor's Intellectual Property by Customer (or any other
entity, other than Contractor or its Subcontractors, acting on behalf of
Customer) shall not infringe any Intellectual Property Right of any third party.
Customer is not aware of any claim to the contrary by any third party. This
warranty shall begin on the Effective Date of Contract and continue for the
operating life of the Satellites and the Long-Lead Items.
19.14 Other Contracts.
Customer represents and warrants that, as of EDC, it has not entered into
an agreement to purchase goods and services similar to the goods and services to
be provided by Contractor hereunder.
19.15 Non-Misleading Statements.
As of EDC, this Contract (including the representations and warranties in
this Article 19 (Customer's Representations and Warranties) and the related
schedules) does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements, in light of the
circumstances under which they were made, not misleading.
19.16 Control of Customer.
Customer represents and warrants that Customer is not under the Control of
Contractor.
19.17 Customer Financial Covenant.
Customer covenants that it will provide Contractor with financial
information as follows: until the time Customer becomes a public company,
monthly reports on Customer's anticipated available cash for the following
twelve (12) months; thereafter, quarterly status reports (concurrent with
quarterly filings required by the SEC) setting forth Customer's funding to date,
monthly funding plans through the Delivery Date for the second Satellite,
including identification of Customer's principal funding sources and Customer's
anticipated ability to pay its obligations under this Contract as they become
due. Customer shall provide additional information reasonably related to
Customer's anticipated ability to pay its obligations under this Contract as
they become due, as may be reasonably requested by Contractor.
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20. INTELLECTUAL PROPERTY RIGHTS
20.1 Ownership of IP and IP Rights.
(a) Subject to the licenses set forth in Article 20.2 (License Rights), all
Background and Foreground Intellectual Property made, developed, or created by
Customer (or by others, other than Contractor or any Subcontractor, acting on
behalf of Customer), and all Intellectual Property Rights therein, shall be the
sole and exclusive property of Customer. The Parties agree the Statement of Work
and Spacecraft Performance Specifications are the Intellectual Property of
Customer.
(b) Subject to the licenses set forth in Article 20.2 (License Rights), all
Background Intellectual Property and Foreground Intellectual Property made,
developed or created by Contractor (or its Subcontractors), and all Intellectual
Property Rights therein, shall be the sole and exclusive property of Contractor.
20.2 License Rights.
(a) Subject to the terms and conditions stated herein, Contractor grants to
Customer a fully paid-up, irrevocable, perpetual, worldwide, nonexclusive right
and license to use and have used, for the sole and exclusive purpose of
operating and/or maintaining any Deliverable Item, all Background Intellectual
Property and Foreground Intellectual Property, including, to the extent
necessary for the limited purpose of this license, those associated Intellectual
Property Rights therein, owned by Contractor (and/or its Subcontractors);
provided, however, such license shall only be revocable in the case of
termination in accordance with paragraph (a)(1) or paragraph (a)(2) of Article
32.3 (Termination for Customer's Default) for Customer's failure to make
payment, but only with respect to those Deliverable Items not paid for.
(b) Subject to the terms and conditions stated herein, Customer grants to
Contractor a fully paid-up, irrevocable, perpetual, worldwide, non-exclusive
right and license to use and have used for the sole and exclusive purpose of
performing under this Contract, all Background Intellectual Property and
Foreground Intellectual Property, including, to the extent necessary for the
limited purpose of this license, those associated Intellectual Property Rights
therein, owned by Customer (or others acting on behalf of Customer).
(c) All object code, source code, and documentation Delivered ("Delivered
Software") shall be protected as the Confidential Information of Contractor or
its licensor or Subcontractor pursuant to Article 22 (Confidential Information).
Delivered Software may only be used pursuant to the license granted in paragraph
(a) above on the computer hardware Delivered as a Deliverable Item or successors
or back-ups to such hardware. Customer may reproduce the delivered software for
purposes of safe keeping (archives) or back-up, provided all copyright notices
and proprietary markings are reproduced.
(d) The license described in paragraph (a) above shall be transferable to
the Financing Entities and, subject to Contractor's prior written approval, any
other entity.
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(e) Contractor shall, unless otherwise authorized or directed in writing by
Customer, use reasonable best efforts to include in each Subcontract hereunder a
license rights clause pursuant to which each Subcontractor will grant to
Customer license rights in Intellectual Property developed by such Subcontractor
and associated Intellectual Property Rights to the same extent as the license
rights granted by Contractor in this Article 20.2 (License Rights).
20.3 Joint Program Inventions.
(a) Notwithstanding anything to the contrary herein, the following shall
apply to Program Inventions conceived jointly by one or more Associates of each
Party:
(1) each Party shall have an equal, undivided one-half interest in
and to such joint Program Inventions, as well as in and to patent
applications and patents thereon in all countries.
(2) Contractor shall have the first right of election to file patent
applications in any country, and Customer shall have a second
right of election. Each Party in turn shall make its election at
the earliest practicable time, and shall notify the other Party
of its decision.
(3) The expenses for preparing, filing, and securing each joint
Program Invention patent application, and for issuance of the
respective patent shall be borne by the Party that prepares and
files the application. The other Party shall furnish the filing
Party with all documents or other assistance that may be
necessary for the filing and prosecution of each application.
Where such joint Program Invention application for a patent is
filed by either Party in a country that requires the payment of
taxes, annuities, maintenance fees or other charges on a pending
application or on an issued patent, the Party that files the
application shall, prior to filing, request the other Party to
indicate whether it will agree to pay one-half of such taxes,
annuities, maintenance fees, or other changes. If within sixty
(60) Calendar Days of receiving such request, the non-filing
Party fails to assume in writing the obligation to pay its
proportionate share of such taxes, annuities, maintenance fees,
or other charges, or if either Party subsequently fails to
continue such payments within sixty (60) Calendar Days of demand,
it shall forthwith relinquish to the other Party, providing that
said other Party continues such payments, its interest in such
application and patent and the Program Invention disclosed
therein, subject, however, to retention of an irrevocable, fully
paid-up, non-exclusive, non-assignable license in favor of the
relinquishing Party, its parent, and any subsidiary thereof to
make, use, lease, and sell apparatus and/or methods under said
application and patent.
(b) Each owner of a jointly-owned patent application or patent resulting
therefrom shall, provided that it shall have fulfilled its obligation, if any,
to pay its share of taxes, annuities, maintenance fees, and other charges on
such pending application or patent, have the right to grant non-exclusive
licenses thereunder and to retain any consideration that it may receive
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therefor without obligation to account therefor to the other Party. In
connection therewith, each of the Parties hereby consents to the granting of
such non-exclusive licenses by the other Party and also agrees not to assert any
claim with respect to the licensed application or patent against any licensee of
the Party thereunder during the term of any such license.
20.4 Survival of Intellectual Property Rights.
The provisions of this Article 20 (Intellectual Property Rights) shall
survive the termination or expiration of this Contract, except as expressly set
forth in Article 20.2(a) above.
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21. INTELLECTUAL PROPERTY INFRINGEMENT INDEMNIFICATION
21.1 Contractor Intellectual Property Indemnification.
(a) Subject to paragraph (a) of Article 21.2 (Customer's Intellectual
Property Indemnification) and the limitations set forth in paragraph (h) of
Article 18.3 (Warranties for Deliverable Items), Contractor shall indemnify,
defend, and hold harmless Customer from any and all Losses arising from, in
connection with, or based on any allegations made by third parties (including
Subcontractors of Contractor) that Customer's use of the Work, or any part
thereof infringes any third-party Intellectual Property Right, unless such
infringement would not have occurred but for Contractor following the written
requests, instructions, or specifications of Customer.
(b) If the use of the Work or any part thereof is enjoined, Contractor
shall, at its option and expense, either procure for Customer the right to use
the Work or infringing part thereof, as the case may be, or substitute an
equivalent product reasonably acceptable to Customer, or modify the Work or
infringing part thereof to render them non-infringing without affecting their
utility or functionality. If Contractor determines that none of these
alternatives is reasonably available or feasible, Contractor shall meet with
Customer to address the matter and reach an equitable solution reasonably
acceptable to Customer.
(c) Nothing in this Contract shall be construed as requiring Contractor to
defend a suit or pay damages or costs if either (i) the infringement claim or
judgment is based upon the use of any goods or services furnished in combination
with other goods or services not provided by Contractor, unless such combination
was identified in Exhibit A (Spacecraft Performance Specifications); (ii) the
infringement claim is based on the goods or services being used in other than
their specific operating environment as defined in Exhibit B (SOW); or (iii) the
infringement claim is based on Customer's modification of the Work or part
thereof in a manner not intended or reasonably foreseeable by Contractor.
(d) Contractor's obligations under this Article 21.1 (Contractor
Intellectual Property Indemnification) shall be subject to Article 24.4
(Indemnification Procedures).
21.2 Customer Intellectual Property Indemnification.
(a) Customer shall indemnify, defend, and hold harmless Contractor from any
and all Losses arising from, in connection with, or based on any allegations
made by third parties that the Work or any Deliverable Item or any part thereof
infringes any third-party Intellectual Property Right to the extent such
infringement is based on (i) any Intellectual Property provided by Customer (or
by others, other than Contractor or its Subcontractors, acting on behalf of
Customer); or (ii) any modification by Customer (or any entity, other than
Contractor or its Subcontractors, acting on behalf of Customer) of the Work or
any part thereof; or (iii) any written requests, specifications or instructions
provided by Customer to the extent the infringement arises from compliance with
such written requests, instructions or specifications.
(b) Customer's obligations under this Article 21.2 (Customer Intellectual
Property Indemnification) shall be subject to Article 24.4 (Indemnification
Procedures).
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21.3 Total Liability.
(a) In no event shall either Party's aggregate liability to the other Party
for intellectual property indemnification, defense, or any subsequent award of
damages in connection with one or multiple claims exceed Thirty Million Dollars
($30,000,000).
(b) Neither Party shall be liable to the other Party for lost revenues,
profits or other indirect, incidental, special, or consequential damages arising
from any intellectual property infringement claims, except to the extent that
such damages are caused by a Party's willful or intentional acts.
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22. CONFIDENTIAL INFORMATION
22.1 Confidentiality Obligations.
(a) Any Confidential Information shall be maintained in strict confidence
by the Receiving Party. Except as provided in this Article 22 (Confidential
Information), the Receiving Party shall not use, or disclose in any manner to
any third party, Confidential Information without the prior express written
consent of the Furnishing Party. The obligation of confidentiality shall not be
limited in time except to the extent that the Receiving Party can establish one
of the exceptions set forth in Article 22.2 (Exceptions) below by clear and
convincing evidence.
(b) Access to and use of Confidential Information shall be restricted to
those employees and persons within the Receiving Party's organization (including
its Consultants, attorneys, Subcontractors, shareholders, and representatives),
with a need to use such Confidential Information to perform services
specifically requested by one Party of the other, to fulfill the purposes of
this Contract. The Receiving Party's Consultants or Subcontractors may be
included within the meaning of "persons within the Receiving Party's
organization," provided that such persons have executed a non-disclosure or
confidentiality agreement no less stringent that this Article 22 (Confidential
Information). With respect to Contractor, access may be extended to certain
employees of Hughes Electronics Corporation, Hughes Communications, Inc., and
Hughes Space and Communications Company for the purposes stated herein. In
addition, all information provided is to be subject to the provisions of
paragraph (c) below.
(c) The Parties shall use the Confidential Information solely for the
purpose of developing, constructing, financing, Launching, and operating
Contractor-built Satellites for Customer's satellite digital audio radio
service.
22.2 Exceptions.
The obligations set forth in Article 22.1 (Confidentiality Obligations)
shall not apply to information that is:
(a) Already known to or otherwise in the possession of the Receiving Party
at the time of receipt from the Furnishing Party and that was not so known or
received in violation of any confidentiality; or
(b) Publicly available or otherwise in the public domain prior to
disclosure by the Receiving Party or becomes publicly available or otherwise in
the public domain after receipt by the Receiving Party without breach of this
Contract; or
(c) Rightfully obtained by the Receiving Party from any third party without
restriction and without breach of any confidentiality obligation by such third
party; or
(d) Developed by the Receiving Party independent of any disclosure
hereunder, as evidenced by written records; or
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(e) Disclosed pursuant to the order of a court or administrative body of
competent jurisdiction or a government agency or required to be released
pursuant to Law or regulation, provided that the Receiving Party shall notify
the Furnishing Party prior to such disclosure and shall cooperate with the
Furnishing Party in the event the Furnishing Party elects to legally contest,
request confidential treatment, or otherwise avoid such disclosure.
22.3 No License.
Except as expressly provided in this Contract, nothing in this Contract
shall be construed as granting the Receiving Party whether by implication,
estoppel, or otherwise, any license or any right to use any Confidential
Information received from the Furnishing Party, or use any patent, trademark, or
copyright now or hereafter owned or controlled by the Furnishing Party.
22.4 Return of Confidential Information.
All Confidential Information disclosed pursuant to this Contract is
considered loaned for use solely in connection with this Contract. All
Confidential Information in tangible form of expression which has been disclosed
to or thereafter created, whether by copy or reproduction, by the Receiving
Party shall be and remain the property of the Furnishing Party. All such
Confidential Information and any and all copies and reproductions thereof shall,
within fifteen (15) Calendar Days of written request by the Furnishing Party, be
either promptly returned to the Furnishing Party or destroyed at the Furnishing
Party's direction. In the event of such requested destruction, the Receiving
Party shall provide to the Furnishing Party written certification of compliance
therewith within fifteen (15) Calendar Days of such written request.
22.5 Inconsistent Legends.
This Article 22 (Confidential Information) shall control in lieu of and
notwithstanding any proprietary or restrictive legend or statements inconsistent
with this Article that may be printed on or associated with any particular
information disclosed pursuant to this Contract.
22.6 Survival of Confidentiality Obligations.
The provisions of this Article 22 (Confidential Information) shall survive
the termination or expiration of this Contract for a period of four (4) years
following the date of termination or expiration of this Contract.
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****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
23. NON-COMPETITION OBLIGATION
(a) Except with respect to WorldSpace, Inc. or WorldSpace International
Network, Inc. or Affiliates thereof, or with respect to DirecTV, Contractor
shall refrain, for a period of [*****] from EDC, from the following:
(1) directly or indirectly owning an equity interest of five percent
(5%) or more in an entity that develops or operates a Similar
Satellite System and/or operating a Similar Satellite Service in
any Customer Coverage Area; and/or
(2) providing a payload subsystem meant to be incorporated in a
Similar Satellite System within the Customer Coverage Area.
However, this shall not be construed to restrict Contractor from
selling or providing goods at the equipment level and related
services to any third party.
(b) In the event Customer exercises its options under Article 30 (Options)
to purchase the Ground Spare Satellite and/or 4th and 5th Optional Satellite(s)
the Parties shall negotiate in good faith an extension to the definition of
"Customer Coverage Area" to account for the area covered by the Ground Spare
Satellite and/or such 4th and 5th Optional Satellite(s).
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24. INDEMNIFICATION
24.1 Contractor's Indemnification.
(a) Subject to the indemnification procedures set forth in Article 24.4
(Indemnification Procedures), Contractor shall indemnify, defend, and hold
harmless Customer and its Affiliates and their respective Associates from any
and all Losses arising from, in connection with, or based on any allegations
made by third parties (including Consultants and agents of Customer, Contractor,
or any Subcontractor but not any employee, officer, or director of Customer)
regarding any of the following:
(1) injury to persons (including sickness or death) or damage to real
or tangible personal property, resulting from any act or
omission, negligent or otherwise, of Contractor or its
Subcontractors in the performance of the Work;
(2) any claims arising out of or related to occurrences Contractor is
required to insure against pursuant to Article 25 (Insurance), to
the extent of the amount of the insurance required under such
Article; or
(3) Contractor's breach of its obligations under this Contract.
(b) Subject to the indemnification procedures set forth in Article 24.4
(Indemnification Procedures), Contractor shall indemnify, defend, and hold
harmless Customer as set forth in Article 18.3 (Warranties on Deliverable
Items), Article 21.1 (Contractor Intellectual Property Indemnification), this
Article 24.1(Contractor's Indemnification), Article 26 (Limitations of
Liability), Article 24.3 (Cross Indemnification for Inter-Party Waiver of
Liability), and as may be required pursuant to Article 33 (Inter-Party Waiver of
Liability).
24.2 Customer's Indemnification.
(a) Subject to the indemnification procedures set forth in Article 24.4
(Indemnification Procedures), Customer shall indemnify, defend, and hold
harmless Contractor and its Affiliates and their respective Associates from any
and all Losses arising from, in connection with, or based on any allegations
made by third parties (including Consultants and agents of Contractor, any
Subcontractor, or Customer but not any employee, officer, or director of
Contractor) regarding any of the following:
(1) injury to persons (including sickness or death) or damage to real
or tangible personal property, resulting from any act or
omission, negligent or otherwise, of Customer and its
Consultants;
(2) any claims arising out of or related to occurrences Customer is
required to insure against pursuant to Article 25 (Insurance), to
the extent of the amount of the insurance required under such
Article; or
(3) Customer's breach of its obligations under this Contract.
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(b) Subject to the indemnification procedures set forth in Article 24.4
(Indemnification Procedures), Customer shall indemnify Contractor as set forth
in Article 21.2 (Customer Intellectual Property Indemnification), this Article
24.2 (Customer's Indemnification), Article 24.3 (Cross Indemnification for
Inter-Party Waiver of Liability), Article 33 (Inter-Party Waiver of Liability)
as may be required.
24.3 Cross-Indemnification For Inter-Party Waiver of Liability.
Each Party shall indemnify the other for, and hold it harmless from, any
liability, loss, or damage suffered by the other Party resulting from the
failure of such Party to comply with its obligations, if any, under Article 33
(Inter-Party Waiver of Liability) to waive or to cause its contractors and
Subcontractors at any tier (including suppliers of any kind) or any other entity
required by the Launch Agreement to make no claims under this Contract.
24.4 Indemnification Procedures.
(a) Promptly after receipt by any entity entitled to indemnification under
this Article 24 (Indemnification) of notice of the commencement or threatened
commencement of any civil, criminal, administrative, or investigative action or
proceeding involving a claim in respect of which the indemnified Party will seek
indemnification pursuant to this Article 24 (Indemnification), the indemnified
party shall notify the indemnifying Party of such claim in writing. Failure to
so notify the indemnifying Party shall not relieve the indemnifying Party of its
obligations under this Contract except to the extent it can demonstrate that it
was prejudiced by such failure. Within fifteen (15) Calendar Days following
receipt of written notice from the indemnified Party relating to any claim, but
no later than ten (10) Calendar Days before the date on which any response to a
complaint or summons is due, the indemnifying Party shall notify the indemnified
Party in writing if the indemnifying Party elects to assume control of the
defense or settlement of that claim (a "Notice of Election").
(b) If the indemnifying Party delivers a Notice of Election relating to any
claim within the required notice period, so long as it is actively defending
such claim, the indemnifying Party shall be entitled to have sole control over
the defense and settlement of such claim; provided that (i) the indemnified
Party shall be entitled to participate in the defense of such claim and to
employ counsel at its own expense to assist in the handling of such claim; (ii)
where the indemnified Party is so represented, the indemnifying Party shall keep
the indemnified Party 's counsel informed of each step in the handling of any
such claim; (iii) the indemnified Party shall provide, at the indemnifying Party
's request and expense, such assistance and information as is available to the
indemnified Party for the defense and settlement of such claim; and (iv) the
indemnifying Party shall obtain the prior written approval of the indemnified
Party before entering into any settlement of such claim or ceasing to defend
against such claim. After the indemnifying Party has delivered a Notice of
Election relating to any claim in accordance with the preceding paragraph, the
indemnifying Party shall not be liable to the indemnified Party for any legal
expenses incurred by the indemnified Party in connection with the defense of
that claim. In addition, the indemnifying Party shall not be required to
indemnify the indemnified Party for any amount paid or payable by the
indemnified Party in the settlement of any claim for which the indemnifying
Party has delivered a timely Notice of Election if such amount was agreed to
without the prior written consent of the indemnifying Party.
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(c) If the indemnifying Party does not deliver a Notice of Election
relating to any claim within the required notice period or fails to actively
defend such claim, the indemnified Party shall have the right to defend and/or
settle the claim in such manner as it may deem appropriate, at the cost and
expense of the indemnifying Party. Provided that the indemnified Party acts in
good faith, it may settle such claim on any terms it considers appropriate under
the circumstances without in any way affecting its right to be indemnified
hereunder. The indemnifying Party shall promptly reimburse the indemnified Party
for all such costs and expenses.
24.5 Waiver of Subrogation.
If a Party insures against any loss or damage it may suffer in respect of
which it is required to indemnify the other Party, its Affiliates and their
respective Associates pursuant to this Article 24 (Indemnification), it shall be
a condition that the insuring Party arrange for the insurer to waive its right
of subrogation against such other Party and such other Party's Affiliates and
their respective Associates. Each Party shall be entitled to require proof from
time to time that the other Party has complied with its obligations under this
Article 24.5 (Waiver of Subrogation). In the event a Party does not comply with
such obligations, the indemnities referred to in Articles 24.1 (Contractor's
Indemnification), 24.2 (Customer's Indemnification), and Article 24.3 (Cross
Indemnification for Inter-Party Waiver of Liability), as applicable, shall
extend to any claim that may be made by an insurer pursuant to an alleged right
of subrogation.
24.6 Survival of Indemnifications.
The provisions of this Article 24 (Indemnification) shall survive the
termination or expiration of this Contract.
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25. INSURANCE
25.1 General Obligations.
(a) Contractor represents that it has procured and will maintain at all
times, from EDC to the moment of Launch at the Designated Launch Site of each
Launch Vehicle used to Launch each Satellite pursuant to this Contract,
insurance ("Ground Insurance") against all risks and loss or damage to such
Satellites, and to any and all components purchased for and intended to be
integrated into the Satellite, in an amount not less than the greater of (i) the
replacement value of, or (ii) the amounts paid by Customer with respect to, the
Satellite and components. Contractor shall also maintain public liability
insurance, insurance of employees, and comprehensive automobile insurance, all
in amounts adequate for its potential liabilities under this Contract. In
addition, Contractor shall require each of its Subcontractors to provide and
maintain insurance in amounts for their respective potential liabilities. In
addition, Contractor represents that it has procured and will maintain at all
times, from EDC through Final Acceptance, Ground Insurance for all other Work.
(b) Contractor shall provide a certificate of insurance certified by
Contractor's insurance broker, evidencing such insurance coverage to Customer at
Customer's request.
(c) Contractor shall require its insurers to waive all rights of
subrogation against Customer. Customer shall be named as an additional insured
under Contractor's third-party liability coverages, and as a loss payee as
Customer's interests may appear with respect to property insurance.
25.2 Launch Insurance.
(a) Customer shall be responsible for procuring Launch Insurance for each
Satellite and shall secure a binder for such insurance at least sixty (60)
Calendar Days before the applicable Launch Date for such Satellite. Contractor
shall be named as additional insured on such Launch Insurance policy and
Customer shall require its Insurers to waive all rights of subrogation against
Contractor. Contractor shall, at the written request of Customer, provide
Customer with reasonable assistance (such as providing required technical
information) in Customer's efforts to procure Launch Insurance, and support at
Customer's meetings with Insurers, if necessary.
(b) Without limiting any other Contractor obligations under this Article 25
(Insurance) and in order to comply with insurance requirements, Contractor
shall, as part of the Pre-Eclipse Test Report or Post-Eclipse Test Report,
specify the basis for Partial Loss, Constructive Total Loss or Total Loss, the
definition of which shall have been provided by Customer to Contractor.
Notwithstanding Contractor's specifying such basis, Customer shall make the
final determination of whether a Partial Loss, Constructive Total Loss or Total
Loss has occurred.
(c) Such notices of loss shall comply with the provisions of Article 34.7
(Notices), and the foregoing specified time for the provision of notice may be
shortened in compliance with the respective requirements of such Insurers.
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25.3 Preparation of Claims.
(a) Each Party shall provide to the other Party any information that may
reasonably be required to prepare and present an insurance claim at the other
Party's written request.
(b) The Parties warrant and covenant that they will not withhold from each
other any material information either has or will have concerning anomalies,
failures, or non-conformances with or deviations from the requirements of this
Contract, from EDC through Final Acceptance in respect of any of the Satellites.
(c) Upon written request of a Party, the other Party will respond or permit
the first Party to respond to any insurers in relation to all specific and
reasonable questions relating to design, test, quality control, launch, and
orbital information. In addition, in the event of a Launch Insurance claim,
Contractor will permit and assist Customer to:
(1) conduct review sessions with a competent representative selected
by the insurers to discuss any continued issue relating to such
occurrence, including information conveyed to either Party; and
(2) use its best efforts to secure the insurers' access to all
information used in or resulting from any investigation or review
of the cause or effects of such occurrence; and
(3) make available for inspection and copying all information
necessary to establish the basis of such claim.
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26. LIMITATIONS OF LIABILITY
(a) Contractor makes no warranty or agreement, express or implied, to or
for the benefit of any person or entity other than Customer concerning the
performance of the Satellites or any other matters relating to the Work.
(b) THE PARTIES TO THIS CONTRACT EXPRESSLY RECOGNIZE THAT COMMERCIAL SPACE
VENTURES INVOLVE SUBSTANTIAL RISKS AND RECOGNIZE THE COMMERCIAL NEED TO DEFINE,
APPORTION, AND LIMIT CONTRACTUALLY ALL THE RISKS ASSOCIATED WITH THIS COMMERCIAL
SPACE VENTURE. THE PAYMENTS AND OTHER REMEDIES EXPRESSLY SET FORTH IN THIS
CONTRACT FULLY REFLECT THE PARTIES' NEGOTIATIONS, INTENTIONS, AND BARGAINED-FOR
ALLOCATION OF THE RISKS ASSOCIATED WITH COMMERCIAL SPACE VENTURES.
(c) THE WARRANTY OBLIGATIONS OF CONTRACTOR AND THE REMEDIES AGAINST
CONTRACTOR THEREFOR THAT ARE EXPRESSLY SET FORTH OR REFERENCED IN ARTICLE 18
(CONTRACTOR'S REPRESENTATIONS, COVENANTS, AND WARRANTIES) ARE EXCLUSIVE AND ARE
IN SUBSTITUTION OF ANY OTHER WARRANTIES, EXPRESS OR IMPLIED (INCLUDING ANY
STATUTORY WARRANTIES SUCH AS IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE), WHICH ARE EXPRESSLY DISCLAIMED.
(d) CUSTOMER'S SOLE AND EXCLUSIVE REMEDIES, AND CONTRACTOR'S SOLE
OBLIGATIONS FOR (I) ANY BREACH OF THIS CONTRACT, INCLUDING DELAY OR DEFAULT;
AND/OR (II) ANY DEFECT, NON-CONFORMANCE OR DEFICIENCY IN ANY WORK UNDER THIS
CONTRACT OR IN ANY INFORMATION, INSTRUCTIONS, SERVICES, OR OTHER CLAIMS
WHATSOEVER ARISING OUT OF OR RELATING TO THIS CONTRACT AND/OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER DENOMINATED AS CONTRACT, TORT, EQUITABLE,
STATUTORY, OR ANY OTHER TYPE OF CLAIM) ARE LIMITED TO THOSE SET FORTH IN
ARTICLES 0 (LIQUIDATED DAMAGES FOR LATE DELIVERY), 12 (IN-ORBIT PERFORMANCE
INCENTIVE PAYMENTS), 18 (CONTRACTOR'S REPRESENTATIONS, COVENANTS, AND
WARRANTIES), 21 (INTELLECTUAL PROPERTY INFRINGEMENT INDEMNIFICATION), 24
(INDEMNIFICATION), 25 (INSURANCE), AND 32 (TERMINATION) HEREOF AND ANY OTHER
REMEDIES SPECIFICALLY SET FORTH IN THIS CONTRACT; AND ALL OTHER REMEDIES OR
RECOURSE AGAINST CONTRACTOR OF ANY KIND ARE EXPRESSLY DISCLAIMED AND FOREVER
WAIVED BY CUSTOMER.
(e) CONTRACTOR SHALL NOT, UNDER ANY CIRCUMSTANCES, UNDER ANY WARRANTY
(EXPRESS, IMPLIED, OR STATUTORY) OR UNDER ANY THEORY OF LIABILITY (INCLUDING
NEGLIGENCE, TORT, STRICT LIABILITY, CONTRACT, OR OTHER LEGAL OR EQUITABLE
THEORY) HAVE ANY LIABILITY TO CUSTOMER OR CUSTOMER'S CUSTOMERS FOR ANY SPECIAL,
CONSEQUENTIAL, AND/OR INCIDENTAL DAMAGES, WHETHER OR NOT FORESEEABLE, INCLUDING
LOST REVENUES OR PROFITS, COST OF CAPITAL, OR ANY OTHER FORM OF ECONOMIC
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LOSS RESULTING FROM ANY BREACH OF THIS CONTRACT OR WITH RESPECT TO ANY DEFECT,
NON-CONFORMANCE, OR DEFICIENCY IN ANY INFORMATION, INSTRUCTIONS, SERVICES, OR
OTHER THINGS PROVIDED PURSUANT TO THIS CONTRACT.
(f) THE TOTAL LIABILITY OF CONTRACTOR WITH RESPECT TO ALL CLAIMS OF ANY
KIND, INCLUDING WITHOUT LIMITATION LIQUIDATED DAMAGES, WHETHER AS A RESULT OF
BREACH OF CONTRACT, WARRANTY, STRICT LIABILITY OR OTHERWISE, AND WHETHER ARISING
BEFORE OR AFTER DELIVERY OF ANY DELIVERABLE ITEM, FOR ANY LOSS ARISING FROM OR
RELATING TO THIS CONTRACT, OR FROM THE PERFORMANCE OR BREACH THEREOF, SHALL NOT
EXCEED, EXCEPT AS OTHERWISE SET FORTH IN THIS CONTRACT, THE CONTRACT PRICE.
NOTWITHSTANDING THE FOREGOING, THE LIMITATIONS OF LIABILITY SET FORTH IN THIS
CONTRACT SHALL NOT APPLY TO CONTRACTOR, ITS AFFILIATES, ASSOCIATES, AND
SUBCONTRACTORS TO THE EXTENT A CLAIM OF ANY KIND RELATED TO OR ARISING OUT OF
THIS CONTRACT IS COVERED BY INSURANCE MAINTAINED BY CONTRACTOR, ITS AFFILIATES,
ASSOCIATES OR SUBCONTRACTORS.
(g) The limitations of liability set forth herein shall also apply to all
Affiliates, Associates, and Subcontractors of Contractor to the same extent as
set forth herein with respect to Contractor.
(h) Each Party shall have a duty to mitigate damages for which the other
Party is responsible.
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27. DISPUTE RESOLUTION
Any dispute, claim, or controversy ("Dispute") between the Parties arising
out of or relating to this Contract, including but not limited to any Dispute
with respect to the interpretation, performance, termination, or breach of this
Contract or any provision thereof shall be resolved as provided in this
Article 27 (Dispute Resolution), provided, however, that (i) disputes as to
payments pursuant to Article 5.3 (Disputed Amounts) concerning whether a
Milestone has been reached and payments therefor have been earned by Contractor,
shall be resolved in accordance with the provisions of Article 5.3 (Disputed
Amounts) and Article 27.2 (Arbitration) and (ii) disputes as to the performance
of a Launched Satellite pursuant to Article 12.4 (Disputed Performance) shall be
resolved in accordance with the provisions of Article 12.4 (Disputed
Performance) and Article 27.2 (Arbitration). All other Disputes concerning
Milestones shall be resolved in accordance with this Article 27 (Dispute
Resolution).
27.1 Informal Dispute Resolution.
Subject to the provisions of Article 27.3 (Litigation), prior to or
concurrent with the initiation of formal dispute resolution procedures, the
Parties shall first attempt to resolve their Dispute informally, in a timely and
cost-effective manner, as follows:
(a) If, during the course of the Work, a Party believes it has a Dispute
with the other Party, the disputing Party shall give written notice thereof,
which notice will describe the Dispute and may recommend corrective action to be
taken by the other Party. The Contractor Program Manager shall promptly consult
with the Customer Program Manager in an effort to reach an agreement to resolve
the Dispute.
(b) In the event agreement cannot be reached within ten (10) Calendar Days
of receipt of written notice, either Party may request the Dispute be escalated,
and the respective positions of the Parties shall be forwarded to an executive
level higher than that under paragraph (a) above for resolution of the Dispute.
(c) In the event agreement cannot be reached under paragraphs (a) or (b)
above within a total of twenty (20) Calendar Days after receipt of the written
notice described in paragraph (a) above, either Party may request the Dispute be
escalated, and the respective positions of the Parties shall be forwarded to the
Chief Executive Officer (CEO) of each Party, and such executives shall meet
during such time to resolve the Dispute.
(d) In the event agreement cannot be reached under paragraphs (a), (b) or
(c) above within a total of thirty (30) Calendar Days after receipt of the
written notice described in paragraph (a) above, either Party may proceed with
arbitration in accordance with Article 27.2 (Arbitration).
27.2 Arbitration.
Subject to the provisions of Article 27.3 (Litigation), any Dispute not
resolved under Article 27.1 (Informal Dispute Resolution) (except Intellectual
Property Disputes ), Article 5.3
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(Disputed Amounts), or Article 12.4 (Disputed Performance) shall be resolved by
mandatory and binding arbitration in accordance with the provisions of this
Article 27.2 (Arbitration).
(a) The arbitration shall be conducted by a tribunal of three (3)
arbitrators (the "Tribunal"), each of whom shall have at least ten (10) years
experience in the aerospace and/or satellite telecommunications industry. Within
thirty (30) Calendar Days after the commencement of the arbitration, each Party
shall appoint one arbitrator, and those two arbitrators shall together appoint
the third neutral arbitrator.
(b) Any controversy or claim arising out of this Contract, including any
Dispute, shall be determined by binding arbitration in accordance with the
Arbitration Rules of JAMS/Endispute (the "JAMS Arbitration Rules") then in
effect, except to the extent modified by this Article 27 (Dispute Resolution).
(c) The Parties shall be permitted to take discovery, if and as needed, by
deposition upon oral examination, requests for production of documents and
things, and requests for entry upon land for inspection and other purposes, as
those discovery methods are described and defined in the Federal Rules of Civil
Procedure; provided, however, that any limitations in the Federal Rules on the
number, timing, or sequence of such discovery requests shall not apply. The
scope of permissible discovery shall generally be as described in the Federal
Rules of Civil Procedure, Rule 26(b)(1), but the Parties shall use their best
efforts to focus and limit their discovery in accordance with the nature of the
dispute and the need for expedited resolution. The arbitral tribunal may expand
or limit the scope of permissible discovery and establish the time period within
which discovery responses must be served.
(d) Time is of the essence in the initiation and completion of the
arbitration. The arbitral hearing shall be commenced and conducted
expeditiously. Unless the Tribunal orders otherwise, the dispute should be
submitted to the Tribunal for decision within six (6) months after the
commencement of the arbitration, and the final award shall be rendered within
one (1) month thereafter. The Parties and the Tribunal shall use their best
efforts to comply with this schedule, and the Tribunal may impose any remedy it
deems just for any Party's effort to unnecessarily delay, complicate, or hinder
the proceedings.
(e) The arbitration shall be held in Washington, D.C., USA, and shall be
conducted in the English language.
(f) Any arbitration proceeding held pursuant to this Article 27 (Dispute
Resolution) shall be governed by the JAMS Rules and the United States
Arbitration Act, 9 U.S.C. (S)(S) 1 et seq. Judgment upon the award rendered by
-------
the Tribunal may be entered in any court having jurisdiction thereof. The
Tribunal shall apply the law of the State of New York, including the Uniform
Commercial Code (where and if applicable) as adopted by the State of New York.
(g) Pending a decision by the Tribunal, each Party shall, unless directed
otherwise by the other Party in writing, fulfill all its obligations under this
Contract, including the obligation to take all steps necessary during the
pendency of the arbitration to ensure the Work will be Delivered within the time
stipulated or within such extended time as may be allowed under this Contract,
provided Customer shall continue to make payments therefore in accordance with
this
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Contract (including the dispute resolution provisions hereof), and further
provided that, if Customer fails to make such payments, Contractor may stop
Work.
(h) The Tribunal's award may grant any remedy or relief that the Tribunal
deems just and equitable and within the scope of this Contract, including
specific performance or other equitable relief. Notwithstanding the foregoing,
the Tribunal shall have no power or authority to amend or disregard any
provision of this Article 27 (Dispute Resolution) or any other provision of this
Contract. The Tribunal also shall have no power or authority to award punitive
or exemplary damages to any Party.
(i) The non-prevailing Party, as determined by the Tribunal, shall pay the
costs of the arbitration. In the event of an arbitration involving multiple
claims with different Parties prevailing on each claim, the Tribunal shall
apportion the costs of the arbitration (which shall not include Excluded Costs)
between or among the Parties in such manner as it deems reasonable, taking into
account the circumstances of the case, the nature of the claims, and the result
of the arbitration.
(j) The Tribunal shall award pre-award interest on any sums due (excluding
damages) determined by the Tribunal to be owing from one Party to the other
under this Contract. Any award shall also provide that interest shall continue
to accrue after the date of the award until the amount awarded is paid in full.
Interest shall be calculated at the rate set forth in Article 34.10 (Calculation
of Interest) for each day from forty-five (45) Calendar Days following the date
of loss or the date the arbitration was commenced, whichever is earlier, until
the date full payment is made.
(k) Each Party shall bear the costs of its own legal representation,
witnesses produced by such Party, document production, and other discovery
expenses.
27.3 Litigation.
(a) Notwithstanding the provisions of Article 27.2 (Arbitration) above, if
the Dispute requires that immediate equitable relief or relief in aid of
arbitration be obtained, either Party shall have the right to bring suit solely
to obtain preliminary or temporary injunctive relief, including specific
performance, solely for Intellectual Property issues. However, the Parties
contractually agree that Customer shall not seek specific performance where
Contractor has not been paid in accordance with the provisions of this Contract.
Requests for permanent injunctive relief shall be arbitrated pursuant to
Article 27.2 (Arbitration).
(1) Any such suit shall be brought in a court of competent
jurisdiction in the State of New York, provided, however, the
exclusive venue for any action brought in a New York state court
shall be the Supreme Court for New York County, and the Parties
hereby waive any objection to that venue. The Parties hereby
irrevocably consent to personal jurisdiction in the state and
federal courts in the State of New York concerning any Dispute
between the Parties. If, for any reason, the state and federal
courts of New York do not have or refuse to exercise jurisdiction
over the Dispute, then litigation as permitted herein may be
brought in any court of competent
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jurisdiction in the State of Delaware, provided, however, the
exclusive venue for any action brought in a Delaware state court
shall be the Superior Court of New Castle County, and the Parties
hereby waive any objection to that venue and the Parties hereby
irrevocably consent to personal jurisdiction in the state and
federal courts in the State of Delaware concerning any dispute
between the Parties. If, for any reason, the state and federal
courts of Delaware do not have or refuse to exercise jurisdiction
over the Dispute, then litigation as permitted herein may be
brought in any court of competent jurisdiction in the United
States of America, or, if there is no such court, in any other
nation.
(2) In the event a Party files a lawsuit pursuant to this Article
27.3 (Litigation), the prevailing party shall be entitled to an
award of its costs and fees, including reasonable attorney's
fees, incurred with respect to the lawsuit. The defendant in such
litigation shall be regarded as the prevailing party if either
the court denies the equitable relief sought on the merits or the
court otherwise decides that equitable relief is not warranted or
the matter should be resolved by arbitration.
(b) In the event an entity or person not subject to the provisions of this
Article 27 (Dispute Resolution) commences any litigation or proceeding against
any Party hereto in which the other Party hereto is an indispensable party, the
Party against which the litigation or proceeding is brought may join or attempt
to join the other Party in such litigation or proceeding notwithstanding the
provisions of Article 27.2 (Arbitration). For purposes of this provision, the
other Party is an indispensable party in the lawsuit or proceeding if (i) in its
absence complete relief could not be accorded among those already a party to the
lawsuit or proceeding; (ii) its absence may as a practical matter impair or
impede its ability to protect its interests relating to the subject of the
lawsuit or proceeding; or (iii) its absence may leave the Party against which
the litigation or proceeding is brought subject to a substantial risk of
incurring double, multiple, or otherwise inconsistent obligations by reason of
the interest of the other Party relating to the subject of the lawsuit or
proceeding.
(c) Nothing in this Contract precludes a Party prevailing on any claim,
whether in arbitration or litigation, from initiating litigation in any
appropriate forum to enter or enforce a judgment based on the Tribunal's or
court's award on that claim.
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28. LAUNCH SERVICES
(a) Baseline Launch Vehicle.
--- ------------------------
The baseline Launch Vehicle for the first and second Satellites to be
Delivered pursuant to this Contract shall be the Sea Launch Launch Vehicle.
(b) Alternate Launch Vehicles.
--- -------------------------
In the event that there will be a delay in the schedule of either the first
or second Sea Launch Launch Vehicle, which delay will exceed six (6) months
beyond the last day of the applicable Launch Period, Customer may exercise any
one of the following options for alternate Launch Services subject to the
following conditions:
(1) Option 1
(i) Customer may select an alternate Launch Vehicle(s) from
Contractor's then existing inventory of, H-IIA, or Long
March 3B Launch Vehicles, that, as of the date Customer
exercises the option, have not been sold or otherwise
assigned to other customers of Contractor, or to
Contractor's own satellite programs (for example, DirecTV,
Spaceway, PanAmSat).
(ii) The price for alternate Launch Vehicles shall be the same
as the price for the baseline Sea Launch Launch Vehicles.
(iii) If Customer exercises this option, the payment plan in
Exhibit G (Payment Plan and Termination Liability Amounts)
shall be amended in accordance with Contractor's payment
obligations in Contractor's various agreements with the
Launch Agencies providing the alternate Launch Vehicles,
and to provide that Customer shall make such amended
payment(s) relating to the alternate Launch Vehicle(s) to
Contractor at least thirty (30) Calendar Days in advance
of Contractor's respective payment due date for such
payment to such Launch Agency(ies). The Parties
acknowledge and agree that any deferred or post-Launch
payment terms pursuant to this Contract apply only to the
baseline Launch Vehicles. Accordingly, and depending upon
which alternate Launch Vehicle(s) is/are selected and when
such selection is made, Customer may be obligated to make
a substantial lump sum payment in order to bring current
any retroactive Contractor progress or milestone payment
obligation related to the alternative Launch Vehicle(s).
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filed separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the
omitted portions.
(iv) If Customer exercises this option, Customer shall pay
Contractor an additional sum of [*****] as consideration
for Customer's selection of an alternate Launch Vehicle
for each baseline Launch Vehicle. Such payment shall be
made concurrent with the exercise of this option. Upon
such payment, Customer shall have no further termination
or other liability with respect to the specific Sea Launch
Launch Vehicle abandoned by Customer. Notwithstanding the
foregoing, in the event Customer terminates an alternate
Launch Vehicle after Customer has exercised its option to
select such alternate Launch Vehicle in accordance with
this Article 28 (Launch Services), Customer's termination
liabilities related to Launch Services, as defined herein
and in Exhibit G (Payment Plan and Termination Liability
Amounts), shall be applicable to the alternate Launch
Vehicle.
(v) Customer's option to select an alternate Launch Agency may
be exercised by Customer at any time up to the last day of
the [*****] prior to the [*****] or to the [*****], as
applicable. However, the Parties recognize that
Contractor's inventory of Launch Vehicles will likely
diminish as the respective Launch Periods approach,
thereby reducing Customer's selection opportunities for
alternate Launch Vehicles if such option is exercised
later in the option period described herein.
(2) Option 2
(i) Customer may select an alternate Launch Vehicle from other
than Contractor's inventory of Launch Vehicles.
(ii) If Customer exercises this option, Customer shall pay
Contractor an additional sum of [*****] as consideration
for Customer's selection of an alternate Launch Vehicle
outside of Contractor's inventory. This Option 2 Election
Payment shall be made concurrent with the exercise of this
option. In addition, the termination liability schedule
for the abandoned Sea Launch vehicle shall be as follows:
[*****] as of March 23, 1998, increasing linearly on a
daily basis to [*****] after March 23, 1998 until Launch
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filed separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the
omitted portions.
minus Three (3) Months (L-3), and [*****] after L-3.
Customer shall pay Contractor the full termination
liability amount within thirty (30) Calendar Days after
this Option 2 is exercised (less any payments previously
made); or if Customer has previously made launch vehicle
payments exceeding the termination liability amount,
Customer's termination liability under this paragraph (ii)
shall be offset and Contractor shall refund Customer
launch vehicle payments made exceeding the termination
liability amount within thirty (30) Calendar Days of
Customer's exercise of this Option 3. Upon payment of any
amount due under this paragraph (ii), or in the event no
amount is due under this paragraph (ii), upon exercise of
this Option 2, Customer shall have no further termination
or other liability with respect to the specific Sea Launch
abandoned by Customer.
(iii) If Contractor sells the abandoned Sea Launch launch
vehicle within [*****] after exercise of this Option
2, Contractor shall pay Customer the amount recovered by
Contractor up to the maximum of the termination liability
amount paid by Customer pursuant to paragraph (ii), less
Contractor's reasonable costs (including, but not limited
to, re-programming costs, inventory carrying charges and
unrecoverable costs) incurred in selling the abandoned
launch vehicle.
(iv) Customer may only exercise this option with respect to one
Sea Launch and may not exercise Option 3 below if this
option is exercised.
(3) Option 3
(i) Customer may select an alternate Launch Vehicle from other
than Contractor's inventory of Launch Vehicles.
(ii) If Customer exercises this option, Customer shall pay
Contractor an additional sum [*****] as consideration for
Customer's selection of an alternate Launch Vehicle
outside of Contractor's inventory concurrent with the
exercise of this option. Notwithstanding the foregoing, if
Customer has previously made launch vehicle payments
exceeding the Option 3 Election Payment, Customer's Option
3 Election Payment shall be offset and Contractor
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
shall refund Customer payments made exceeding the Option 3
Election Payment within thirty (30) Calendar Days of
Customer's exercise of this Option 3. Upon payment of any
amount due under this paragraph (ii), or in the event no
amount is due under this paragraph (ii), upon exercise of
this Option 3, Customer shall have no further termination
or other liability with respect to the specific Sea Launch
abandoned by Customer.
(iii) Customer may only exercise this option with respect to one
Sea Launch and may not exercise Option 2 above if this
option is exercised.
(c) In the event Customer exercises any of the options set forth in
paragraph (b) above, to select a Launch Vehicle other than the baseline Sea
Launch, the Parties will amend (i) the definitions of the terms "Intentional
Ignition" and "Launch" to conform to the definitions of such terms set forth in
the respective Launch Agreement for such alternate Launch Vehicle, as
appropriate, and (ii) Article 33 (Inter-Party Waiver of Liability) so as to
conform to the relevant requirements of the country or countries having
jurisdiction over the Launch. In addition, in the event Customer exercises
either Option 2 or Option 3 set forth in paragraph (b) above, (i) the Parties
shall negotiate in good faith whether delivery of the relevant Satellite shall
be an in-orbit or on-ground delivery under this Contract and in the event the
Parties determine it shall be an on-ground delivery, the Parties shall amend
those portions of this Contract related to such determination (e.g. transfer of
title and risk of loss, delivery schedule, acceptance, liquidated damages and
termination liability) as appropriate to reflect an on-ground delivery of the
relevant Satellite, (ii) Contractor shall perform, without charge (except to the
extent included in the Contract Price), Launch Campaign, Mission Support and
LEOP Services for any launch services substituted by Customer for the Launch
Services terminated hereunder, provided, however, Customer shall pay Contractor
for those extra costs incurred by Contractor as a result of providing Launch
Campaign, Mission Support and LEOP Services to a location other than one
contemplated hereunder, (iii) Customer shall pay Contractor for those extra
costs incurred by Contractor as a result of shipping the applicable Satellite to
a launch site other than one contemplated hereunder, and (iv) if requested by
Customer, Contractor shall perform launch management services for the
substituted launch services at a price mutually agreed by the Parties.
(d) If a Satellite Launched on a Sea Launch Launch Vehicle is declared a
failure for any reason, within the first three hundred sixty-five (365) Calendar
Days after such failed Launch, Customer shall be entitled to a replacement
Launch on another Sea Launch Launch Vehicle for an identical satellite, [*****].
The scheduling of such replacement Launch shall have priority over other
Launches on the Sea Launch Launch Manifest, except for scientific missions which
are time sensitive in nature.
(e) In the event a Launch fails to occur on or before the last day of the
applicable Launch Period, Contractor shall be liable to Customer for liquidated
damages for the late
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
delivery of Launch Services in the aggregate total amount of [*****] for each
Launch Vehicle, such liquidated damages to accrue at the daily rate of [*****],
commencing upon the first (1st) Calendar Day following the last day of the
Launch Period, and continuing for a maximum Launch Services damages period of
sixty (60) Calendar Days. Notwithstanding the foregoing, the Launch Services
liquidated damages shall not affect any liquidated damages which may accrue for
late Delivery of any Satellite. For the purpose of determining these Launch
Services liquidated damages as provided in this Article 28 (Launch Services), in
no event shall delay attributable to a Launch Agency be deemed an Excusable
Delay.
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29. CUSTOMER'S RESPONSIBILITIES
(a) In addition to Customer's responsibilities identified in this
Contract, Customer shall also discharge those responsibilities, at no cost to
Contractor or to Subcontractors, as set forth in Exhibit B (Statement of Work)
and below.
(b) Customer will provide beneficial access to Contractor and its
Affiliates and Subcontractors at each Satellite Control Center, on a timely
basis, as necessary to permit Contractor to perform its obligations with respect
to such Satellite Control Centers and related services.
(c) In addition to, and without limiting the generality of, the foregoing,
Customer will be responsible for the following:
(1) providing all civil works utilities and environmental controls
associated with any Satellite Control Center; and
(2) obtaining Launch Insurance prior to Launch. Customer shall
provide Contractor a certificate of such insurance coverage at
Contractor's request.
(d) Customer shall provide written notification to Contractor as early as
practicable as to the identity and nationality of its employees and
Consultant(s) for whom access to Contractor's and Subcontractors' facilities are
required, and subsequent changes thereto, if any. It is recognized that certain
United States Government approvals may be required before such employees and
Consultant(s) have access to Work pursuant to the provisions of Article 6
(Access to Work).
(e) Customer is responsible for obtaining the necessary Specified Orbital
Locations, frequency spectrum allocations and other approvals and licenses to
operate its DARS Satellite Program.
(f) Reserved.
(g) Failure of Customer to discharge the responsibilities specified in
this Article 29 (Customer's Responsibilities) may result in an equitable
adjustment to the Delivery Schedule, Delivery Dates, and/or Contract Price as
specified in paragraph (a) of Article 11.2 (Equitable Adjustments).
(h) Customer will make available, for Contractor's use, certain test
equipment and Customer facilities, as set forth in the Exhibit D (Test Plan
Requirements), as Contractor performs the In-Orbit Tests.
(i) Upon mutual agreement, Customer will make available to Contractor
Customer's facilities for use by Contractor during LEOP, as well as provide
technical support to Contractor during LEOP as a primary TT&C site in support
of LEOP.
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
30. OPTIONS
30.1 Options Granted.
Contractor hereby grants to Customer the options set forth in this
Article 30 (Options) to be exercised at Customer's sole discretion.
30.2 Option to Delay Frequency Specification Beyond Two (2) Months.
(a) Customer shall select six (6) potential telemetry downlink
frequencies, as specified in Exhibit A (Spacecraft Performance Specifications),
within the first two (2) months following EDC for subsequent down-selection to
two (2) final telemetry downlink frequencies. If Customer makes a final
selection of the two (2) telemetry downlink frequencies within the first two (2)
months following EDC, there shall be no adjustment to the Contract Price.
However, should Customer fail to make such final selection of two (2) telemetry
downlink frequencies within the two (2) months following EDC, then Customer may
make the final selection of the two (2) telemetry downlink frequencies up to the
last day of the sixth (6th) month following EDC, provided that Customer shall
pay to Contractor an increase in the Contract Price of [*****] upon notification
by Customer to Contractor of Customer's final selection.
(b) In the event Customer fails to make such final selection of the
telemetry downlink frequencies provided in paragraph (a) above on or before the
last day of the sixth (6th) month after EDC, the Contract Price for such
Frequency Specification shall be adjusted in accordance with Article 14.1
(Changes Requested by Customer).
30.3 Ground Spare Satellite.
Contractor agrees to provide Customer, at Customer's option, one Ground
Spare Satellite, to be delivered on-ground, of a design functionally identical
to Satellites to be delivered in-orbit under this Contract. Such Ground Spare
Satellite shall be used as a replacement, spare, or additional satellite, as the
case may be, in the event of a failed Launch of any Satellite or to accommodate
Customer's satellite system growth or replenishment. The Contract Price
includes Long-Lead Items and Activities to be procured or performed by
Contractor in order to permit delivery of such Ground Spare Satellite, if
ordered, on the expedited schedule set forth below in paragraph (b).
(a) Option Period.
-------------
Customer may order completion of the Ground Spare Satellite at any time
from ARP through the last day of the [*****] ("Option Period"). On or before the
date Customer orders completion of the Ground Spare Satellite, Customer shall
specify the orbital location for the Ground Spare Satellite; however, in the
event Customer also exercises Customer's option to purchase the additional set
of reflectors pursuant to Article 30.7
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(Reflectors for Ground Spare Satellite), Customer's notification to Contractor
of the orbital location for such Ground Spare Satellite may be delayed until six
(6) months prior to the Available for Shipment date of such Ground Spare
Satellite. Contractor shall be responsible for storage costs of all Long-Lead
Items from EDC through the last day of the [*****]. In the event of an
Excusable Delay in accordance with Article 11 (Excusable Delay) or a Contractor
unexcused delay, the Option Period shall be extended day-for-day for the period
of such delay.
(b) Delivery.
--------
In the event Customer orders completion of the Ground Spare Satellite on or
before the last day of the twelfth (12/th/) month following ARP, the Ground
Spare Satellite shall be Available for Shipment to its designated Launch site no
later than four (4) months following the date upon which the second Satellite is
Available for Shipment. Subject to the provisions of paragraph (c) of Article
11.2 (Equitable Adjustments), in the event Customer orders completion of the
Ground Spare Satellite on or after the first day of the thirteenth (13/th/)
month following ARP through the last day of the [*****], the Ground Spare
Satellite shall be Available for Shipment to the launch site within twelve (12)
months following the date of such order, or four (4) months following the date
upon which the second Satellite is Available for Shipment, whichever is later.
(c) Price.
-----
(1) The price for completion of the Ground Spare Satellite, including
documentation, taxes, and ground insurance, but not including the
price of Long-Lead Activities and Items, is [*****] if the
Ground Spare Satellite is ordered from EDC through September 22,
2000. When an order is placed by Customer on or after September
23, 2000 through the last day of the [*****], the price stated
above shall be increased at a rate of [*****] per quarter for
each quarter on or after September 23, 2000 until the date of
placement by Customer of such order. For example, if the order
for the Ground Spare Satellite is placed on May 15, 2001,
Customer shall pay the price stated above, plus escalation
computed for two calendar quarters. The price for the Ground
Spare Satellite, together with any applicable price escalation
described in the preceding sentence, shall apply to an order
placed by Customer for the Ground Spare Satellite through the
last day of the [*****].
(2) Where the Delivery of either Satellite is delayed beyond its
originally scheduled Delivery Date, and such delay is not an
Excusable Delay, incurrence of price escalation described in the
preceding paragraph shall be delayed on a day-for-day basis equal
to the non-Excusable Delay period. Where the Delivery of either
Satellite is delayed beyond its original scheduled Delivery Date
(whether such delay is due to Excusable Delay or Contractor
unexcused delay), the Option Period for ordering completion of
the Ground Spare Satellite shall also be extended on a day-
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separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
for-day basis. For example, if the first Satellite is Delivered one
hundred and twenty (120) Calendar Days after its originally scheduled
Delivery Date for non-Excusable Delay reasons, the first date at which
a price escalation shall apply shall be January 21, 2001 and shall
continue through one hundred and twenty (120) Calendar Days following
the last day of the [*****].
(d) Payment and Deferred Financing.
-------------------------------
(1) The price for the Ground Spare Satellite will be paid in
accordance with the payment plan attached hereto as Exhibit G-2
(Ground Spare Satellite Payment Plan and Termination Liability
Amounts).
(2) If Customer orders the Ground Spare Satellite, Contractor shall
provide [*****] of deferred financing payable in quarterly
installments of interest only, over five (5) years from the
satisfactory completion of the Ground Spare Satellite (no earlier
than ARP plus twenty-four (24) months), with the principal of
such amount to be paid at the end of such five (5) year period.
In such event, Contractor shall retain title to, and store (in
accordance with Article 14.4 (Storage)), the Ground Spare
Satellite prior to Launch or other disposition by Customer and
repayment of principal by Customer. In the event of a Launch or
other disposition of the Ground Spare Satellite by Customer,
Customer shall either repay the outstanding principal balance
prior to Launch Readiness Review, or provide alternative security
reasonably acceptable to Contractor.
(3) Such quarterly installments of interest shall be calculated at a
rate equal to [*****] compounded annually, computed beginning on
the date that the Ground Spare Satellite is Available for
Shipment to its designated Launch site, and continuing for five
(5) years or until repayment of the outstanding principal.
(e) Failure to Order Ground Spare Satellite.
---------------------------------------
Where Customer makes the payments for the Long-Lead Activities and Items
for the Ground Spare Satellite, but fails to order completion of the Ground
Spare Satellite within the Option Period, as may be adjusted in accordance with
this Contract, the option for the Ground Spare Satellite shall no longer be
effective and Contractor shall sell the Long-Lead Items and pay the sale
proceeds, less Contractor's reasonable selling expense, to Customer.
(f) Contract Adjustments.
--------------------
Contractor shall furnish the Ground Spare Satellite in accordance with the
provisions of the documents constituting this Contract. Except as otherwise
required by the terms and
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separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
conditions of this Article 30 (Options), the contract Terms and Conditions for
the Ground Spare Satellite will be identical to the Terms and Conditions of this
Contract; provided, however, (i) liquidated damages for late delivery of the
Ground Spare Satellite shall be [*****] (if the Ground Spare Satellite is used
as a replacement satellite), or [*****] (if the Ground Spare Satellite is used
as an additional satellite); (ii) where the Ground Spare Satellite is ordered as
a replacement satellite, such terms shall not include additional in-orbit
performance incentive payments (other than the rolled-over incentives provided
in Article 12.3 (Calculation and Earning of Incentive Amounts)), (iii) such
terms shall include no other deferred payments, other than specified in this
Article 30.3 (Ground Spare Satellite), unless mutually agreed by the Parties,
and (iv) any other adjustments necessary to reflect an on-ground delivery of the
Ground Spare Satellite, unless Customer also orders an option Launch Vehicle
pursuant to Article 30.8 (Optional Launch Vehicles) below. Where the Ground
Spare Satellite is ordered as an additional satellite (instead of a replacement
satellite), in-orbit performance incentive payments shall be [*****].
30.4 Launch Campaign and LEOP Services for Ground Spare Satellite and/or
4th and 5th Optional Satellites.
Contractor agrees to provide Customer, at Customer's request, Launch
Campaign and LEOP services for the Ground Spare Satellite and/or the 4th and 5th
Optional Satellites, if either or both of these options are exercised by
Customer. In the event Customer elects the High Power Option in accordance
with Article 30.6 (High Power Option), this option for Launch Campaign and LEOP
services shall continue to apply without any change.
(a) Option Period.
-------------
Customer may order Launch Campaign and/or LEOP services for the Ground
Spare Satellite and the 4th and 5th Optional Satellites at any time prior to
[*****] before the scheduled Launch Date for the applicable Ground Spare
Satellite and/or 4th and 5th Optional Satellites.
(b) Price.
-----
The price for Launch Campaign and LEOP services for each of the Ground
Spare Satellite and 4th and 5th Optional Satellites, including taxes and
documentation, is [*****], for each such Satellite ordered by Customer from EDC
through September 22, 2000. Beginning on September 23, 2000, , the price will
escalate at the rate of [*****] per quarter for each quarter after September 23,
2000, until the date the order is placed. The price and the price escalation
described in the preceding sentence, shall apply to orders placed for the Ground
Spare Satellite and the 4th and 5th Optional Satellites through the last day of
the [*****] following ARP.
(c) Payment.
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separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
The price for Launch Campaign and LEOP services, as such price may be escalated
in accordance with paragraph (b) above, for each the Ground Spare Satellite and
the 4th and 5th Optional Satellites shall be paid as follows:
(1) Fifty percent (50%) of such price at the time Customer places an
order with Contractor for completion of the Ground Spare
Satellite or places an order for the purchase of either or both
of the 4th and 5th Optional Satellites, as applicable; and
(2) Fifty percent (50%) of such price on Final Acceptance of the
Ground Spare Satellite or the 4th and 5th Optional Satellites, as
applicable.
30.5 4th and 5th Optional Satellites.
Contractor agrees to provide Customer with options to purchase up to two
(2) additional satellites ("4th and 5th Optional Satellites") to be delivered
on-ground, and of a design functionally identical to the Satellites.
(a) Option Period.
--------------
Customer may exercise this option to order either or both of the 4th and
5th Optional Satellites at any time through the last day of the [*****]
following ARP. In the event of an Excusable Delay in accordance with Article
11 (Excusable Delay) or a Contractor unexcused delay, the Option Period shall be
extended day-for-day for the period of such delay.
(b) Delivery.
---------
Contractor shall perform the work in connection with the 4th and 5th
Optional Satellites, if one or both are ordered, so the 4th and 5th Optional
Satellites are Available for Shipment within twenty-four (24) months after
order, or four (4) months after the Ground Spare Satellite is Available for
Shipment, if applicable, whichever is later. In the event that the 4th and 5th
Optional Satellites are ordered concurrently, delivery of the 5th Optional
Satellite shall be no earlier than four (4) months following Delivery of the 4th
Optional Satellite.
(c) Price.
------
The price for the 4th and 5th Optional Satellites is [*****] for each such
Optional Satellite. When an order is placed by Customer during the period
beginning on September 23, 2000 through the last day of the [*****] following
ARP, the price stated above shall be increased at a rate of [*****] per
quarter for each quarter during such period
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until the date of placement by Customer of such order. For example, if Customer
places an order for an optional Satellite on May 15, 2001, Customer shall pay
the price stated above, plus escalation computed for two calendar quarters. The
price for each of the 4th and 5th Optional Satellites includes design,
manufacture, testing, taxes, and ground insurance for each such ****** Certain
information on this page has been omitted and filed separately with the
Securities and Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Optional Satellite, up to and including Shipment Readiness Review.
(d) Payment.
--------
The price for the 4th and 5th Optional Satellites shall be paid in
accordance with the payment plan set forth in Exhibit G-3 (4th and 5th Optional
Satellite Payment Plan and Termination Liability Amounts). In the event
Customer exercises the option to purchase a 4th and/or 5th Optional Satellite,
the applicable Milestone Payment Plan(s) therefor shall be mutually agreed by
the Parties at such time as the option to purchase the 4th and/or 5th Optional
Satellite is exercised.
(e) Contract Adjustments.
--------------------
Contractor shall furnish the 4th and 5th Optional Satellites in accordance
with the provisions of the documents constituting this Contract. Except as
otherwise required by the terms and conditions of this Article 30.5 (4th and
5th Optional Satellites), the contract terms and conditions for such Optional
Satellite(s) will be identical to the Terms and Conditions of this Contract,
except that (i) liquidated damages for late delivery shall be [*****] for each
such Optional Satellite, and (ii) the in-orbit performance incentive payments
shall be [*****] for each such Optional Satellite, and (iii) such terms shall
include no other deferred payments unless mutually agreed by the Parties.
30.6 [RESERVED]
30.7 Reflectors for the Ground Spare Satellite.
Contractor shall provide Customer, at Customer's request, an additional
flight ship set of two (2) reflectors for the Ground Spare Satellite, if
ordered, as more fully described in Exhibit A (Spacecraft Performance
Specifications). The price for such additional set of reflectors shall be
[*****]. Customer shall exercise this option concurrently with any exercise by
Customer of the Ground Spare Satellite option. The price for such additional
set of reflectors shall be paid as follows: (i) [*****] upon placement of order
by Customer, and (ii) [*****] upon completion of the manufacturing for such
reflectors.
30.8 Optional Launch Vehicles.
Subject to availability and in accordance with these Terms and Conditions,
except as expressly modified by this Article 30 (Options), Contractor grants
Customer an option to purchase an additional Sea Launch Launch Vehicle and
related services for the Launch of the Ground Spare Satellite or any other
Optional Spacecraft which may be purchased by Customer from Contractor pursuant
to this Contract, in accordance with the following Table 30.8.
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requested with respect to the omitted portions.
Table 30.8
Optional Launch Vehicle - Option Periods and Prices
- ------------------------------------------------------------------------------
If ordered from: Price:
- ------------------------------------------------------------------------------
1. EDC through March 22, 1999 [*****]
- ------------------------------------------------------------------------------
2. March 23, 1999 through March 22, 2001 [*****]
- ------------------------------------------------------------------------------
30.9 Contract Adjustments.
Should Customer exercise any or all of the options described in this
Article 30 (Options), the Parties shall execute Amendment(s) as soon as is
reasonably possible after option exercise to incorporate the schedule
adjustments, price adjustments, payment schedule adjustments, and changes to the
Exhibits and other Terms and Conditions as made necessary by such exercise.
Except as otherwise provided in this Article 30 (Options), the terms of this
Contract shall apply to any such options.
31. FAILURE TO MAKE ADEQUATE PROGRESS
If, at any time prior to Delivery of a Deliverable Item (but not
thereafter), Contractor has failed to make adequate progress toward the
completion of such Deliverable Item, including where such failure is due to the
Deliverable Item or any component thereof being damaged or destroyed where such
damage or destruction does not constitute an Excusable Delay, such that
Contractor, due to causes related to such Deliverable Item, will not be able to
Deliver the Deliverable Item by the applicable Delivery Date (as such date may
have been modified in accordance with this Contract) for such Deliverable Item,
then Customer shall be entitled to deliver to Contractor a Demand for correction
of the failure to make adequate progress. Such Demand shall state full details
of the failure. Within ten (10) Calendar Days after receipt of the Demand, or
such longer time as the Parties may agree, Contractor shall submit to Customer a
Correction Plan (in the level of detail feasible within that timeframe) for
achieving Delivery not later than the one hundred fiftieth (150th) Calendar Day
following the originally scheduled Delivery Date. If such Correction Plan does
not reasonably correct or offset the effect of the failure so as to demonstrate
that Delivery of the Deliverable Item affected thereby can be achieved within
one hundred fifty (150) Calendar Days after the originally scheduled Delivery
Date, Customer may reject the Correction Plan, and Contractor shall revise the
Correction Plan so as to demonstrate that Delivery for the Deliverable Item
affected thereby can be achieved within one hundred fifty (150) Calendar Days
after the originally scheduled Delivery Date. Nothing herein shall be construed
to release Contractor from its obligation to make Liquidated Damages payments as
applicable in accordance with Article 10 (Liquidated Damages for Late Delivery).
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32. TERMINATION
32.1 Termination for Customer's Convenience.
(a) Customer may, upon written notice to Contractor, at any time terminate
the Work, in whole or in part, in accordance with the terms set forth below, and
Contractor shall immediately cease Work in the manner and to the extent
specified below. Notwithstanding the foregoing, in no event shall there be a
termination for convenience by Customer under this Article 32.1 (Termination for
Customer's Convenience) (i) with respect to any Satellite that has been
Launched, whether or not such Launch is successful and (ii) with respect only to
either or both Launch Vehicles, unless Customer has made the Major Calendar
Payment with respect to such Launch Vehicle or Launch Vehicles, as applicable.
(b) In the event of partial termination of the Work in accordance with
this Article 32.1 (Termination for Customer's Convenience), Customer's notice of
termination will specify the portion of the Work terminated, and the remaining
provisions of this Article 32.1 (Termination for Customer's Convenience) shall
apply to such terminated portion. All other portions of the Work shall continue
unaffected.
(c) Upon receipt of a notice of termination, as provided in (a) above,
Contractor shall take the following actions:
(1) stop Work under this Contract on the date and to the extent
specified in the notice of termination, except those services
that are specifically intended to be provided in connection with
a termination of this Contract;
(2) withhold delivery of any of the items to be supplied hereunder
until Contractor has received full payment under this Article
32.1 (Termination for Customer's Convenience);
(3) place no further orders or subcontracts for materials, services,
or facilities to the extent they relate to the performance of the
Work terminated;
(4) terminate orders and Subcontracts to the extent they relate to
the performance of the Work terminated;
(5) settle all outstanding liabilities and all claims arising out of
such termination of orders and Subcontracts for materials,
services, or facilities; and
(6) take such action as may be reasonably necessary, or as Customer
may direct, for the protection and preservation of the property
related to this Contract that is in the possession of Contractor
or any Subcontractor and in which Customer has or may acquire an
interest.
(d) In the event of termination under this Article 32.1 (Termination for
Customer's Convenience) and provided the termination is not due to Contractor's
default under Article 32.2
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(Termination for Contractor's Default), Contractor shall be entitled to payment
of an amount equal to the Termination Liability Amount specified in Exhibit G
(Payment Plan and Termination Liability Amounts), and interest on any other
payment not made when required to be made hereunder, less the sum of all amounts
received by Contractor in cash or cash equivalent under this Contract. In no
event shall the amounts payable pursuant to this Article 32.1 (Termination for
Customer's Convenience) exceed the Contract Price. In the event of a termination
of this Contract in part, as permitted by the terms of this Contract, the
Parties shall negotiate an equitable termination liability amount to be paid to
Contractor for that portion of the Work so terminated.
(e) Contractor shall submit an invoice to Customer in accordance with
paragraph (d) above within sixty (60) Calendar Days after the termination date,
which invoice shall specify the amount due to Contractor from Customer pursuant
to this Article 32.1 (Termination for Customer's Convenience). By notice in
writing received by Contractor no later than fifteen (15) Calendar Days after
receipt of Contractor's invoice pursuant to this Article 32.1 (Termination for
Customer's Convenience), Customer may dispute the amount of interest specified
in said invoice. In the event Customer does not so notify Contractor that it
disputes the interest in Contractor's invoice within fifteen (15) Calendar Days
after receipt thereof, Customer shall be deemed to have accepted such invoice.
Contractor shall be entitled to payment by Customer of undisputed amounts in
such invoice within fifteen (15) Calendar Days after Customer's receipt of the
invoice, and with respect to disputed interest amounts, ten (10) Calendar Days
after the resolution of such dispute. Payment of such amount by any Financing
Entity on behalf of Customer shall relieve Customer from its obligation to make
such payment.
(f) Payment of the amount payable by Customer to Contractor pursuant to
paragraph (d) above shall constitute a total discharge of Customer's liabilities
to Contractor for termination pursuant to this Article 32.1 (Termination for
Customer's Convenience).
(g) Upon completion of all payments in accordance with this Article 32.1
(Termination for Customer's Convenience), Customer may require Contractor to
transfer to Customer in the manner and to the extent directed by Customer, title
to and possession of any items comprising all or any part of the Work terminated
(including all Work-in-progress, parts and materials, and all inventories and
associated warranties), and Contractor shall, upon direction of Customer,
protect and preserve property at Customer's expense in the possession of
Contractor or its Subcontractors in which Customer has an interest and shall
facilitate access to and possession by Customer of items comprising all or part
of the Work terminated. Alternatively, Customer may request Contractor to make a
reasonable, good faith effort to sell such items and to remit any sales proceeds
to Customer less a deduction for costs of disposition reasonably incurred by
Contractor for such efforts. To the extent Contractor's compliance with this
paragraph (g) requires governmental approvals and Contractor cannot, with the
exercise of commercially reasonable efforts, procure such approvals, Contractor
shall be excused from performing its obligations under this paragraph (g).
(h) If in Contractor's judgment it is feasible for Contractor to utilize
any items of terminated Work, it shall submit to Customer an offer to acquire
such items. If such offer is accepted, Contractor's termination invoice shall be
credited with the agreed acquisition price.
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separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
32.2 Termination For Contractor's Default.
(a) Customer may terminate this Contract, in whole or in part, upon service
of written notice of default to Contractor at any time after the occurrence of
any of the following:
(1) Subject to any schedule adjustments pursuant to Article 11
(Excusable Delay), Contractor fails to meet the following program
Milestone events:
(i) Conduct Spacecraft Preliminary Design Review (PDR) by
[*****];
(ii) Conduct Spacecraft Critical Design Review (CDR) by [*****];
(iii) Mate Bus and Payload Module for the first Satellite by
[*****];
(iv) first Spacecraft Available for Shipment to Launch site by
[*****];
(v) Mate Bus and Payload Module for the second Satellite by
[*****]; or
(vi) second Spacecraft Available for Shipment to Launch site by
[*****].
(2) A Satellite has not been Delivered on or before the applicable
Delivery Date (as may be extended in accordance with this
Contract) and all applicable liquidated damages for late delivery
that may accrue to Customer's benefit for the late delivery of
said Satellite have been exhausted in accordance with Article 10
(Liquidated Damages for Late Delivery);
(3) If, with respect to the first Satellite, at [*****], the Launch
Agency has failed to establish the Launch Slot to begin no later
than [*****], or if, with respect to the second Satellite, at
[*****], the Launch Agency has failed to establish the Launch
Slot to begin no later than [*****];
(4) Contractor commences a voluntary proceeding concerning itself
under any applicable bankruptcy, insolvency, reorganization,
adjustment of debt, relief of debtors, or similar law
("Insolvency Law"); or any involuntary proceeding commences
against Contractor under an Insolvency Law and
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filed separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the
omitted portions.
the petition has not been dismissed within ninety (90) Calendar Days
after commencement of the proceeding; or a receiver or custodian is
appointed for or takes charge of all or a substantial portion of the
property of Contractor and such custodian or receiver has not been
dismissed or discharged within sixty (60) Calendar Days; or Contractor
has taken action toward the winding-up, dissolution, or liquidation of
Contractor or its business; or Contractor has been adjudicated
insolvent or bankrupt or an order for relief or any other order
approving a case or proceeding under any Insolvency Law has been
entered; or Contractor has made a general assignment for the benefit
of creditors or becomes unable to pay its debts generally as they
become due. Should Contractor become a debtor in any bankruptcy
proceeding, Contractor shall move to assume or reject this Contract
within forty-five (45) Calendar Days after the entry of any order for
relief; or
(5) Contractor has purported to assign or transfer this Contract in
violation of the provisions of Article 34.1 (Assignment) and
Contractor fails to cure such unauthorized purported assignment
or transfer within thirty (30) Calendar Days after receiving
written notice from Customer of the unauthorized purported
assignment or transfer.
(b) In the event Customer terminates this Contract pursuant to paragraph
(a), Customer shall be entitled to, subject to paragraph (d) below, refund of
all payments previously made to Contractor in cash under this Contract and
payment of any liquidated damages for delay levied pursuant to Article 10
(Liquidated Damages for Late Delivery) and, as damages, direct reasonable re-
procurement costs in excess of the Contract Price, such re-procurement costs to
be actually incurred and invoiced to Contractor in reasonable detail and not to
exceed [*****]; provided, however, if Customer terminates this Contract pursuant
to paragraph (a)(2) above for late delivery and such late delivery is caused by
unexcused delay under Article 10.3 (Termination for Unexcused Delay) on which
liquidated damages have been levied, Customer shall not be entitled to such re-
procurement costs.
(c) Upon Contractor's completion of all payments under paragraph (b) above,
Contractor shall be entitled to retain title to any and all Work, Work-in-
progress, parts or other material, inventories and any associated warranties,
and any subcontracted items Contractor has specifically produced, acquired, or
entered into in accordance with this Contract. Until Contractor has paid to
Customer the payments required under paragraph (b) above, Customer shall have an
interest in the Work, subject to Article 5.7 (Security Interest).
(d) Customer shall submit an invoice to Contractor for the amounts payable
under paragraph (b) no later than one (1) year after the termination date. The
amounts payable by Contractor under paragraph (b) above shall be verified at
Contractor's request and expense by an internationally recognized firm of
accountants appointed by Contractor for that purpose subject to approval of
Customer. Contractor's right to verification shall be without prejudice to the
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rights of either Party under Article 27 (Dispute Resolution). The report issued
by the accountants may be used by either Party during any arbitration
proceedings, but the report shall not be binding on the arbitral tribunal. By
notice in writing received by Customer no later than sixty (60) Calendar Days
after receipt of Customer's invoice pursuant to paragraph (b), Contractor may
dispute the amount of said invoice. In the event Contractor does not so notify
Customer that it disputes Customer's invoice, Contractor shall be deemed to have
accepted said invoice. Customer shall be entitled to payment of such amount
within fifteen (15) Calendar Days after Contractor's receipt of such invoice or,
in the event of dispute, ten (10) Calendar Days after the resolution of such
dispute.
(e) Notwithstanding any other provision of this Article 32 (Termination), a
termination for Contractor's default shall not relieve the Parties of their
obligations with respect to any Launched Satellite and there will be no right of
termination for default with respect to a Launched Satellite.
(f) In the event Customer terminates this Contract as provided in paragraph
(a), Contractor, if requested in writing by Customer, shall assign to Customer
or its designee, such Subcontracts as requested by Customer, to the extent
permitted by such Subcontracts.
(g) If, after termination of this Contract under the provisions of
paragraph (a), it is determined by arbitration, pursuant to Article 27 (Dispute
Resolution), or admitted in writing by Customer, that Contractor was not in
default under the provisions of paragraph (a), or that any delay giving rise to
the default was excusable under the provisions of Article 11 (Excusable Delay),
such termination shall be considered a Termination for Convenience by Customer
and the provisions of Article 32.1 (Termination for Customer's Convenience)
shall apply.
(h) Contractor's compliance with this Article 32.2 (Termination for
Contractor's Default) shall constitute Customer's sole and exclusive remedy in
the event of a termination for Contractor's default.
32.3 Termination for Customer's Default.
(a) Contractor may stop work or terminate this Contract in whole or in part
upon service of written notice of default to Customer at any time after the
occurrence of any of the following:
(1) Subject to paragraph (2), if Contractor gives written notice to
Customer of default in the payment of any amount, including
Milestone Payments, Major Calendar Payments, and other Calendar
Payments, when such amount shall have become due and payable; or
(2) Customer fails to cause Contractor to be paid any Milestone
Payment amounts determined to be due and payable under Article
5.3 (Disputed Amounts) within the time period set forth in
Article 5.3 (Disputed Amounts); or
(3) Customer commences a voluntary proceeding concerning itself under
any applicable bankruptcy, insolvency, reorganization, adjustment
of debt,
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and filed separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the
omitted portions.
relief of debtors or similar law ("Insolvency Law"); or any
involuntary proceeding commences against Customer under an
Insolvency Law and the petition has not been dismissed within
ninety (90) Calendar Days after commencement of the proceeding;
or a receiver or custodian is appointed for or takes charge of
all or a substantial portion of the property of Customer and such
custodian or receiver has not been dismissed or discharged within
sixty (60) Calendar Days; or Customer has taken action toward the
winding-up, dissolution, or liquidation of Customer or its
business; or Customer has been adjudicated insolvent or bankrupt
or an order for relief or any other order approving a case or
proceeding under any Insolvency Law has been entered; or Customer
has made a general assignment for the benefit of creditors or
becomes unable to pay its debts generally as they become due.
Should Customer become a debtor in any bankruptcy proceeding,
Customer shall move to assume or reject this Contract within
forty-five (45) Calendar Days after the entry of any order for
relief; or
(4) Customer has purported to assign or transfer this Contract in
violation of the provisions of Article 34.1 (Assignment) and
Customer fails to cure such unauthorized assignment or transfer
within thirty (30) Calendar Days after receiving written notice
from Contractor of such unauthorized purported assignment or
transfer by Customer; or
(5) Customer fails to raise [*****] in financing in addition to the
[*****] required by Article 7(d) for a total minimum of the
[*****] in financing within one hundred eighty (180) Calendar
Days after ARP.
(b) Upon the occurrence of an event of default under paragraph (a) above,
and following the expiration of any applicable cure period, Contractor shall
have the following rights (in addition to termination):
(1) Contractor may stop Work immediately under this Contract and all
obligations of Contractor shall terminate hereunder;
(2) Contractor may, at its sole option, terminate its obligations to
cause a Launch Vehicle to be provided for the benefit of
Customer, without terminating the whole Contract; provided,
however, if Contractor terminates this Contract in part,
Contractor may terminate only the Launch Vehicle obligations
applicable to the portion of this Contract being so terminated
(by way of example, if Contractor terminates this Contract in
part with respect to the first Satellite to be delivered, only
the Launch Vehicle obligations related to the Launch of the first
Satellite may be terminated);
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(3) Contractor shall be entitled to retain possession and title to
the Work, and all items thereof, and all payments received prior
to such termination, unless and until all payments due under the
Contract as a result of any termination by Contractor have been
received by Contractor in immediately available funds;
(4) Contractor may sell the Work, or items thereof to a person other
than Customer, provided the proceeds of such sale of such Work
are applied to off-set any termination liability amounts due to
Contractor by Customer;
(5) Contractor may withhold delivery of any of the items to be
supplied hereunder until Contractor has received full payment
under this Article 32.3 (Termination for Customer's Default);
(6) Contractor shall place no further orders or subcontracts for
materials, services, or facilities to the extent they relate to
the performance of the Work;
(7) Contractor shall terminate orders and Subcontracts to the extent
they relate to the performance of the Work;
(8) Contractor shall settle all outstanding liabilities and all
claims arising out of such termination of orders and Subcontracts
for materials, services, or facilities;
(9) Contractor shall take such action as may be reasonably necessary
for the protection and preservation of the property related to
this Contract that is in the possession of Contractor or any
Subcontractor and in which Customer has or may acquire an
interest; and
(10) Should Customer become a debtor in any bankruptcy proceeding,
Customer shall move to assume or reject this Contract within
forty-five (45) Calendar Days after the entry of any order for
relief.
(c) Nothing in this Article 32.3 (Termination for Customer's Default) shall
limit any rights (and associated remedies to enforce these rights) that
Contractor may have in the Work by virtue of its security interest (pursuant to
Article 5.7 (Security Interest)) in the Work and the Ground Spare Satellite, if
elected to be purchased pursuant to Article 30 (Options).
(d) In the event Contractor terminates this Contract, in whole or in part,
as provided above, Contractor shall be entitled to payment of the amounts
specified in Article 32.1 (Termination for Customer's Convenience).
(e) Contractor shall submit an invoice to Customer in accordance with
paragraph (d) above within sixty (60) Calendar Days after the termination date,
which invoice shall specify the amount due to Contractor from Customer pursuant
to this Article 32.3 (Termination for Customer's Default). By notice in writing
received by Contractor no later than fifteen (15) Calendar Days after receipt of
Contractor's invoice pursuant to this Article 32.3 (Termination for
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Customer's Default), Customer may dispute the amount of any interest specified
in said invoice. In the event Customer does not so notify Contractor that it
disputes the interest in Contractor's invoice within fifteen (15) Calendar Days
after receipt thereof, Customer shall be deemed to have accepted such invoice.
Contractor shall be entitled to payment by Customer of undisputed amounts in
such invoice within fifteen (15) Calendar Days after receipt of the invoice, and
with respect to disputed interest amounts, ten (10) Calendar Days after
resolution of such dispute. Payment of such amount by any Financing Entity on
behalf of Customer shall relieve Customer from its obligation to make such
payment.
(f) Payment of the amount payable by Customer pursuant to paragraph (c)
above shall constitute a total discharge of Customer's liabilities to Contractor
for termination pursuant to this Article 32.3 (Termination for Customer's
Default).
(g) Upon completion of all payments to Contractor in accordance with this
Article 32.3 (Termination for Customer's Default), Customer may require
Contractor to transfer to Customer in the manner and to the extent directed by
Customer, title to and possession of any items comprising all or any part of the
Work terminated (including all Work-in-progress, parts and materials, all
inventories, and associated warranties), and Contractor shall, upon direction of
Customer, protect and preserve property at Customer's expense in the possession
of Contractor or its Subcontractors in which Customer has an interest and shall
facilitate access to and possession by Customer of items comprising all or part
of the Work terminated. Alternatively, Customer may request Contractor to make a
reasonable, good faith effort to sell such items and to remit any sales proceeds
to Customer less a deduction for costs of disposition reasonably incurred by
Contractor for such efforts on terms agreed to by the Parties at that time.
(h) Except as specified in this Contract, Contractor shall not have the
right to terminate or suspend this Contract.
32.4 Termination for Excusable Delay.
(a) Customer may, upon written notice to Contractor, immediately terminate
this Contract, in whole or in part, if and when it becomes reasonably certain
that the aggregate of Excusable Delays (except those Excusable Delays caused
directly by Customer's failure to perform its responsibilities under this
Contract) will exceed four hundred eighty-five (485) Calendar Days.
(b) In the event of termination under this Article 32.4 (Termination for
Excusable Delay), Customer shall be entitled to, subject to paragraph (c) below,
refund of all payments previously made to Contractor in cash or cash equivalent
under this Contract and payment of any liquidated damages, if any, for delay
levied pursuant to Article 10 (Liquidated Damages for Late Delivery), less
[*****] of all such payments (excluding liquidated damages) (the "Refund
Reduction Amount"), which Refund Reduction Amount shall not exceed a total of
[*****].
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(c) Upon completion of all payments to Customer in accordance with this
Article 32.4 (Termination for Excusable Delay), Contractor shall be entitled to
retain title to any and all Work, Work-in-progress, parts or other material,
inventories, and any associated warranties, and any subcontracted items
Contractor has specifically produced, acquired, or entered into in accordance
with this Contract.
(d) Customer shall submit an invoice to Contractor for the amounts payable
under this Article 32.4 (Termination for Excusable Delay) no later than one (1)
year after the termination date. By notice in writing received by Customer no
later than fifteen (15) Calendar Days after receipt of Customer's invoice
pursuant to this Article 32.4 (Termination for Excusable Delay), Contractor may
dispute the amount of said invoice. In the event Contractor does not so notify
Customer that it disputes Customer's invoice, Contractor shall be deemed to have
accepted said invoice. Customer shall be entitled to payment of such amount
within fifteen (15) Calendar Days after Contractor's receipt of such invoice or,
in the event of dispute, ten (10) Calendar Days after the resolution of such
dispute.
(e) In the event it is determined by arbitration pursuant to Article 27
(Dispute Resolution) or by written agreement of the Parties that Customer
wrongfully terminated this Contract under this Article 32.4 (Termination for
Excusable Delay), such termination shall be considered a Termination for
Convenience by Customer and the provisions of Article 32.1 (Termination for
Customer's Convenience) shall apply.
32.5 Time of the Essence.
Time is of the essence in this Contract, including with respect to the
resolution of any disputes between the Parties under this Article 32
(Termination).
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33. INTER-PARTY WAIVER OF LIABILITY
(a) Prior to commencement of Launch Services, each Party will provide the
other Party with evidence reasonably satisfactory to the other Party that it has
complied with the inter-party waiver of liability and related insurance and
indemnification provisions of any Launch Agreement, including any requirement to
obtain substantially similar waivers and/or indemnifications from other parties
such as entities conducting operations at the launch site, customers,
contractors, subcontractors at any tier, or the United States Government.
(b) Notwithstanding any other term or provision contained in this Contract,
this Article 33 (Inter-Party Waiver of Liability) shall survive the completion
or termination of this Contract in any manner whatsoever.
(c) The Parties will take such further actions as may be required to
implement the provisions of this Article 33 (Inter-Party Waiver of Liability),
including the execution of such agreements, waivers, and indemnifications as are
customarily used with respect to operations at the launch site and are
consistent with the provisions of this Article 33 (Inter-Party Waiver of
Liability).
(d) For any Launch subject to the jurisdiction of the United States, the
Launch Agency shall procure and maintain such insurance as required by the
United States Department of Transportation for loss or damage to United States
Government property or for death, bodily injury or property damage or loss to
third parties in connection with the licensed Launch activities provided under
this Contract. For Launches not subject to the jurisdiction of the United
States, the Launch Agency shall procure and maintain such insurance as required
by the government having jurisdiction over such Launch.
(e) The Launch Agency has executed agreements with various United States
Government agencies for the use of Government-owned property and facilities
relating to the production of launch vehicles and launch operations. Customer
agrees that it will comply with the United States Government's Laws as they
relate to Customer-furnished property and personnel, and those agreements
relating directly to the United States expendable launch vehicle program.
Contractor shall request the Launch Agency to furnish copies of such agreements
to Customer upon Customer's request.
(f) Contractor shall require the Launch Agency to indemnify, defend and
hold harmless Contractor and Customer from third-party claims for bodily injury,
including death, property damage and losses, arising from or relating to any
Launch Services provided by the Launch Agency.
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34. GENERAL
34.1 Assignment.
(a) Contractor shall not, without the prior written approval of Customer
and except on such terms and conditions as are determined in writing by
Customer, assign, mortgage, charge, or encumber this Contract or any part
thereof, any of its rights, duties, or obligations hereunder, or the Work to any
person or entity (except to its parent company or a wholly-owned direct or
indirect subsidiary company of Contractor, or any person or entity acquiring all
or substantially all the assets of Contractor (through merger, stock or asset
acquisition, recapitalization, or reorganization) where such merger,
acquisition, recapitalization, or reorganization does not adversely affect
Customer's rights under this Contract); provided, however, Customer shall
provide its approval, if in Customer's reasonable judgment, Customer's rights
under this Contract are not and would not be adversely affected thereby.
(b) Customer shall not, without the prior written approval of Contractor,
assign, mortgage, charge, or encumber this Contract or any part thereof, or
merge with or into or sell all or substantially all its assets to any other
entity (except to its parent company or a wholly-owned direct or indirect
subsidiary company of Customer, or any person or entity acquiring all or
substantially all the assets of Customer (through merger, stock or asset
acquisition, recapitalization, or reorganization) where such merger,
acquisition, recapitalization, or reorganization does not adversely affect
Contractor's rights under this Contract); provided, however, Contractor shall
provide its approval, if in Contractor's reasonable judgment, Contractor's
rights under this Contract are not and would not be adversely affected thereby.
(c) The assigning Party shall reimburse the other Party for all reasonable
expenses incurred by the other Party (and invoiced in reasonable detail) in
obtaining advice from its external financial and legal advisors relating to the
assigning Party's proposed assignment or transfer.
(d) This Contract shall be binding on the Parties and their successors and
permitted assigns. Assignment of this Contract shall not relieve the assigning
Party of any of its obligations nor confer upon the assigning Party any rights
except as provided in this Contract.
34.2 Entire Agreement.
This Contract contains the entire agreement between the Parties regarding
the Work hereunder and supersedes all communications, negotiations, and other
agreements either written or oral, relating to the Work and made prior to EDC,
unless the same are expressly incorporated by reference into this Contract.
Further, this Second Amended and Restated Satellite Purchase Contract supercedes
the Original Satellite Purchase Contract, as amended, and the First Amended and
Restated Satellite Purchase Contract, and this Second Amended and Restated
Satellite Purchase Contract constitutes the sole agreement between the Parties
as to the Work to be performed hereunder.
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34.3 Amendments.
This Contract, including any and all its Schedules, Attachments, Annexes,
Exhibits and Appendices thereto, may not be modified except by written
instrument of subsequent date signed by an officer of Contractor, or another
person designated in writing by any such officer to sign such an instrument and
a senior vice president of Customer, or another person designated in writing by
any such Customer senior vice president to sign such an instrument.
34.4 Waiver of Breach of Contract.
A waiver of any provision or any breach of a provision of this Contract
shall not be binding upon either Party unless the waiver is in writing, signed
by a duly authorized representative of the Party to be bound, as applicable, and
such waiver shall not affect the rights of the Party not in breach with respect
to any other or future breach. No course of conduct by a Party shall constitute
a waiver of any provision or any breach of a provision of this Contract unless a
written waiver is executed in accordance with the provisions of this Article
34.4 (Waiver of Breach of Contract).
34.5 Severability.
In the event any one or more of the provisions of this Contract shall for
any reason be held to be invalid or unenforceable, the remaining provisions of
this Contract shall be unimpaired and the invalid or unenforceable provision
shall be replaced by a mutually acceptable provision, which, being valid and
enforceable, comes closest to the intention of the Parties underlying the
invalid or unenforceable provision.
34.6 Applicable Law.
Except as provided in Article 27 (Dispute Resolution), this Contract and
performance under it shall be governed by, construed and enforced in accordance
with the Laws in force in the State of New York, without regard to conflict of
laws provisions thereof.
34.7 Notices.
(a) All notices, requests, demands, and determinations under this Contract,
including any required under Article 34.1 (Assignment), (other than routine
operational communications), shall be in writing and shall be deemed duly given
(i) when delivered by hand, (ii) two (2) Business Days after being given to an
express courier with a reliable system for tracking delivery, and (iii) when
sent by facsimile (confirmed by the specific individual to whom the facsimile is
transmitted) with a copy sent by another means specified in this Article 34.7
(Notices), and addressed as follows:
Customer: XM Satellite Radio Inc.
1250 23rd Street, NW, Suite 57
Washington, DC 20037
Attention: Joseph M. Titlebaum, Esq.
Sr. Vice President, General Counsel and Secretary
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Contractor: Hughes Space and Communications International, Inc.
Courier: 1920 E. Walnut Street
El Segundo, CA 90245
Mail: P.O. Box 92919
Los Angeles, CA 90009
Tel. No.: 310/364-5607
Fax No.: 310/364-9644
Attention: Patrice Gray Mitchell
Director, Commercial/International Business
Loc. SC, Bldg S41, M/S A374
(b) A Party may from time to time change its address or designee for
notification purposes by giving the other Party prior written notice of the
new address or designee and the date upon which it will be effective.
34.8 Parties Not Agents.
(a) Contractor, in performing the Work hereunder, is acting as an
independent contractor, and Contractor has the sole right and obligation to
supervise, manage, contract, direct, procure, perform, or cause to be performed,
all Work to be performed by Contractor under this Contract.
(b) None of the provisions of this Contract or of any of its Exhibits,
shall be construed to mean that either Party is appointed or is in any way
authorized to act as an agent of the other Party.
34.9 Release of Information.
(a) From and after the Effective Date of Contract, other than disclosures
required by Law or requirements of NASDAQ, the NYSE or any other national
securities exchange, any publicity, news releases, articles, brochures,
advertisements, prepared speeches, and other information releases regarding the
specific financial details of this Contract or proprietary information of the
other Party regarding the Work performed or to be performed hereunder shall be
mutually agreed upon in writing by Contractor and Customer within a reasonable
time prior to the release of such information. This obligation shall not apply
to Customer's statement or publication of Exhibit B (Statement of Work) or
Exhibit A (Spacecraft Performance Specifications) or parts thereof. This
obligation also shall not apply to information that is publicly available from
any Governmental agency or that is or otherwise becomes publicly available
without breach of this Contract. This Article 34.9 (Release of Information) also
shall not apply to internal publications or releases not intended for the public
at large.
(b) Prior to any disclosure required by Law or requirements of NASDAQ, the
NYSE, or any other national securities exchange, the Party required to disclose
shall inform the other Party and shall consult with such Party regarding its
views as to which portions of such information it should seek to have treated as
confidential. In addition, prior to filing this Contract with any Governmental
or quasi-Governmental agency, Customer shall advise Contractor of such filing
and, as requested by Contractor, redact such terms that Contractor
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
reasonably determines to be confidential and that could put Contractor at a
competitive disadvantage if publicly disclosed, subject to the requirements
and/or approval of the Government and/or quasi-Governmental agency.
34.10 Calculation of Interest.
Except as otherwise specified in this Contract, any interest due to
Contractor under this Contract shall be calculated at the annual rate equal to
the three (3) month London Interbank Offer Rate (LIBOR) for U.S. Dollars
[*****]. Except as otherwise specified in this Contract, any interest due to
Customer under this Contract shall be calculated at the annual rate equal to the
three (3) month LIBOR for U.S. Dollars [*****].
34.11 Survival.
The following Articles, and the provisions contained therein, shall be
deemed to survive the termination (for any reason) or expiration of this
Contract, and, accordingly, such Articles shall remain applicable and
enforceable in accordance with their terms:
(a) Article 1 (Definitions);
(b) Article 9 (Title and Risk of Loss);
(c) Article 10 (Liquidated Damages for Late Delivery);
(d) Article 11 (Excusable Delay);
(e) Article 12 (In-Orbit Performance Incentive Payments);
(f) Article 18.3 (Warranties for Deliverable Items);
(g) Article 20 (Intellectual Property Rights);
(h) Article 21 (Intellectual Property Infringement Indemnification);
(i) Article 22 (Confidential Information);
(j) Article 23 (Non-Competition Obligation), provided that this Contract
is not terminated for Customer's convenience, pursuant to Article 32.1
(Termination for Customer's Convenience) or terminated for Customer's default,
pursuant to Article 32.3 (Termination for Customer's Default);
(k) Article 24 (Indemnification);
(l) Article 26 (Limitation of Liability);
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(m) Article 27 (Dispute Resolution);
(n) Article 32 (Termination);
(o) Article 33 (Inter-Party Waiver of Liability);
(p) Article 34.6 (Applicable Law);
(q) Article 34.10 (Calculation of Interest); and
(r) Article 34.15 (Covenant of Good Faith).
34.12 No Third-Party Beneficiaries.
This Contract is entered into solely between, and may be enforced only by,
Customer and Contractor and their permitted assigns, and this Contract shall not
be deemed to create any rights in third parties, including suppliers and
customers of a Party, or to create any obligations of a Party to any such third
parties.
34.13 Consents and Approvals.
Except where expressly provided as being in the sole discretion of a Party,
where agreement, approval, acceptance, consent, or similar action by either
Party is required under this Contract, such action shall not be unreasonably
delayed or withheld. An approval or consent given by a Party under this
Contract shall not relieve the other Party from responsibility for complying
with the requirements of this Contract, nor shall it be construed as a waiver of
any rights under this Contract, except as and to the extent otherwise expressly
provided in such approval or consent.
34.14 Lender Requirements.
(a) The Parties recognize this Contract may be financed through external
sources. Contractor shall provide to any Financing Entity any program
information or certification that such Financing Entity reasonably requires
(subject to confidentiality agreements governing such program information).
(b) Contractor agrees to work cooperatively to negotiate and execute such
documents as may be reasonably required to implement such financing to the
extent such financing or document does not adversely affect Contractor's
interests under this Contract.
(c) Contractor agrees to execute such documents as may be reasonably
required by any Financing Entity, including a contingent assignment of this
Contract to such Financing Entity, under terms reasonably acceptable to
Contractor and to agree to such modifications to this Contract as such Financing
Entity may reasonably require, provided Contractor's interests under this
Contract are not adversely affected.
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34.15 Covenant of Good Faith.
Each Party agrees that, in respective dealings with the other Party under
or in connection with this Contract, it shall act in good faith.
34.16 Counterparts.
This Contract may be executed in two (2) or more counterparts, which taken
together constitute one single contract between the Parties.
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requested with respect to the omitted portions.
35. OTHER BUSINESS
(a) [*****]
(b) [*****]
IN WITNESS WHEREOF, this Contract has been executed on behalf of Customer
by persons authorized to act on Customer's behalf, and has also been executed on
behalf of Contractor by persons authorized to act on Contractor's behalf.
<TABLE>
<CAPTION>
HUGHES SPACE AND COMMUNICATIONS INTERNATIONAL, INC. XM SATELLITE RADIO INC.
<S> <C>
By: /s/ Gregory W. Chapluk By: /s/ John R. Wormington
---------------------------------- ----------------------------------
(Signature) (Signature)
Name: Gregory W. Chapluk Name: John R. Wormington
Title: Vice President, Title: Senior Vice President
Commercial Contracts XM Satellite Radio Inc.
Date: July 21, 1999 Date: July 21, 1999
</TABLE>
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Attachment A
FORM OF REQUEST FOR PAYMENT
[Date]
XM Satellite Radio Inc.
1250 23rd Street NW, Suite 57
Washington, DC 20037
Attention: Treasurer
RE: Terms and Conditions of the Second Amended and Restated Satellite
Purchase Contract for In-Orbit Delivery, dated as of July 21, 1999 (as
amended, supplemented or modified from time to time, the "XM Satellite
Purchase Contract"), between XM Satellite Radio Inc. ("Customer") and
Hughes Space and Communications International, Inc. ("Contractor")
Ladies and Gentlemen:
This Request for Payment is delivered to XM pursuant to Article 5 (Payment) of
the XM Satellite Purchase Contract and constitutes Contractor's request for
payment in the amount of $_________ for Milestone Payment No. ________.
Very truly yours,
HUGHES SPACE AND COMMUNICATIONS INTERNATIONAL, INC.
By: _____________________
Title: _____________________
A-1
<PAGE>
Annex I to Attachment A
Form of Contractor Certificate
Reference: Milestone Payment No. _____
[Date]
XM Satellite Radio Inc.
1250 23rd Street, NW, Suite 57
Washington, DC 20037
Attention: Treasurer
RE: Terms and Conditions of the Second Amended and Restated Satellite
Purchase Contract for In-orbit Delivery, dated as of July 21,
1999between XM Satellite Radio Inc. ("Customer") and Hughes Space and
Communications International, Inc. ("Contractor") (as amended,
supplemented or modified from time to time, the "XM Satellite Purchase
Contract")
Ladies and Gentlemen:
This Certificate is delivered to you pursuant to Article 5 (Payment) of the
Terms and Conditions of the XM Satellite Purchase Contract. Each capitalized
term used herein and not otherwise defined shall have the meaning assigned
thereto in the Terms and Conditions of the XM Satellite Purchase Contract.
We hereby certify, after due inquiry, that, as of the date hereof:
1. The XM Satellite Purchase Contract is in full force and effect and except
as set forth in Schedule I hereto, has not been amended, supplemented or
otherwise modified, and attached hereto are true, correct and complete
copies of all Amendments to the XM Satellite Purchase Contract or any other
modification or amendment to the XM Satellite Purchase Contract not
heretofore delivered to the Financing Entity.
2. Except as set forth in Schedule I hereto, we are not aware of any event
that has occurred or failed to occur which occurrence or non-occurrence, as
the case may be, could reasonably be expected to cause the date of Final
Acceptance of any Deliverable Item under the XM Satellite Purchase Contract
to occur later than the Delivery Date therefor.
A-I-1
<PAGE>
3. Except as set forth in Schedule I hereto, no event or condition exists that
permits or requires us to cancel, suspend, or terminate our performance
under the XM Satellite Purchase Contract or that could excuse us from
liability for non-performance thereunder.
4. Except with respect to amounts that are the subject of a dispute (such
amounts and such disputes being described in reasonable detail in Schedule
II hereto), all amounts due and owing to us have been paid in full through
the date of the immediately preceding Contractor Certificate and are not
overdue. To the extent payment to us has been or will be made as specified
in this and the immediately preceding Contractor Certificates, there are
and will be no mechanics' or materialsmen's liens except Permitted Liens
(as may be defined in the Financing Agreements) on the Project (as may be
defined in the Financing Agreements), the Collateral (as may be defined in
the Financing Agreements) or on any other property in respect of the Work
which has or will be performed under the Satellite Purchase Contract.
5. a. The amount contained in the Request for Payment delivered to you
concurrently herewith in accordance with the terms of Article 5
(Payment) of the Terms and Conditions of the XM Satellite Purchase
Contract represents monies owed to us in respect of Milestone Payment
No. _____.
b. The amount referred to in paragraph (a) above was computed in
accordance with the terms of the XM Satellite Purchase Contract.
c. The Milestone to which Milestone Payment No. ____ relates has been
completed in accordance with the XM Satellite Purchase Contract.
Very truly yours,
HUGHES SPACE AND COMMUNICATIONS INTERNATIONAL, INC.
By: _____________________________
Title: _____________________________
A-I-2
<PAGE>
SCHEDULE I to
Annex I to Attachment A
List of Exceptions:
Amendments to XM Satellite Purchase Contract:
Exceptions Affecting Final Acceptance Date:
Exceptions Affecting Contractor's Performance:
SI-1
<PAGE>
SCHEDULE II to
Annex I to Attachment A
List of Disputes:
SII-1
<PAGE>
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Attachment B
KEY PERSONNEL AS OF EFFECTIVE DATE OF CONTRACT
[******] [******]
[******] [******]
[******] [******]
[******] [******]
[******] [******]
[******] [******]
[******] [******]
[******] [******]
B-1
<PAGE>
SCHEDULES
TO
SECOND AMENDED AND RESTATED
SATELLITE PURCHASE CONTRACT
FOR IN-ORBIT DELIVERY
BY and BETWEEN
XM SATELLITE RADIO INC.
and
HUGHES SPACE AND COMMUNICATIONS INTERNATIONAL, INC.
<PAGE>
Schedule 19.3
Customer has no interest, direct or indirect, in any other entity.
<PAGE>
Schedule 19.4
There are no actions, suits, proceedings or investigations pending or, to
the knowledge of Customer, threatened against Customer. There is, however, a
filing in Customer's Federal Communications Commission (FCC or Commission)
licensing docket which takes a position adverse to Customer.
In re American Mobile Radio Corporation, Application for Authority to
construct, Launch and Operate Two Satellites in the Satellite Digital Audio
Radio Service, File No. 72-SAT-AMEND-97 et seq., Before the Federal
Communications Commission.
Application for Review, filed by Primosphere Limited Partnership
(Primosphere) on November 17, 1997. This filing seeks review by the full
Commission of the International Bureau's Order and Authorization released
October 16, 1997 which: 1) authorized AMRC to launch and operate a
satellite system in order to provide satellite digital audio radio service;
and 2) denied Primosphere's petition to deny AMRC's application.
Customer has no current intention to initiate any such action.
<PAGE>
Schedule 19.5
There are no liens on Customer's material property and assets.
<PAGE>
Schedule 19.6
AMRC Holdings, Inc.
Unaudited Balance Sheet as of December 31, 1997
<TABLE>
<CAPTION>
Balance Sheet 1997
----------
<S> <C>
Cash 544
License 90,030,889
License - Captialized Interest 1,869,427
Total Assets 91,900,860
==========
Interest Payable - BL & AAL 2,370,053
Interest Payable - WC 18,204
Note Payable - BL 22,500,000
Note Payable - AAL 58,388,889
Note Payable - WC 1,054,190
Note Payable - AMSC 55,435
----------
Total Liabilities 84,386,771
Equity:
Accumulated Deficit (1,628,455)
AMSC (80%; 100 shares)
Common Stock 10
Additional Paid in Capital 1,642,534
WSI (20%; 25 shares)
Common Stock 3
Additional Paid in Capital 7,499,998
----------
Total Stockholders' Equity 7,514,089
Total Liabilities & Equity 91,900,860
==========
Income Statement - BY PERIOD
Outside Services - WSI 568,901
Outside Services - Accrued 390,659
Outside Services - AMSC 130,451
Other Operating Expenses - AMSC 19,614
Interest Expense - BL & AAL 2,370,053
Interest Expense - WC 18,204
Interest Amort - License (1,869,427)
----------
Net Loss 1,628,455
==========
</TABLE>
BL = Bridge Loan; AAL = Additional Amounts Loan; WC = Working Capital Loan
AMSC = American Mobile Satellite Corporation; WSI = WorldSpace Incorporated
<PAGE>
Schedule 19.7
AMRC Holdings, Inc.
Unaudited Balance Sheet as of December 31, 1997
<TABLE>
1997
--------------------------------------- P & L
Balance Sheet January February March** Total
---------------------------------------
<S> <C> <C> <C>
Cash 544 544 544
License 90,030,889 90,030,889 90,030,889
License - Captialized Interest 2,438,020 2,951,588 3,520,182
Satellite Construction in Progress 5,000,000
Total Assets 92,469,453 92,983,021 98,551,615
======================================
Interest Payable - BL & AAL 3,132,582 3,821,318 4,600,319
Interest Payable - WC 25,315 33,368 45,020
Management Fee Payable - WMC 102,935 205,870 308,805
Note Payable - BL 22,500,000 22,500,000 22,500,000
Note Payable - AAL 58,388,889 58,388,889 63,388,889
Note Payable - WC 1,029,382 1,089,546 1,604,703
Note Payable - AMSC 84,158 112,880 141,603
--------------------------------------
Total Liabilities 85,263,260 86,151,871 92,589,339
Equity:
Accumulated Deficit (1,628,455) (1,628,455) (1,628,455)
AMSC (80%; 100 shares)
Common Stock 10 10 10
Additional Paid in Capital 1,642,534 1,642,534 1,642,534
WSI (20%; 25 shares)
Common Stock 3 3 3
Additional Paid in Capital 7,499,998 7,499,998 7,499,998
Current Accumulated Deficit (307,897) (682,939) (1,551,813)
--------------------------------------
Total Stockholders' Equity 7,206,192 6,831,150 5,962,276
Total Liabilities & Equity 92,469,453 92,983,021 98,551,615
======================================
Income Statement - BY PERIOD
Outside Services - WSI (24,808) 51,837 256,411 283,471
Outside Services - WSI (Accrued) 233,714 233,714
Management Fees 131,658 131,658 131,659 394,974
Travel & Entertaiment 8,327 25,000 33,327
Interest Expense - BC & AAL 762,529 688,736 779,001 2,230,266
Interest Expense - WC 7,112 8,053 11,653 26,817
Interest Amort - License (568,593) (513,568) (568,593) (1,650,755)
---------------------------------------------------
Net Loss 307,897 375,042 868,874 1,551,813
===================================================
</TABLE>
**Based on actual amounts as of March 20, 1998 and estimated amounts from March
21, 1998 through March 31, 1998.
BL = Bridge Loan; AAL = Additional Amounts Loan; WC = Working Capital Loan
AMSC = American Mobile Satellite Corporation; WSI = WorldSpace Incorporated
<PAGE>
Schedule 19.8
Undisclosed Liabilities
Second Amended and Restated Satellite Purchase Contract for In-Orbit
Delivery between XM Satellite Radio Inc. and Hughes Space and Communications
International, Inc.
<PAGE>
[Logo of Xm Satellite Radio Inc. Appears Here]
- --------------------------------------------------------------------------------
Exhibit A rev C
- --------------------------------------------------------------------------------
Spacecraft Performance Specifications
Last Saved: July 15, 1999 1:08 PM
Document Number: XM-TBD-00001
DOCUMENT RELEASE APPROVALS
- ---------------------------------------------
Approved by Date
John R. Wormington
Senior Vice President,
XM Satellite Radio Inc.
- ---------------------------------------------
Approved by Date
Peter S. Lauenstein (Hughes Space and
Communications Company)
Program Manager: XM Spacecraft
- ---------------------------------------------
<PAGE>
***** Confidential treatment has been requested for this ENTIRE exhibit. The
------
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated [*****]. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
[***** Pages 2-55 of Exhibit A]
<PAGE>
[Logo of Xm Satellite Radio Inc. Appears Here]
- --------------------------------------------------------------------------------
Exhibit B rev A
- --------------------------------------------------------------------------------
Statement of Work
Last Saved: July 14, 1999 4:20 PM
Document Number: XM-TBD-00002
DOCUMENT RELEASE APPROVALS
- ---------------------------------------------
Approved by Date
John R. Wormington
Senior Vice President,
XM Satellite Radio Inc.
- ---------------------------------------------
Approved by Date
Peter S. Lauenstein (Hughes Space and
Communications Company)
Program Manager: XM Spacecraft
- ---------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Revision Log
This log identifies those portions of this document that have been revised since
the original issue and the date of each revision.
<TABLE>
<CAPTION>
Rev Authorizing Summary of Changes to Previous Version Date Approval
Document
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- - Contract Version 3/13/1998
A Change AMRC to XM Satellite Radio Inc. 7/14/99
Change signature approval block
Change Document number
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Revision Log ..................................................... 1
Table of Contents ................................................ 3
Table of Figures ................................................. 12
Table of Tables .................................................. 12
1 PURPOSE AND SCOPE.......................................... 13
1.1 DOCUMENT ORGANIZATION...................................... 13
1.2 DEFINITION OF WORK TO BE PERFORMED......................... 13
1.3 APPLICABLE DOCUMENTS....................................... 14
2 EQUIPMENT, DATA, AND SERVICES.............................. 15
2.1 DELIVERABLE EQUIPMENT...................................... 15
2.1.1 Flight Spacecraft.......................................... 15
2.1.2 [*****]:................................................... 15
2.1.3 [*****].................................................... 15
2.1.4 Satellite Control Center Equipment and Software ([*****]).. 16
2.1.5 Delivery Schedule.......................................... 16
2.2 TEST AND HANDLING EQUIPMENT................................ 16
2.3 SHIPPING AND STORAGE CONTAINERS............................ 17
</TABLE>
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<S> <C> <C>
2.4 DATA............................................... 17
2.5 SERVICES........................................... 17
2.5.1 Launch Services.................................... 17
2.5.1.1 Launch Operations Planning And Coordination........ 18
2.5.1.2 Launch Support Documentation....................... 18
2.5.1.3 Launch Site Operation Plan......................... 18
2.5.1.4 Launch Site Operations............................. 18
2.5.1.5 XM Launch Participation............................ 19
2.5.2 [*****]............................................ 19
2.5.3 Compatibility with the [*****]..................... 19
2.5.4 LEOP Mission Services.............................. 19
2.5.5 Training........................................... 20
2.5.6 Operation Support Services......................... 20
2.5.7 Launch and In-Orbit Insurance...................... 20
2.5.8 Mission Support Services........................... 21
2.6 DELIVERABLE DATA AND DOCUMENTATION................. 21
2.7 VISIBILITY OF FAILURES/PROBLEMS ON OTHER PROGRAMS.. 21
3 QUALIFICATION, REVIEWS, AND ANALYSES............... 22
</TABLE>
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<S> <C> <C>
3.1 EQUIPMENT QUALIFICATION....................................... 22
3.2 DESIGN REVIEWS................................................ 22
3.2.1 Spacecraft preliminary design review (SPDR)................... 22
3.2.2 Spacecraft critical design review (SCDR)...................... 23
3.2.3 Conduct of design reviews..................................... 24
3.2.3.1 Design review board........................................... 24
3.2.3.2 Design Review Notification.................................... 25
3.2.3.3 Data package.................................................. 25
3.2.3.4 Presentation materials........................................ 25
3.2.3.5 Minutes....................................................... 25
3.2.3.6 Notification of Review Completion............................. 26
3.2.4 Design reviews by subContractors.............................. 26
3.3 OTHER REVIEWS................................................. 26
3.3.1 Unit acceptance reviews....................................... 26
3.3.2 System test reviews........................................... 27
3.3.3 Shipment Readiness review (SRR)............................... 27
3.3.4 Flight readiness reviews (FRR)/Launch readiness review (LRR).. 27
3.3.5 IN-ORBIT Acceptance Test Review (IOTR)........................ 27
</TABLE>
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<C> <S> <C>
3.3.6 MRR, TRR, and TRB Participation....................... 28
3.4 ANALYSES.............................................. 28
3.4.1 General design and performance analyses requirements.. 29
3.4.2 [*****] analysis...................................... 29
3.4.3 [*****] Analysis...................................... 29
3.4.4 [*****] analysis...................................... 30
3.4.5 [*****] analysis...................................... 30
3.4.6 [*****] analysis...................................... 30
3.4.7 [*****] analysis...................................... 30
3.4.8 [*****] Analysis...................................... 31
3.4.9 [*****] analysis...................................... 31
3.4.10 [*****] performance................................... 32
3.4.11 [*****] analyses...................................... 33
3.4.12 [*****] analysis...................................... 33
3.4.13 [*****] analyses...................................... 34
3.4.14 [*****] analysis...................................... 34
3.4.15 [*****] analyses...................................... 35
3.4.16 [*****] Analysis...................................... 36
</TABLE>
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<C> <S> <C>
3.4.17 [*****] Analysis...................................... 36
4 PROGRAM MANAGEMENT REQUIREMENTS....................... 37
4.1 CONTRACTOR MANAGEMENT ORGANIZATION................... 37
4.2 PROGRAM CONTROL....................................... 37
4.3 CONFIGURATION CONTROL................................. 37
4.4 XM MANAGEMENT ORGANIZATION............................ 37
4.5 XM/CONTRACTOR RELATIONS............................... 38
4.6 MEETINGS.............................................. 39
4.6.1 Contract kickoff meeting.............................. 39
4.6.2 Interim and Quarterly progress meetings............... 40
4.6.3 Senior management meetings............................ 40
4.6.4 Review Meetings....................................... 41
4.7 PROGRAM SCHEDULE NETWORKS............................. 41
4.8 PROGRAM MILESTONE PAYMENT STATUS...................... 41
4.8.1 Submitted invoices.................................... 42
4.8.2 Anticipated invoice submittals........................ 42
4.8.3 Milestone payment status graphs....................... 42
4.8.4 Auditor's certification............................... 42
4.9 MANAGEMENT OF CONTRACT CHANGES........................ 43
4.9.1 Preliminary change assessment......................... 43
</TABLE>
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<C> <S> <C>
4.9.2 Contract Change Notice (CCN)..................................... 43
4.9.3 Review and approval of contract change notice.................... 44
4.9.4 Waivers and deviations........................................... 44
4.9.5 Review and approval of an RDW.................................... 45
5 PRODUCT ASSURANCE REQUIREMENTS................................... 46
6 INFORMATION...................................................... 47
6.1 ACCESS TO INFORMATION............................................ 47
6.2 RELEASE OF Command Radio Frequency and AdDress Code INFORMATION.. 47
7 TRAINING AND OPERATION SUPPORT SERVICES.......................... 48
7.1 VERIFICATION OF [*****].......................................... 48
7.2 TRAINING OF XM OPERATIONS PERSONNEL.............................. 48
7.3 OPERATIONS SUPPORT SERVICES...................................... 49
8 DATA AND DOCUMENTATION REQUIREMENTS.............................. 50
8.1 LANGUAGE......................................................... 50
8.2 UNITS AND DIMENSIONS............................................. 50
8.3 NOMENCLATURE, ACRONYMS AND ABBREVIATIONS......................... 50
8.4 DOCUMENT REFERENCE/IDENTIFICATION SYSTEM......................... 51
8.5 CDRL ITEM DESCRIPTIONS........................................... 51
</TABLE>
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<S> <C> <C>
8.5.1 Spacecraft delivery plan......................................... 51
8.5.2 Quarterly program progress reports............................... 52
8.5.3 Design review package............................................ 53
8.5.3.1 Spacecraft preliminary design review data package................ 54
8.5.3.2 Critical design review data package.............................. 55
8.5.4 Spacecraft Validation plan....................................... 57
8.5.5 Other test plans................................................. 57
8.5.6 Spacecraft Storage Plan.......................................... 57
8.5.7 Spacecraft Systems Summary....................................... 58
8.5.8 [*****].......................................................... 57
8.5.9 Spacecraft assembly drawings and circuit diagrams................ 58
8.5.10 Flight software/firmware documentation........................... 59
8.5.11 [*****].......................................................... 59
8.5.11.1 [*****] contents................................................. 60
8.5.11.2 [*****] contents................................................. 60
8.5.11.3 Submission requirements.......................................... 62
8.5.12 Spacecraft Operations Handbook................................... 62
8.5.12.1 [*****].......................................................... 61
</TABLE>
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
<TABLE>
<C> <S> <C>
8.5.12.2 [*****].............................. 61
8.5.12.3 [*****].............................. 62
8.5.12.4 [*****].............................. 62
8.5.12.5 [*****].............................. 62
8.5.13 Spacecraft [*****]................... 64
8.5.13.1 [*****].............................. 63
8.5.13.2 [*****].............................. 65
8.5.13.3 Data Documentation and Delivery...... 67
8.5.14 Analysis............................. 67
8.6 DETAILED CDRL........................ 68
8.6.1 Submission Criteria Definitions:..... 68
8.6.1.1 Approval............................. 68
8.6.1.2 Review............................... 68
8.6.1.3 Information.......................... 68
APPENDIX 1 TO EXHIBIT B 70
1 DYNAMIC SPACECRAFT SIMULATOR (DSS)... 70
2 DESIGN REVIEWS....................... 70
3 TEST REQUIREMENTS.................... 70
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
4 DOCUMENTATION................................... 79
5 TRAINING........................................ 80
6 WARRANTY........................................ 81
APPENDIX 2 TO EXHIBIT B 83
1 COMMUNICATIONS PAYLOAD SIMULATOR INTRODUCTION... 82
2 GENERAL DESCRIPTION............................. 85
3 CONSTRUCTION.................................... 86
4 SYSTEM VERIFICATION............................. 87
5 WARRANTY........................................ 88
APPENDIX 3 TO EXHIBIT B.............................. 89
1 SCOPE........................................... 90
2 DELIVERABLE EQUIPMENT, SOFTWARE, and SERVICES... 91
2.1 Satellite Control Equipment and Software........ 91
2.2 ALIGNMENT OF PRIMARY AND BACKUP FACILITIES...... 92
2.3 Test Equipment and Tools........................ 92
2.4 Spares.......................................... 92
2.5 Product Assurance Management.................... 92
2.6 Test Program.................................... 92
2.7 Customer furnished equipment and services....... 93
</TABLE>
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<S> <C> <C>
3 SCHEDULE..................................... 94
4 WARRANTY..................................... 95
</TABLE>
- -------------------------------------------------------------------------------
Table of Figures
Figure 1: [*****]............................................. 84
- -------------------------------------------------------------------------------
Table of Tables
<TABLE>
<S> <C>
Table 1: Meetings Conducted or Participated in by Contractor.. 38
Table 2 [*****]............................................... 67
Table 3: SCC Deliverable Hardware and Software................ 91
</TABLE>
<PAGE>
1 PURPOSE AND SCOPE
1.1 DOCUMENT ORGANIZATION
This Exhibit provides the Statement of Work (SOW) for the XM Spacecraft
Contract. Sections 8.5 and 8.6 give the contract data and documentation
requirements. Appendices 1, 2, and 3 describe various additional work
which will be performed under this Contract.
1.2 DEFINITION OF WORK TO BE PERFORMED
This Exhibit defines the work to be performed by the Contractor for the
XM DARS Spacecraft program. This work includes deliverable equipment,
hardware, services and documents. The Contractor shall complete this work
in accordance with the Terms and Conditions of the Contract and the
requirements specified herein.
The Contractor shall be fully responsible for all tasks unless other wise
stated. These tasks shall include the design, development, fabrication,
and testing of two flight spacecraft. These spacecraft shall be designed,
fabricated, and tested in accordance with the requirements given in
Contract Exhibits A, C, D and E. The Contractor shall provide delivery of
two spacecraft in-orbit, including transportation to the launch site,
launch vehicle services (when launch vehicles are assigned to the
program), launch support, Launch and Early Operations phase (LEOP)
manuevers and deployments, in-orbit test service, training on the
operation of the satellites, three months of operational support at the
Customer's facility, and mission support services for the life of the
satellites.
The Contractor shall also procure long-lead items for a third spacecraft,
and (at Customer's election) complete the third spacecraft and deliver it
to storage as a ground spare, or launch it to replace a failed
spacecraft.
The Contractor shall provide documentation and data delivered in
accordance with the Contract Data Requirements List (CDRL) given in
section 8.6 DETAILED CDRL.
<PAGE>
The Contractor shall design, manufacture, test, and one Dynamic
Spacecraft Simulator per Appendix 1 to this Exhibit.
The Contractor shall design, manufacture, test and on Communication
Payload Simulator per Appendix 2 this Exhibit.
The Contractor shall deliver, install and test of Spacecraft Control
Center Equipment to the primary and back-up spacecraft control facilities
per Appendix 3 to this Exhibit.
<TABLE>
<C> <S>
1.3 APPLICABLE DOCUMENTS
</TABLE>
The following documents shall be applicable to this Statement of Work:
<TABLE>
<C> <S> <C>
1. Contract Instrument: Terms and Conditions of the Contract.
2. Exhibit A: Spacecraft Performance Specifications
3. Exhibit C: Product Assurance Plan
4. Exhibit D: Test Plan Requirements
5. Exhibit E: Radiation Environment
6. Exhibit F: Long Lead Items
7. Exhibit G: Payment Plan and Termination Liability Amounts
8. Launch vehicle Users manuals and Launch site safety rules
9. ITU Regulation and reference documents
</TABLE>
<PAGE>
***** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
2 EQUIPMENT, DATA, AND SERVICES
The Contractor shall provide spacecraft equipment, related services, and
data and documentation as specified in this section.
2.1 DELIVERABLE EQUIPMENT
2.1.1 FLIGHT SPACECRAFT
The Contractor shall deliver two (2) flight Spacecraft meeting the
performance requirements defined in Exhibit A, Spacecraft Performance
Specifications. If ordered, an optional third spacecraft shall be
furnished meeting the same performance requirements. The Spacecraft shall
be designed, manufactured, and in-plant tested. Two of the Spacecraft,
[*****] shall be launched, in-orbit tested, and delivered to their
respective Designated Orbital Positions, fully operational as defined in
the Contract. The third (optional) Spacecraft if ordered shall be
delivered to storage.
2.1.2 DYNAMIC SPACECRAFT SIMULATOR
The Contractor shall deliver to the Customer's Primary Satellite Control
Center a Dynamic Spacecraft Simulator in accordance with Appendix 1,
which shall provide software simulation of the spacecraft operating in
geostationary orbit.
2.1.3 PAYLOAD COMMUNICATIONS SIMULATOR
The Contractor shall deliver to XM headquarters a Payload Communications
Simulator in accordance with Appendix 2, which shall provide simulation
of the communications channel performance.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2.1.4 SATELLITE CONTROL CENTER EQUIPMENT AND SOFTWARE (PRIMARY AND BACKUP)
The Contractor shall deliver Satellite Control Center Equipment and
software to the Customer's Primary and Backup Satellite Control Center in
accordance with Appendix 3. Each set of equipment shall provide for
control of both XM satellites.
2.1.5 DELIVERY SCHEDULE
The delivery schedule shall be as follows:
<TABLE>
<CAPTION>
Item Delivery
<S> <C>
[*****] In accordance with the Contract Terms & Conditions
- ---------------------------------------------------------------------------------------------------------------------------------
[*****] In accordance with the Contract Terms & Conditions
- ---------------------------------------------------------------------------------------------------------------------------------
Spare satellite (Option): In accordance with the Contract Terms & Conditions
- ---------------------------------------------------------------------------------------------------------------------------------
Dynamic Spacecraft Simulator In accordance with the Contract Terms & Conditions
- ---------------------------------------------------------------------------------------------------------------------------------
Payload Communications Simulator In accordance with the Contract Terms & Conditions
SCC Equipment and Software (Primary and Backup) In accordance with the Contract Terms & Conditions
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2.2 TEST AND HANDLING EQUIPMENT
The Contractor shall provide for, in a timely manner, the necessary
mechanical and electrical ground support equipment required for the
assembly, handling and transportation, test, and launch. Test and
handling equipment to be provided by the Contractor for the performance
of work under the Contract is not deliverable.
<PAGE>
2.3 SHIPPING AND STORAGE CONTAINERS
The Contractor shall make available, as necessary, shipping containers,
which shall protect the spacecraft from damage during transportation. The
Contractor shall make available, if necessary, storage containers which
shall protect the spacecraft from damage during storage. Such shipping
and storage containers shall remain the property of the Contractor.
2.4 DATA
Documentation and data shall be delivered in accordance with the Contract
Data Requirements List (CDRL) given in section 8.5 and 8.6 herein.
2.5 SERVICES
2.5.1 LAUNCH SERVICES
The Contractor shall acquire the designated launch vehicles and services
that are fully compatible with the spacecraft and meet all of the
requirements of the Contract. These launch services shall include launch
site operations planning and processing, planning, flight operations up
to and including spacecraft separation from the Launch Vehicle and post
flight operations. The Contractor shall transport the Spacecraft to the
Designated Launch Site, and the transportation shall include loading,
offloading, the use of suitable shipping containers, and transit
insurance.
The Contractor will contract directly with the Designated Launch Agency
for Launch Support Services and will coordinate all matters relating to
launch operations. XM shall be notified of and have access to all
technical discussions and meetings with the Designated Launch Agency.
The Contractor shall provide the services required for the launch of the
spacecraft throughout the program.
<PAGE>
2.5.1.1 Launch Operations Planning And Coordination
The Contractor shall provide technical support to all Designated Launch
Agency coordination meetings as scheduled by the Designated Launch
Agency, including all necessary supporting documentation and analyses,
and attendance of qualified personnel at all meetings.
Launch operations include launch site (range) operations, Launch Vehicle
integration and flight operations.
2.5.1.2 Launch Support Documentation
The Contractor shall provide all documentation required by the Designated
Launch Agency to support launch site operations, flight operations, and
safety certification, in accordance with the schedules specified by the
Designated Launch Agency. The Contractor shall provide XM with copies of
all technical documentation submitted to the Designated Launch Agency and
provide copies of the technical documentation issued by the Designated
Launch Agency
2.5.1.3 Launch Site Operation Plan
The Contractor shall provide a Launch Site Operations Plan detailing all
activities required at the Designated Launch Site, a test procedure
summary, and schedule. The launch site operations plan shall also provide
a launch team organization/management chart that defines interfaces and
responsibilities. This plan may include the facilities requirements
summary.
2.5.1.4 Launch Site Operations
The Contractor shall provide at the Designated Launch Site, the necessary
personnel, support equipment and supplies, e.g., propellants and spares,
to assemble and check out the flight Spacecraft and establish its
readiness for launch.
The Contractor shall also provide transportation for all Contractor
personnel and equipment to and from the Designated Launch Site, and
accommodation and living expenses for the duration of the launch site
operations
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
The Contractor shall provide the level of support required to perform
integration operations in accordance with the standard Launch Vehicle
activity schedule including multi-shift operations as required.
2.5.1.5 XM Launch Participation
XM engineers may participate in the launch campaign and the Contractor
shall make arrangements with the Designated Launch Agency for separate
office accommodations and support for at least five (5) XM personnel.
The Contractor shall arrange with the Designated Launch Agency for VIPs
to attend the launch subject to the limitations of the Designated Launch
Agency.
2.5.2 [*****]
The Contractor shall contract for the provision of [*****] as needed to
support the launch. The Contractor shall demonstrate the compatibility of
the spacecraft design with this [*****].
2.5.3 COMPATIBILITY WITH THE [*****]
The Contractor shall specify, with input from XM, the [*****].
2.5.4 LEOP MISSION SERVICES
The Contractor shall perform the Launch and Early Operations phase (LEOP)
maneuvers, deployment of each satellite at its operating orbit location,
and the in-orbit acceptance test (IOT). [*****]
The Contractor shall provide a qualified team and facilities for the
conduct of LEOP services.
<PAGE>
***** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
2.5.5 TRAINING
The Contractor shall verify the [*****], provide XM with training for
operation of the XM satellites in geosynchronous orbit. The Contractor
shall be responsible for all the necessary training activities and
related operating procedures. Training shall be provided for operations
staff including engineers and controllers, and shall cover all systems,
documentation, and procedures. Training shall include Operational
Qualification of engineers and controllers to perform daily operations
and anomaly investigation.
2.5.6 OPERATION SUPPORT SERVICES
The Contractor shall provide support as needed for the first three months
following in-orbit acceptance of each satellite, and for [*****]. Beyond
the initial three months period, support services shall be in accordance
with section 2.5.8 Mission Support Services.
2.5.7 LAUNCH AND IN-ORBIT INSURANCE
All the necessary launch and in-orbit insurance services shall be
procured by XM. The scope of the Contractor effort in this regard shall
be limited to providing the insurance agency with the support
documentation required by the insurer, if any, and support for meetings
with the insurers.
2.5.8 MISSION SUPPORT SERVICES
Beginning three (3) months following the launch of the last XM spacecraft
and continuing for a period of at least 15 years, the Contractor shall
provide on-call support to answer questions regarding the performance of
any of the XM spacecraft, providing that these questions do not require
extensive analysis. The Customer shall provide [*****] for the Contractor
to respond to these questions. If responding to the
<PAGE>
Customer's questions would require extensive analysis, the Contractor
shall provide an estimate of the extent of effort required, and the
Customer shall either agree to pay for this additional analysis or shall
withdraw the question.
2.6 DELIVERABLE DATA AND DOCUMENTATION
XM shall have access as needed to all non-financial data, documentation,
and information related to the Contract that is generated under this
Contract by the Contractor and SubContractors consistent with U.S.
Government regulations. Certain specific items of information shall be
produced and formally submitted to XM by the Contractor as specified in
the CDRL and data item descriptions given in Section 8.5 and 8.6 herein.
2.7 VISIBILITY OF FAILURES/PROBLEMS ON OTHER PROGRAMS
The Contractor shall provide XM with immediate and full visibility of all
technical/programmatic aspects of failures and problems occurring at
component (piece part), unit, subsystem, or system level on other
programs, on ground or in orbit, that are relevant to the XM spacecraft,
and of associated corrective actions. XM shall keep such information
strictly confidential. The identities of other Customer programs do not
need to be revealed to XM, either directly or by inference, except with
the express permission of the respective Customers.
<PAGE>
3 QUALIFICATION, REVIEWS, AND ANALYSES
3.1 EQUIPMENT QUALIFICATION
Prior to spacecraft delivery for launch, all flight equipment shall be
fully qualified for all space flight environments to which it will be
subjected as defined in Exhibits D and E.
3.2 DESIGN REVIEWS
Preliminary Design Reviews (PDRs) and Critical Design Reviews (CDRs)
shall be conducted at the spacecraft system level. Each design review
shall be comprehensive, critical audit of the design. The design review
program shall not only encompass a thorough review of new hardware
designs and modified designs, but shall also take into account those
existing qualified designs that will result in the achievement of the XM
performance and environmental requirements.
Without relieving the Contractor of its responsibilities for efforts
under the Contract, the XM Project Manager will co-chair system level
design reviews. The Contractor shall provide the logistics for these
reviews, shall make the review presentations, and shall provide required
documentation as described within the CDRL.
The Contractor shall compile and maintain a uniform program listing of
all action items. The status of these action items shall be tracked
through closure.
3.2.1 SPACECRAFT PRELIMINARY DESIGN REVIEW (SPDR)
The purpose of the SPDR is to allow XM and the Contractor to confirm the
baseline concept, configuration, specifications, and preliminary design
of spacecraft system. The design review package shall be submitted in
accordance with the CDRL. XM shall have the right to approve the review
including completion of the review, review meeting minutes, and Major
Action Item responses.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
The SPDR shall comprise a comprehensive review of the requirements for
the spacecraft and their flowdown to the major subsystems, particularly
the communications payload. Also to be covered, shall be the
identification of new items to be developed or items to be modified in
order to meet requirements of the Contract. A comparison of specified
and expected performance for the communications payload (repeater and
antennas) shall be reviewed. An analysis of the [*****] shall be
presented. A [*****] shall be reviewed.
The Contractor shall review and present the requirements on the
spacecraft control equipment (ground segment hardware and software) and
shall describe the operations concept.
3.2.2 SPACECRAFT CRITICAL DESIGN REVIEW (SCDR)
The purpose of the SCDR is to allow XM and the Contractor to confirm the
adequacy of the spacecraft system design, system performance, and system
test plans. XM shall have the right to approve the review including
completion of the review, review meeting minutes, and Major Action Item
responses.
The SCDR shall comprise a comprehensive review of all new designs, and
any major modified existing design. The spacecraft performance shall be
reviewed to verify compliance with contractual design and performance
requirements. Compliance data for existing designs presented at the SPDR
shall not need to be presented at this review. Compliance shall include
a presentation of predicted and measured performance compared to
contractual requirements. [*****] shall be documented.
A preliminary version of the Mission Sequence of Events shall be
presented at the review.
<PAGE>
Changes since SPDR and recommendations from product line problem review
teams (if any) related to XM as well as the status of their
implementation on XM spacecraft shall be presented.
3.2.3 CONDUCT OF DESIGN REVIEWS
3.2.3.1 Design review board
A qualified Contractor Program Systems Engineering Manager shall, along
with the XM Program Manager, co-chair the Design Review Board. Board
members designated by the two co-chairmen shall include representatives
of Program Management, Systems Engineering, responsible engineering
activities, Manufacturing, Product Assurance, XM representatives, and
other technical specialists as required to provide a comprehensive
appraisal of the spacecraft design. However, XM may elect not to provide
representatives to the Design Review Boards.
The Board shall make recommendations and ask questions. In addition, XM
may submit recommendations and questions.
When a review is scheduled, copies of the design review package shall be
sent to each member of the review team who shall be responsible for:
Studying the data package carefully prior to the design review meeting.
Notifying the responsible engineer of major discrepancies or oversights
discovered prior to the meeting.
Attending the meeting fully prepared to discuss the assigned areas of
responsibility.
If required, submitting written recommendations for improving the design.
All recommendations and questions shall be evaluated by the Contractor,
and responses to all recommendations and questions submitted shall be
provided. Responsibility for action items shall be assigned and a
schedule for completion of such items shall be included in the design
review report.
<PAGE>
Recommendations shall be converted into action items jointly by XM and
the Contractor.
3.2.3.2 Design Review Notification
Transmittal of data packages, including a detailed agenda, to XM and to
the Design Review Board members shall constitute design review
notification. The data packages and agenda shall be received at XM (ASPO
and Headquarters) at least 10 full working days in advance of the
scheduled review meeting.
3.2.3.3 Data package
Data packages shall be prepared to support the design review
presentations. The packages for the SPDR and the SCDR shall be
structured to be stand-alone packages. However, detailed material (e.g.,
analyses provided as appendices) provided at the SPDR which has not
changed at the SCDR need not be resubmitted. Detailed content shall
comply with the requirements given the CDRL descriptions for SPDR and
SCDR.
3.2.3.4 Presentation materials
Presentation materials used in the design reviews shall be distributed to
the participants immediately before the start of each review.
Presentation materials shall use updated data as applicable, but
differences between the presentation and data packages shall be noted.
3.2.3.5 Minutes
Minutes shall include a list of attendees, Major Action items and other
action items with and closure dates and assignments. Minutes shall be
distributed to XM and all attendees within 5 working days after the
meeting.
3.2.3.6 Notification of Review Completion
A written response to design review recommendations and action items
approved by the Design Review Chairman and the Program Manager shall
constitute design
<PAGE>
review closeout. Each design review report shall be signed by the Design
Review Board Co-Chairpersons and the Contractor Program Manager to
signify concurrence with Major Action Items. Action items that affect
performance or testing of the hardware shall be closed out prior to the
start of protoflight testing.
3.2.4 DESIGN REVIEWS BY SUBCONTRACTORS
XM shall be invited to attend subContractor design reviews for
subcontracted equipment of a new and/or modified design. These
subContractor design reviews may be scheduled as a session of the system
design review meetings at the Contractor's facilities or separately. This
requirement shall not be imposed for existing design ("product line")
equipment.
3.3 OTHER REVIEWS
The Contractor shall conduct other reviews as outlined in this section.
Notification of an upcoming review and all documentation pertinent to the
review shall be submitted to XM at least 10 working days prior to the
review, unless provided otherwise in the Contract Terms and Conditions.
Cognizant Contractor Engineering and management representatives shall
attend review meetings. XM shall have the right to participate in all
these reviews.
3.3.1 UNIT ACCEPTANCE REVIEWS
The Contractor shall review the test data of all units prior to their
being installed on the spacecraft. These unit reviews shall include
failure report closures. Unit test data shall be made available for
review by XM. However, such unit test data shall not be deliverable to
XM. XM representatives shall have the right to participate in these
reviews but may elect not to participate.
3.3.2 SYSTEM TEST REVIEWS
Detailed test data reviews shall be held during the conduct of the system
level test program, with participation by System Test, System
Engineering, and XM
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
representatives. The purpose of these reviews shall be to assure test
data validity in a near real-time manner. There shall be pre-test and
post-test reviews for each of the following test phases [*****].
The pre-test reviews shall be held prior to each major test phase. These
reviews shall verify test readiness.
The post-test phase reviews shall be held immediately at the completion
of each major test These reviews, conducted by Systems Engineering and
Systems Test, will include a brief data overview, an anomaly list
including cause and corrective action status, and open issues, if
appropriate. The test phase review shall serve to assure that the
appropriate [*****] has been completed and that spacecraft status is
understood prior to leaving a test facility or major configuration.
3.3.3 SHIPMENT READINESS REVIEW (SRR)
This review shall be conducted at the completion of spacecraft ground
acceptance testing and shall cover hardware status, test data,
deviations, and waivers to performance specifications, and status of all
other CDRL items. The review shall also include mission operation
readiness and launch campaign planning.
3.3.4 FLIGHT READINESS REVIEWS (FRR)/LAUNCH READINESS REVIEW (LRR)
The Contractor, upon completion of launch site functional testing shall
conduct a satellite flight readiness review at the launch site. The
review shall cover the flight readiness of all spacecraft subsystems and
launch mission plans, and the launch agency readiness.
A mission facilities readiness review shall be conducted at the
Contractor plant. It shall address the readiness of the satellite
mission control equipment, including the [*****].
<PAGE>
The Contractor shall support any required Launch Readiness Review in
order to demonstrate that the spacecraft meets launch vehicle Contractor
requirements for launch.
3.3.5 IN-ORBIT ACCEPTANCE TEST REVIEW (IOTR)
At the completion of the spacecraft in-orbit testing, a spacecraft
acceptance review shall be conducted by the Contractor where hardware
status, in-orbit testing data, anomalies, and comparison with the
predicted performance shall be formally presented for transfer of
ownership of the spacecraft to XM.
3.3.6 MRR, TRR, AND TRB PARTICIPATION
XM shall have the right to participate to all the Manufacturing Readiness
Review (MRR), Test Readiness Review (TRR), and Test Review Board (TRB)
organized for B, C, D, and E category equipment (as defined in Exhibit D)
per Exhibit C.
3.4 ANALYSES
The Contractor shall perform any analyses deemed necessary to demonstrate
compliance with Contract requirements or to substantiate the integrity of
the spacecraft delivered under this Contract. All analyses shall be
consistent with requirements of other applicable Contract exhibits.
The Contractor may use, where relevant, results of valid and applicable
analyses already performed for similar spacecraft or equipment and
properly updated for this Contract. The Contractor's existing valid, and
applicable computer/mathematical models and analytical/design tools used
for similar spacecraft or equipment may also be used to perform the
analyses defined herein.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3.4.1 GENERAL DESIGN AND PERFORMANCE ANALYSES REQUIREMENTS
The Contractor shall perform all design, analytical test, and other
efforts necessary to demonstrate that the spacecraft complies with the
requirements of Exhibit A; that physical parameters are properly
understood, managed, and accounted for; and that the spacecraft design is
technically sound taking into account all earth and space flight
environments to which the spacecraft or any of its component elements
potentially can be exposed. These efforts shall consider all relevant
functional, performance, interface, and environmental requirements, as
well as interactions between the analyses and the test verifications of
Exhibit D shall be taken into account. The format and submittal of
analyses and studies shall be in accordance with the CDRL.
3.4.2 [*****] ANALYSIS
The Contractor shall perform a [*****] analysis which shall include a
detailed listing of the [*****]. The analysis shall address the [*****]
and included in the Mission Analysis.
3.4.3 [*****] ANALYSIS
A [*****] analysis shall be performed and shall consider all critical
phases of spacecraft life including, at least, [*****]. The analysis
shall also address [*****].
3.4.4 [*****] ANALYSIS
An analysis shall be performed for the various [*****]. This analysis
shall include the [*****]. The analysis shall address the [*****] shall
be performed.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3.4.5 [*****] ANALYSIS
The Contractor shall perform [*****] analysis, taking into account
[*****]. Analyses shall be based on [*****].
3.4.6 [*****] ANALYSIS
The Contractor shall analyze the [*****] of the spacecraft for all phases
of the mission. The analysis shall be based on each required launch
vehicle's performance and [*****] and shall take into account all
significant factors.
The Contractor shall provide details of the [*****] shall be provided.
3.4.7 [*****] ANALYSIS
A [*****] analysis shall be provided which shall [*****]. The [*****]
analysis shall take into account variables available to the Contractor
and shall include the [*****].
The analysis shall also include but not be limited to:
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
1. [*****].
Based on the [*****] analyses, the Contractor shall provide the [*****]
for the selected vehicles.
3.4.8 [*****] ANALYSIS
The Contractor shall demonstrate by analysis that the [*****].
3.4.9 [*****] ANALYSIS
An analysis shall be performed which shall demonstrate that the
spacecraft design:
[*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3.4.10 [*****] PERFORMANCE
1. The Contractor shall analyze the performance of the [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3.4.11 [*****] ANALYSES
The Contractor shall perform all analyses necessary to verify that
[*****].
3.4.12 [*****] ANALYSIS
An analysis and simulation of [*****] shall be performed. This analysis
shall demonstrate that the [*****]. The analysis shall identify all
[*****] analysis shall be performed to show that the [*****] during all
phases of the mission.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3.4.13 [*****] ANALYSES
A complete and comprehensive [*****] analysis shall be performed in which
all [*****].
The Contractor shall provide to the launch agency [*****] with supporting
documentation as needed for [*****].
3.4.14 [*****] ANALYSIS
Analyses of the [*****], are investigated. All [*****] used in these
analyses shall be [*****], unless otherwise agreed to by XM. [*****].
The following shall be included in the [*****] analyses:
[*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3.4.15 [*****] ANALYSES
All [*****] shall be analyzed. Analyses shall include:
[*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3.4.16 [*****] ANALYSIS
The Contractor shall perform an [*****] analysis.
3.4.17 [*****] ANALYSIS
The Contractor shall perform an analysis of [*****].
<PAGE>
4 PROGRAM MANAGEMENT REQUIREMENTS
4.1 CONTRACTOR MANAGEMENT ORGANIZATION
The Contractor shall ensure that the personnel and facilities necessary
for the performance of the Contract are assigned and made available at
the time and places necessary to meet the performance and schedule
established by this Contract.
4.2 PROGRAM CONTROL
The Contractor shall establish and apply a program control system that
provides for monitoring of all program activities and clearly identifies
all milestones, completion and delivery dates, design reviews, and
critical paths. This system shall cover the total period from the
Effective Date of Contract (EDC) to the completion of the PFM/FM2 in
orbit test activities.
4.3 CONFIGURATION CONTROL
The configuration control plan shall be provided
4.4 XM MANAGEMENT ORGANIZATION
The XM Spacecraft Program Office (ASPO), will be the primary technical
point of contact between the Contractor and XM for technical management
of this Contract.
XM shall designate a Spacecraft Program Manager who will be responsible
for ensuring that all technical and programmatic requirements of the
spacecraft program are satisfied and will have the authority (and may
delegate authority) to approve for XM on Design Review Boards on which XM
is a member and on technical and related programmatic documentation
matters.
<PAGE>
An XM Contracts Officer will be identified who is responsible for
conducting Contract negotiations, Contract administration, and all
modifications to the spacecraft program (including waivers, deviations,
and Contract Change Notices).
4.5 XM/CONTRACTOR RELATIONS
At Contract award, the Contractor shall obtain promptly the government
approvals required to provide access to XM personnel to non-financial
information relating to the Contract. This access shall be consistent
with United States Government regulations governing access to technical
data. In addition to formal contact and communication between XM and the
Contractor, the Contractor's Program Management Office (CPMO) shall
arrange for cooperative, open, and unimpeded informal contact and
communication between ASPO personnel and their counterparts in the
Contractor's organization. Technical facilities, data, and information
used by the Contractor for the program shall be open to inspection and
evaluation by XM representatives at all reasonable times and subject to
the regulations noted above. XM shall have access by use of permanent
badges to all involved facilities and all work in process and to
technical and status reviews. The Contractor shall provide XM with
immediate and full visibility of all technical/programmatic aspects of
failures and problems occurring at component (piece part), unit,
subsystem, or system level and of associated corrective actions. All
relevant system level test data shall be available for XM to review at
any time after the data is taken.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4.6 MEETINGS
Table 1: Meetings Conducted or Participated in by Contractor
<TABLE>
<CAPTION>
Meeting Date or Frequency Place
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Contract Kickoff Meeting [*****] All information in Contractor's facility
this column has been deleted
for confidentiality
- ------------------------------------------------------------------------------------------------------------------
Interim Progress Meeting Contractor's facility
- ------------------------------------------------------------------------------------------------------------------
Quarterly Progress Meeting Contractor's facility
- ------------------------------------------------------------------------------------------------------------------
Senior Management Meetings Contractor's facility
- ------------------------------------------------------------------------------------------------------------------
Progress Meeting with Major SubContractor facilities
SubContractors (for new and
modified design equipment)
- ------------------------------------------------------------------------------------------------------------------
Unit Acceptance Reviews Contractor's/
subContractors
facilities as appropriate
- ------------------------------------------------------------------------------------------------------------------
Design Review Meetings Contractor's/
subContractors
facilities as appropriate
- ------------------------------------------------------------------------------------------------------------------
Shipment Readiness Review Contractor's facility
- ------------------------------------------------------------------------------------------------------------------
Flight Readiness Review Launch site
- ------------------------------------------------------------------------------------------------------------------
Launch and Mission As appropriate
Readiness Review
- ------------------------------------------------------------------------------------------------------------------
Meetings with launch As appropriate
services agency
- ------------------------------------------------------------------------------------------------------------------
Opportunity Meetings As appropriate
- ------------------------------------------------------------------------------------------------------------------
In-orbit Acceptance Contractor facility
Test Review
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
4.6.1 CONTRACT KICKOFF MEETING
Within [*****] after the effective Date of Contract, the Contractor shall
conduct a contract kickoff meeting. The purpose of this meeting is to
confirm the spacecraft technical definition and configuration and program
requirements subsequent to contract negotiations. An additional purpose
is to discuss and define the details of implementing cooperative working
procedures and arrangements between ASPO and the Contractor. The topics
shall include the following:
1. Formal communication requirements and formats;
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2. Contractor's organizational charts with specific names of all key
individuals;
3. Arrangements for ASPO access to facilities, documentation, work in progress,
and informal, technical discussions;
4. The Contractor team organization
5. System/subsystem-level budgets reflecting the performance commitments and
predictions provided by the Contractor prior to contract award and
demonstrating the ability of the proposed design to meet all Exhibit A
performance requirements; and
6. System and subsystem-level schedules.
4.6.2 INTERIM AND QUARTERLY PROGRESS MEETINGS
The Contractor shall organize and conduct, under the chairmanship of a
Program Management Office (PMO) member, regular technical and program
meetings at which XM representatives will participate. The purpose of
these meetings shall be to review overall program status, schedules,
planning, major technical problem areas, and any contractual/financial
issues and any proposed Contract changes, and to discuss and mutually
agree upon appropriate courses of action for maintaining the integrity of
the program. The Interim progress meetings shall normally be less formal
than the Quarterly progress meetings.
4.6.3 SENIOR MANAGEMENT MEETINGS
Senior Management Meetings shall be conducted at [*****]intervals between
the Contractor and XM senior management to discuss the Contractor's
progress and related matters. The venue of these meetings shall normally
be the Contractor's facilities.
<PAGE>
The ASPO Program Manager and the PMO Program Manager may jointly prepare
the presentation for this meeting based on the agenda identified by the
senior management staffs of both organizations.
4.6.4 REVIEW MEETINGS
The Contractor shall conduct reviews as specified in Section 3 of this
Exhibit. The Contractor shall be responsible for the reviews.
The PMO shall be responsible for ensuring the timely completion of Action
Items and for tracking and reporting their status. A review shall be
considered conducted when the review chairperson issued the minutes and
---------
XM has reviewed the minutes. At the conclusion of the review, a set of
Major Action Items will be mutually agreed to. A review shall not be
considered completed until after all Major Action Items taken at the
---------
review meeting have been closed and the Notification of Review Completion
has been approved by XM. Design Review Action Items may be closed to
later phase actions and/or plans (e.g. during test) at the mutual
agreement of the Contractor and Customer. Review Minutes, Action Item
Responses, and Notification of Review of Completion submittals shall be
in accordance with the CDRL.
4.7 PROGRAM SCHEDULE NETWORKS
The Contractor shall conduct program schedule monitoring and analysis in
accordance with the Contractor's standard practices and procedures. The
Contractor shall provide XM with program activity networks and schedule
charts from those schedule activities to assist in the forecasting of and
preparation for critical program events (reviews and quarterly program
meetings), as well as for progress evaluation.
4.8 PROGRAM MILESTONE PAYMENT STATUS
The Contractor shall monitor and present to XM in the Quarterly Progress
Reports, tables and graphs of the actual and anticipated invoice
submittals of contract payment milestones as described below:
<PAGE>
4.8.1 SUBMITTED INVOICES
1. Milestone identification number
2. Milestone description
3. Value
4. Amount approved
5. Invoice date
4.8.2 ANTICIPATED INVOICE SUBMITTALS
The Contractor shall present a table of anticipated milestone invoice
submittals for a period of one year from the month of issue of the
table. The table shall contain at least the following columns:
1. Milestone identification number;
2. Milestone description;
3. Value;
4. Anticipated (realistic) invoice date as shown on current program
schedule.
4.8.3 MILESTONE PAYMENT STATUS GRAPHS
The Contractor shall present a graph of cumulative milestone values over
the entire program duration, indicating the Milestone Payment Plan
amounts, and the cumulative amounts approved to dates.
4.8.4 AUDITOR'S CERTIFICATION
The Contractor shall have its CFO certify to XM annually that no improper
payment has been made to any XM official in connection with this
Contract. Social functions
<PAGE>
and providing key XM officials with a desktop mock-up of the XM
spacecraft shall be considered an acceptable courtesy.
4.9 MANAGEMENT OF CONTRACT CHANGES
The Contractor shall establish and maintain a system for managing the
following types of changes to the XM Contract:
1. Change to Technical Requirements
2. Change to the Scope of Work (additions or deletions); and
3. Change to the Delivery Requirements (schedule).
4.9.1 PRELIMINARY CHANGE ASSESSMENT
As an answer to an XM draft change request, prior to formal request for
change, the Contractor shall provide to XM a preliminary change
assessment, which includes the following:
1. A brief description of the change;
2. rough order of magnitude (ROM) of the cost impact of the change;
3. estimated schedule impact; and
4. other special programmatic considerations, including time required
for a response. XM will evaluate the preliminary change assessment
and advise the Contractor whether to proceed with a detailed
proposal.
4.9.2 CONTRACT CHANGE NOTICE (CCN)
Any contract change raised by the Contractor, either on its own
initiative or at XM's request, shall be submitted to XM for approval in a
timely manner in accordance with the Contract. A Contract Change Notice
form shall be used which shall include the following information:
<PAGE>
1. A unique reference number;
2. Date of submittal;
3. Identification of organization requesting the change, as well as
description
and justification for the change;
4. A detailed description of the envisaged tasks in the form of a brief
statement of work;
5. A statement of schedule impact;
6. Price breakdown in a mutually acceptable format;
7. Suggested contract language revisions as applicable; and
8. Proposed implementation date.
4.9.3 REVIEW AND APPROVAL OF CONTRACT CHANGE NOTICE
XM will notify the Contractor of its acceptance or rejection of a CCN in
accordance with the Contact Terms and Conditions. Whenever the proposed
CCN implementation date is deemed critical, XM shall be so notified, and
a specific early response date requested of XM by the Contractor.
If the Contractor implements a change prior to obtaining XM approval,
this shall be at the Contractor's own risk.
4.9.4 WAIVERS AND DEVIATIONS
If, during the execution of the Contract, the Contractor desires to
depart from the requirements in the Contract for a specific item or a
limited number of items, a Request for Deviation/Waiver (RDW) shall be
submitted. Such requests shall comply with the definition of Deviations
and Waivers specified herein below.
An RDW shall contain at least the information defined as follows:
<PAGE>
1. A unique RDW reference number
2. Title or subject of RDW
3. Affected equipment item name
4. Affected equipment item part number
5. Affected requirement at all levels under Contractor responsibility
6. Description of the waiver or deviation requested
7. Purpose or justification for request
8. Date of issue; and
9. Schedule impact, if any.
Waiver and deviation are defined in Exhibit C.
4.9.5 REVIEW AND APPROVAL OF AN RDW
XM shall make its best efforts to notify the Contractor of its acceptance
or rejection of the RDW within ten (10) working days of its receipt. If
the reason for its rejection is lack of adequate supporting documentation
(or other evidence), the Contractor will be informed within ten (10) days
of receipt.
<PAGE>
5 PRODUCT ASSURANCE REQUIREMENTS
The Contractor shall establish and implement a Product Assurance Program
in accordance with the requirements defined in Exhibit C.
<PAGE>
6 INFORMATION
6.1 ACCESS TO INFORMATION
XM shall have access, consistent with United States Government
regulations and individually signed Protection of Proprietary Rights
agreements, to any information generated on the program or other
technical data needed to resolve technical issues associated with the
program. Implementation of such access may be through meetings,
technical documents or through other methods by mutual agreement.
6.2 RELEASE OF Command Radio Frequency and AdDress Code INFORMATION
The Contractor shall consider and treat all assigned command radio
frequencies and command address codes used for the spacecraft under this
Contract and all on-orbit performance date as proprietary to XM. All such
proprietary information shall not be released to third parties without
XM's prior approval in accordance with the Contract Terms and Conditions.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
7 TRAINING AND OPERATION SUPPORT SERVICES
7.1 VERIFICATION OF [*****]
The Contractor shall support a test, not to exceed [*****], to verify
[*****] and the spacecraft during the Integrated System Test of the first
flight spacecraft.
7.2 TRAINING OF XM OPERATIONS PERSONNEL
The Contractor shall prepare and present a comprehensive training course
for XM satellite operations staff.
The first part of the course shall cover [*****]. This part shall be
conducted at Contractor's facility.
The second part of the course shall consist of a [*****] prior to the
launch of the first spacecraft, but may instead be combined in part or in
whole with the [*****] training described in Appendix 1. Each day of the
course shall consist of two three-hour sessions. This part of the course
shall be given at the Customer's facility, and shall utilize subsystem
specialists as instructors. Reasonable questions not answered during the
course shall be responded to within one week in writing.
The training material shall be submitted to XM at least one month prior
to the presentation. Ten sets of the documentation shall be submitted to
XM at least one week prior to the start of the course.
Each training session shall be video taped, and one copy of the videos
shall be presented at the conclusion of training.
<PAGE>
7.3 OPERATIONS SUPPORT SERVICES
The Contractor shall provide support as needed for the first three months
following in-orbit acceptance including one eclipse season.
<PAGE>
8 DATA AND DOCUMENTATION REQUIREMENTS
The specific items of information which shall be produced and formally
submitted to XM by the Contractor are specified herein.
8.1 LANGUAGE
All deliverable documentation shall be written in the English language.
8.2 UNITS AND DIMENSIONS
Unless otherwise specified, the international system (SI) of units and
dimensions shall be used in deliverable program documentation, however,
if the Contractor desires, documentation may contain dual units in the
format SI (English). SI units shall be used for deliverable spacecraft
level and unit top assembly level, documents and drawings except as
follows:
1. American Standard fasteners may be used;
2. Launch vehicle interface information will be as defined by the
launch vehicle supplier; and
3. Drawings for existing units or components for which the existing
drawings are in English units.
4. Existing analyses and documents
8.3 NOMENCLATURE, ACRONYMS AND ABBREVIATIONS
The nomenclature and terminology used to define all hardware, software,
and data items shall be consistent throughout the program. The
Contractor shall provide a list of acronyms and abbreviations used in the
program documentation, along with their meanings.
<PAGE>
8.4 DOCUMENT REFERENCE/IDENTIFICATION SYSTEM
All contract deliverable documents submitted to XM shall contain in the
headings at least the following:
1. Date of issue;
2. Subject of document;
3. Author or issuing authority;
4. Program unique reference identifier and other identifier; and
5. Contract Documentation Requirements List (CDRL) item number.
8.5 CDRL ITEM DESCRIPTIONS
The requirements for those CDRL items, which have specific requirements
for their contents, are described below. Documents not described below
may be provided in accordance with the Contractor's standard contents and
formats.
8.5.1 SPACECRAFT DELIVERY PLAN
The general Spacecraft Delivery Plan shall be applicable to the selected
launch vehicles. This plan shall define the activities necessary to
prepare the spacecraft and associated support equipment for shipment, the
general logistical details of the shipment itself, the implementation of
monitoring equipment to record the environment of the spacecraft and
critical support equipment during shipment, and a general definition of
any support required to be provided by the applicable launch vehicle
Contractors once the spacecraft and associated equipment arrive at the
launch site.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.5.2 QUARTERLY PROGRAM PROGRESS REPORTS
The Quarterly Program Progress Report is an executive summary of the program
status showing accomplishments against progress plan milestones and highlighting
significant events and problems in the schedule. This document shall
provide the minimum amount of material necessary for tracking the program
and shall be provided in a form which highlights critical changes to the
elements defined with in this section. A structure which minimizes the
repetition of material from quarter-to-quarter shall be used.
For the key system budgets (noted below) and the [*****] achievable with
each launch vehicle changes from the previous report shall be highlighted
and documented, and an action plan for correcting any predicted
specifications non-compliance shall be presented.
The report shall contain at least the following:
1. A detailed status of critical performance or schedule issues and of
corrective actions undertaken.
2. General descriptions of progress accomplished during the quarter at
unit, subsystem, and spacecraft system level.
3. A description of progress accomplished during the quarter by each
major subContractor; and an updated list of all major
subContractors.
4. Schedule overview, in bar chart form, showing the dates of the
subsystem and system reviews and the dates of their delivery and
their evolution.
5. Summary descriptions of any significant changes to the Contract in
terms of design, performance, schedule or work distribution
requirements. This shall include a status summary of Requests for
Waiver/Deviation and Contract Change Notices.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
6. List of milestones reached during the quarter and to date, and of
milestones forecast to be completed for the next period.
7. [*****] Summary containing:
[*****]
8. [*****] Budget containing:
[*****]
9. [*****] Summary for the duration of the nominal mission for the
selected launch vehicle. The estimated [*****] shall also be defined
in each case.
10. A review of the Product Assurance program including a summary of
the past quarter's significant accomplishments, problems, parts
procurement shortages, failures and solutions, program status,
subContractor and supplier status, trends, and statistics.
Additionally, the plan for the next quarter shall be summarized.
8.5.3 DESIGN REVIEW PACKAGE
As a minimum, each review package shall include adequate pertinent
information, supporting design and performance data and any analytical
studies that fully describe the spacecraft various hardware subsystems
and systems performance and capability for satisfying the performance
requirements. All packages shall contain a [*****] to the documentation
within the package.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.5.3.1 Spacecraft preliminary design review data package
As a minimum, the following topics/items shall be addressed in the
Spacecraft Preliminary Design Review (SPDR) data package:
1. Agenda with date, time and location of the design review meeting;
2. Program organization and management description;
3. Program master schedule including identification of critical path
items, availability of facilities and resources, and any potential
problem areas;
4. Summary of [*****]
5. [*****]
6. The satellite design analysis including a summary description of
spacecraft and subsystems;
7. Performance predictions and statement of compliance to contractual
requirements;
a) Satellite final specifications, including applicable
documents and the [*****]
b) Subsystem preliminary specifications
8. Summary of [*****]
9. [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
10. [*****]
11. [*****]
12. [*****]
13. [*****]
14. [*****]
15. [*****] and
16. A preliminary release of analyses and of the reliability
evaluation.
8.5.3.2 Critical design review data package
As a minimum, the following data shall be provided in the Critical Design
Review data package:
1. Agenda with date, time, and location of the design review meeting;
2. Updates to Program organization and management description;
3. Final subsystem specifications
4. Program master schedule including identification of critical path
items, availability of facilities and resources, and any potential
problem areas;
5. Summary of [*****]
6. Changes since PDR
7. Summary description of spacecraft and subsystems;
[*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8. Update of Performance predictions and Statement of Compliance.
9. Program Test Plan and supporting documentation;
10. [*****]
11. [*****]
12. Systems safety and hazard considerations:
13. [******]
14. [*****] and
15. Updated releases of analyses and of the reliability evaluation.
8.5.4 SPACECRAFT VALIDATION PLAN
The Contractor shall conduct test activities as specified in Exhibit D to
verify the compliance of the equipment with Exhibit A. This document
shall be maintained to be consistent with any changes to Exhibits A and D
made during the program.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.5.5 OTHER TEST PLANS
The Contractor shall develop the other test plans as listed in Table 2
Contract Data Requirements List. These other test plans include a [****],
and a SCC Test Plan. These test plans shall describe the verification and
testing activities to be performed on the hardware and software delivered
in accordance with Appendix 1, 2, and 3 of this document.
8.5.6 SPACECRAFT STORAGE PLAN
The Contractor shall develop a Spacecraft Storage Plan which shall
describe the equipment and methods used to store the spacecraft,
including descriptions of storage containers, facilities, provisions for
environmental monitoring and control during storage, tasks to be
performed before placing the spacecraft in storage, tasks performed
periodically during the storage period, and tasks to be performed when
removing a spacecraft from storage.
The Spacecraft Storage Plan shall cover all necessary tasks for a period
of storage up to[*****]. The Spacecraft Storage Plan shall clearly
distinguish between tasks performed for short-term storage (less than
[*****]), and tasks performed for medium term storage. If testing of the
spacecraft is required upon removal from storage, the appropriate tests
shall be described.
8.5.7 SPACECRAFT SYSTEMS SUMMARY
The main objective of this document is to provide a top-level
understanding of the spacecraft design, performance, and operation to XM
staff not routinely associated
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
with the XM Spacecraft Program Office (ASPO), and not receiving the
subsystem and system design review packages.
The spacecraft system summary shall contain general descriptions of the
spacecraft equipment and performance, overall configuration drawings, and
functional diagrams of major assemblies and subsystems. Current versions
of the [*****] shall be presented. Each revision may be provided as a
stand-alone document or a set of change pages, as mutually agreed between
the Contractor and Customer.
8.5.8 [*****]
8.5.9 SPACECRAFT ASSEMBLY DRAWINGS AND CIRCUIT DIAGRAMS
A Complete set of spacecraft level assembly drawings and electrical
circuit diagrams (from top level down to subsystem level) shall be
provided [*****]. These documents shall be available for reference at
CDR and updates shall be made available when released. Unit level
drawings and schematics, shall be made available for Customer review
subject to U.S. Government regulations.
During the program, all released drawings for spacecraft produced under
this Contract shall be available for XM review as soon as each drawing is
released.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.5.10 FLIGHT SOFTWARE/FIRMWARE DOCUMENTATION
The Contractor's warranty of satisfactory in-orbit performance assumes
that XM shall not modify the flight software. Documentation deliverables
for XM specific software/flight firmware shall include the following:
[*****]
8.5.11 [*****]
The Contractor shall [*****]. For each database, the Contractor shall
create and maintain documentation providing detailed information on the
structure and interpretation of the database.
8.5.11.1 [*****] contents
1. The [*****] Database shall contain [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.5.11.2 [*****] contents
1. The [******] databases shall contain [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.5.11.3 Submission requirements
The [*****] databases shall be controlled by revision number and shall be
maintained to accurately reflect the configuration of the spacecraft
during testing and until shipment. XM shall be notified whenever the
databases are revised.
The [*****] databases shall be released in a preliminary form at least
[*****]. Subsequently, the databases may be revised as necessary;
however, XM shall be notified at each revision and copies shall be
delivered electronically. The final revision effective for each
spacecraft shall be delivered at the Shipment Readiness Review.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.5.12 SPACECRAFT OPERATIONS HANDBOOK
This document shall include the satellite operational procedures
recommended by the Contractor for use by XM in all modes of operation
from end of in-orbit acceptance test until satellite end-of-life. This
handbook shall be designed for inclusion of supplemental information
relating to changes in satellite design and operation and shall include
the following information:
[*****]
This data shall include, but shall not be limited to, the following:
8.5.12.1 [*****]
8.5.12.2 [*****]
L
8.5.12.3 [*****]
9.5.12.4 [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.5.12.5 [*****]
8.5.13 SPACECRAFT [*****]
A complete set of [*****] shall be provided to XM. [*****] to be used as
a reference by XM spacecraft operations personnel.
[*****]
8.5.13.1 [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.5.13.2 [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.5.13.3 Data Documentation and Delivery
In general, unit data shall be provided to XM at least [*****] before the
spacecraft launch date. As a minimum, the following data shall be
provided [*****] before the launch date:
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
[*****]
All other data shall be delivered to XM at least [*****] prior to the
launch of the spacecraft.
8.5.14 ANALYSIS
Analyses reports shall include:
1. Statement of the objectives of the analysis and outline of the
methodology.
2. Definitions of all symbols used in equations and statement of all
assumed boundary conditions and values of constraints.
3. References, if appropriate, to reduce the amount of explanatory
texts, or indication of sources of common equations, algorithms,
etc.
4. Methodology and/or listing of computer analyses.
5. Sufficient information to allow XM to verify the adequacy and
accuracy of the analyses.
<PAGE>
The reports shall be updated when new information becomes available
during the Contract period, and shall adequately describe any
differences.
8.6 DETAILED CDRL
The listing of data items to be submitted and their corresponding
submittal requirements are given in Table 2. Submission requirements
given in days after or before an event shall be defined at full working
days. Submission requirements given in weeks or months shall be defined
as calendar weeks or months. All submission dates refer to date of
receipt at the specified destination. Electronic submissions shall not be
considered acceptable unless they are submitted in a format which the
Customer can access using commercial off-the-shelf software.
<PAGE>
8.6.1 SUBMISSION CRITERIA DEFINITIONS:
8.6.1.1 Approval
Approval indicates that XM must provide a written indication that the
submission is acceptable before any work which directly depends on the
submission is begun. All deficiencies in the submission which are noted
by XM must be resolved.
8.6.1.2 Review
Review indicates that XM has the opportunity to review and comment on the
submission, and Customer's reasonable comments will be incorporated by
the Contractor. Work may proceed in parallel to the review activity
8.6.1.3 Information
Information indicates that the submission is provided to aid the Customer
in understanding.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Table 2 Contract Data Requirements List
[***** Pages 67-72]
<PAGE>
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APPENDIX 1 TO EXHIBIT B
DYNAMIC SPACECRAFT SIMULATOR REQUIREMENTS
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
1 DYNAMIC SPACECRAFT SIMULATOR
The Contractor shall deliver a complete real time Dynamic Spacecraft
Simulator (DSS) which shall provide [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
[***** pages 75-76]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2 DESIGN REVIEWS
The Contractor shall conduct [*****] reviews of the Spacecraft Simulator.
All [*****] shall be held at the Contractor's facility. A Preliminary
Design Review (PDR) and Critical Design Review (CDR) shall be held [*****]
after Effective Date of Contract. In addition, a Pre Shipment Review (PSR)
shall be held [*****].
The PDR shall cover [*****]. The DR shall cover [*****]. The PSR shall
cover [*****].
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3 TEST REQUIREMENTS
Tests of each model shall be performaed. [*****]. The final acceptance
test (FAT) shall consist of [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4 DOCUMENTATION
Simulator documentation shall be delivered in accordance with the CDRL.
The following documentation shall be required:
1. PDR and CDR data packages;
2. PDR and CDR reports, including minutes and action items;
3. simulators user's manual;
4. monthly progress reports;
5. Final Acceptance Test results.
The following data shall be supplied with the simulator:
[*****]
<PAGE>
5 TRAINING
The Contractor shall conduct a comprehensive training course to instruct
up to ten (10) XM staff in the operation of the simulator. The course
shall be conducted at the Contractor's facility prior to shipment of the
simulator to XM and shall combine classroom instruction with hands-on
training. The student material for the training course shall include,
but not be limited to, the simulator user's manual, spacecraft orbital
operations handbook, and class handouts.
A second training program (for one week and up to ten (10) XM staff)
shall be conducted at XM headquarters after delivery, installation, and
check-out of the simulator. This training shall review the material
covered at the previous training and shall focus on hands-on use of the
simulator.
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the
omitted portions.
6 WARRANTY
The Contractor shall warranty for [*****] the DSS except for the work
station hardware, operating system software, and peripheral units. The
warranty period shall start in accordance with the Terms and Conditions
of the Contract.
As a minimum, the warrant shall cover 1) analysis of simulator anomaly
reports issued by XM and sent to the Contractor, 2) software corrections
including modifications and validations, 3) updates of documentation and
of the configuration item data list, and 4) generation and delivery of
applicable new software releases.
All commercially available elements of the work station including work
station hardware, its operating system software/firmware, and peripheral
unit hardware and software/firmware shall be covered by their
manufactures' standard warranties which shall be extended by the
Contractor until the units are accepted by and installed at XM. The
Contractor shall provide for the transfer of these manufacturers'
warranties to XM.
XM at its option, may continue those warranty coverages outside of the
scope of the Contract
<PAGE>
APPENDIX 2 TO EXHIBIT B
COMMUNICATIONS PAYLOAD SIMULATOR
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
1 COMMUNICATIONS PAYLOAD SIMULATOR INTRODUCTION
The Contractor shall provide a Communications Payload Simulator which is
capable of providing a [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
[*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2 GENERAL DESCRIPTION
[*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3 CONSTRUCTION
[*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4 SYSTEM VERIFICATION
[*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
5 WARRANTY
The Contractor shall warranty for [*****] the Communications Payload
Simulator. The warranty period shall start in accordance with the Terms
and Conditions of the Contract.
All commercially available elements (e.g. workstations) of the simulator
shall be covered by their manufacturers' standard warranties which shall
be extended by the Contractor until the units are accepted by and
installed at XM. The Contractor shall provide for the transfer of these
manufacturers' warranties to XM.
XM at its option, may continue those warranty coverages outside of the
scope of the Contract.
<PAGE>
APPENDIX 3 TO EXHIBIT B
STATEMENT OF WORK FOR THE PRIMARY AND BACKUP SATELLITE CONTROL CENTER EQUIPMENT
AND SOFTWARE
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
1 SCOPE
This document defines the work to be performed by the Contractor on the
Satellite Control Center Equipment (SCE) and associated software, for the
Customer. Such work shall include the provision of equipment, software,
services and documents and execution of project management tasks. The
Contractor shall complete this work in accordance with the terms of the
Contract and the requirements specified herein.
The Contractor shall be responsible for activities which are necessary to
achieve a successful operation of the Customer satellite. These tasks
shall include the design, development, procurement, fabrication, testing,
documentation, delivery and installation of SCE, and associated software.
More specifically, Contractor shall perform the following activities,
after the successful completion of factory acceptance testing:
Transportation of equipment to the primary and backup satellite
control centers (Customer sites).
2. Installation and integration of the supplied equipment into the
Customer Ground System.
3. On-site equipment testing.
4. Coordination with Customer regarding facility requirements and
access.
5. Preparation of plans, procedures and reports.
6. Conduct of the Site Acceptance Tests (SAT) and test reviews.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2 DELIVERABLE EQUIPMENT, SOFTWARE, and SERVICES
2.1 Satellite Control Equipment and Software
The Contractor shall furnish the Customer Satellite Control Equipment
(SCE) which includes the [*****]. The major components of the satellite
control equipment and associated software are shown in Table 3: SCC
Deliverable Hardware and Software .
Table 3: SCC Deliverable Hardware and Software
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[*****] All Table 3 is Redacted.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2.2 ALIGNMENT OF PRIMARY AND BACKUP FACILITIES
The backup center shall be automatically aligned with the primary center
with respect to [*****]
2.3 Test Equipment and Tools
The Contractor shall provide test equipment and tools, that are not
provided by Customer, necessary to install and complete SAT. Such test
equipment and tools shall remain the property of the Contractor.
2.4 Spares
The Contractor shall provide a list of recommended spares to be provided
by the Customer. Spare parts and assemblies are chosen based on the
Satellite Control Center availability analysis.
2.5 Product Assurance Management
The Contractor shall perform product assurance in accordance with the
Contractor's internal standards for commercial practices.
2.6 Test Program
The Satellite Control Equipment, and associated software shall be tested
and the results reviewed in accordance with the program Ground System
Test Plan.
The acceptance tests of the Satellite Control Equipment, and associated
software shall be conducted as described below:
[*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Final Acceptance of the Customer Ground System shall be contingent on the
following:
[*****]
The Satellite Control Center shall be used to perform the compatibility
testing described in section 7.1 of Exhibit B.
2.7 Customer furnished equipment and services
The Customer shall provide beneficial access to the Customer's satellite
control centers (primary and backup) for the purposes of installation of
the Contractor provided SCE. The Customer shall provide [*****].
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3 SCHEDULE
The satellite control center hardware and software installation, and
testing for both Primary and Backup Satellite Control Centers shall be
performed in accordance with the Contract Terms and Conditions ([*****]
before launch of the first XM spacecraft).
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4 WARRANTY
The warranty with respect to the SCE shall begin in accordance with the
Terms and Conditions of the Contract and shall run for a period of
[*****] thereafter. At any time during this period the Contractor shall
promptly correct noncompliant performance. Contractor shall also provide
software maintenance for the life of the satellite to fix identified
bugs. Site acceptance testing will be deemed complete when SATs have been
performed, results have been reviewed in the Final Acceptance Review, a
disposition plan developed and agreed to by the Purchaser for any
remaining non-compliance's. Warranty service costs will be the
responsibility of the Contractor.
<PAGE>
[Logo of Xm Satellite Radio Inc. Appears Here]
- --------------------------------------------------------------------------------
Exhibit C Rev A
- --------------------------------------------------------------------------------
Product Assurance Plan
- ---------------------------------------------
Approved by Date
John R. Wormington
Senior Vice President,
XM Satellite Radio Inc.
- ---------------------------------------------
Approved by Date
Peter S. Lauenstein (Hughes Space and
Communications Company)
Program Manager: XM Spacecraft
- ---------------------------------------------
<PAGE>
***** Confidential treatment has been requested for this ENTIRE exhibit. The
------
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated [*****]. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
[***** Pages 2-81 of Exhibit C]
<PAGE>
[Logo of Xm Satellite Radio Inc. Appears Here]
- --------------------------------------------------------------------------------
Exhibit D Rev B
- --------------------------------------------------------------------------------
Test Plan Requirements
Last Saved: July 14, 1999 4:42 PM
Document Number: XM-TBD-00004
DOCUMENT RELEASE APPROVALS
- ---------------------------------------------
Approved by Date
John R. Wormington
Senior Vice President,
XM Satellite Radio Inc.
- ---------------------------------------------
Approved by Date
Peter S. Lauenstein (Hughes Space and
Communications Company)
Program Manager: XM Spacecraft
- ---------------------------------------------
<PAGE>
***** Confidential treatment has been requested for this ENTIRE exhibit. The
------
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated [*****]. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
[***** Pages 2-80 of Exhibit D]
<PAGE>
[Logo of Xm Satellite Radio Inc. Appears Here]
- --------------------------------------------------------------------------------
Exhibit E
- --------------------------------------------------------------------------------
XM Satellite Radio Spacecraft
Radiation Environment Specifications
Last Saved: July 14, 1999 4:29 PM
Document Number: XM-TBD-00005
DOCUMENT RELEASE APPROVALS
- ---------------------------------------------
Approved by Date
John R. Wormington
Senior Vice President,
XM Satellite Radio Inc.
- ---------------------------------------------
Approved by Date
Peter S. Lauenstein (Hughes Space and
Communications Company)
Program Manager: XM Spacecraft
- ---------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------
Revision Log
This log identifies those portions of this document which have been revised
since the original issue and the date of each revision.
<TABLE>
<CAPTION>
Rev Authorizing Summary of Changes to Previous Version Date Approval
Document
<S> <C> <C> <C> <C>
- - Contract Version
- ------------------------------------------------------------------------------------------------------------------
A Change AMRC to XM
New Coversheet (with new signature block and new
logo)
</TABLE>
<PAGE>
- ----------------------------------------------------------------------------
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C>
1 INTRODUCTION........................ 4
2 [*****]............................. 5
2.1 [*****]............................. 5
2.2 [*****]............................. 6
2.3 [*****]............................. 6
2.4 [*****]............................. 6
2.5 [*****]............................. 7
3 [*****]............................. 8
Table of Tables
Table 1: [*****]............................. 5
Table 5: [*****]............................. 6
</TABLE>
<PAGE>
1 INTRODUCTION
This Exhibit specifies the minimum radiation environment to be used for
the XM spacecraft design.
<PAGE>
- -------------------------------------------------------------------------------
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
[*****Pages 5-8]
<PAGE>
[Logo of Xm Satellite Radio Inc. Appears Here]
- --------------------------------------------------------------------------------
Exhibit F
- --------------------------------------------------------------------------------
Long Lead Activites and Items
CDRL Number B03
- ---------------------------------------------
Approved by Date
John R. Wormington
Senior Vice President,
XM Satellite Radio Inc.
- ---------------------------------------------
Approved by Date
Peter S. Lauenstein (Hughes Space and
Communications Company)
Program Manager: XM Spacecraft
- ---------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
To be provided by Hughes no later than EDC + 4 months in accordance with the
Statement of Work (Exhibit B)
- --------------------------------------------------------------------------------
<PAGE>
[Logo of Xm Satellite Radio Inc. Appears Here]
- --------------------------------------------------------------------------------
Exhibit G Rev D
- --------------------------------------------------------------------------------
PFM and FM1 Payment Plans and
Termination Liability Schedules
- ---------------------------------------------
Approved by Date
Heinz Stubblefield
Senior Vice President and
Chief Financial Officer,
XM Satellite Radio Inc.
- ---------------------------------------------
Approved by Date
Peter S. Lauenstein (Hughes Space and
Communications Company)
Program Manager: XM Spacecraft
- ---------------------------------------------
<PAGE>
***** Confidential treatment has been requested for this ENTIRE exhibit. The
------
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated [*****]. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
[***** Pages 2-20 of Exhibit G]
<PAGE>
*****Confidential treatment has been requested for portions of this agreement.
The copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*****]. A complete version of this
agreement has been filed separately with the Securities and Exchange Commission.
Exhibit 10.7
CHIPSET DEVELOPMENT, PRODUCTION,
LICENSE AND DISTRIBUTION AGREEMENT
This Amended and Restated Chipset Development, Production, License and
Distribution Agreement (the "Agreement"), dated as of September 27, 1999 and
effective as of the 2nd day of November, 1998 (the "Effective Date") and is by
and between
XM Satellite Radio Inc., a corporation organized and existing under the
laws of the State of Delaware, having its principal office at 1250 23rd Street,
NW Washington, D.C. 20037 U.S.A. ("XM"); and
STMicroelectronics Srl, a corporation duly organized and existing under the
laws of Italy , having its principal office and place of business at 1-20041
Agrate Brianza (Milan), Via C. Olivetti, 2, (hereinafter referred to as "ST").
RECITALS
WHEREAS, XM is a satellite-based digital audio radio company, and
WHEREAS, the decoding of the XM satellite digital audio radio signals
requires compatible receivers with specially designed chipsets, and
WHEREAS, ST is a manufacturer and distributor of certain chipsets, and
WHEREAS, ST seeks to design, develop, produce and market chipsets for the
XM System (as defined herein);
WHEREAS XM and ST desire to amend and restate the Chipset Development,
Production, License and Distribution Agreement between XM and ST, dated as of
the 2nd day of November, 1998, as set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, the Parties hereby agree as follows:
1. DEFINITIONS
For the purpose of this Agreement, the following terms when used with a
capital initial letter shall have the respective meanings set forth below.
1.1 "Affiliate" means a corporation, partnership or other entity controlled
by, controlling or under common ownership or control with a Party. For purposes
of this Agreement, WorldSpace International Network Inc. ("WORLDSPACE") and each
of its Affiliates is an Affiliate of XM.
1
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
1.2 "XM Chipset" or "Chipset" means a chipset, comprising one or more
integrated circuits, manufactured under license from XM that can process data
according to the XM Format and that:
o Differentiates and analyzes the multi-channel signals transmitted in the S-
band by two satellites in geosynchronous orbit and terrestrial repeaters
selectively installed in the XM Service Area;
o Demodulates and decodes the selected channel and delivers such selected
channel to a digital output for further processing;
o [*****]
o Provides other outputs needed to support the features mutually agreed to
with selected CEP manufacturers.
One single XM Chipset shall be a complete set of integrated circuits or solid
state devices or a single integrated circuit necessary for the implementation
([*****]) of the XM Format in one single XM Receiver.
1.3 "XM Format" means the [*****] used in the XM System, subject to
refinements by XM or its affiliated companies. The technical specifications of
the XM Format will be provided to ST as part of the XM Information to be made
available to ST pursuant to the terms hereof.
1.4 "XM Information" means all information and knowledge relating to the XM
System, the XM Format, the XM Receiver, the XM Chipset, and the XM Patent Rights
that is not generally known, including, and whether or not patentable, all trade
secrets, know-how, data, designs, specifications, material lists, drawings,
algorithms, formulas, patterns, compilations, programs, samples, devices,
protocols, methods, techniques, processes, procedures and results of
experimentation and testing.
1.5 "XM Patent Rights" means the patents and patent applications anywhere
in the world, and all continuations, continuations-in-part, divisions, reissues,
reexaminations, substitutions, additions and extensions thereof, and all
supplementary protection certificates, relating to the XM Format, the XM System
or the XM Receiver technology that XM owns or will own, or is licensed or will
be licensed to XM by WORLDSPACE, during the Term, including [*****] to be
obtained by XM.
1.6 "XM Receiver" means a non-computer-based audio device, which may be
installed in automobiles, for the U.S. consumer market containing an XM Chipset
and capable of receiving Satellite Digital Audio Radio programming delivered via
either
2
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
the [*****] in accordance with the XM Format and meeting or exceeding the
technical specifications to be provided by XM, which technical specifications
are subject to subsequent amendment.
1.7 "XM Service Area" means the United States and its territorial waters.
1.8 "XM System" means a digital audio, visual imaging and/or data
transmission system using [*****] from two satellites and [*****] to provide an
S-band Satellite Digital Audio Radio Service in the United States pursuant to a
license from the Federal Communications Commission.
1.9 "Commencement of Commercial Operations" means the date upon which XM
begins offering commercial broadcast services via the XM System following the
launch of the second XM satellite.
1.10 "Development Information" means all information and knowledge relating
to the design and development by ST of the XM chipset under Article 2.1.1 that
is not generally known, including, and whether or not patentable, all trade
secrets, know-how, data, designs, specifications, material lists, drawings,
algorithms, formulas, patterns, compilations, programs, samples, devices,
protocols, methods, techniques, processes, procedures and results of
experimentation and testing, excluding (i) the XM Information and (ii) any
information or knowledge possessed or obtained by ST prior to the Effective
Date.
1.11 "Development Patent Rights" means the patents and patent applications
anywhere in the world, and all continuations, continuations-in-part, divisions,
reissues, reexaminations, substitutions, additions and extensions thereof, and
all supplementary protection certificates, relating to the design and
development by ST of the XM chipset under Article 2.1, excluding (i) XM Patent
Rights and (ii) any patents, patent applications and/or rights possessed or
obtained by ST prior to the Effective Date.
1.12 "Intellectual Property Rights" means the XM Patent Rights, the
intellectual property rights manifested by any of the XM Information, and the
Marks.
1.13 "Marks" means XM's logo and trademarks as set forth in Appendix 2.
1.14 "Term" means the period commencing on the Effective Date and ending
upon the termination of this Agreement in accordance with Article 5.
1.15 "Work" means the whole of ST's performance of its obligations
contemplated by in this Agreement, including the design, development, and
production of the XM Chipsets. Where the context so permits or requires, "Work"
includes any part or parts of the Work.
3
<PAGE>
1.16 Forms of the word "include" mean "including, without limitation;"
references to Articles and Appendices refer to Articles and Appendices of this
Agreement; and references to "hereunder," "herein," "hereof," and the like,
refer to this Agreement, including all Appendices hereof.
2. CHIPSET DEVELOPMENT AND PRODUCTION
2.1 Development and Production of XM Chipsets
2.1.1 Performance of the Work. ST agrees to use its best efforts
to develop and manufacture XM Chipsets which shall meet the technical
specifications set forth in the XM Format, as refined and developed by XM
with the reciprocal participation by ST. ST shall supply all personnel,
materials, facilities and other resources necessary to perform the work in
accordance with the requirements of this Agreement.
2.1.2 Delivery of the Work. ST understands and agrees that time is of
the essence with respect to the delivery of the Work in accordance with the
milestone schedule set forth in Article 2.2 and Appendix 2 attached hereto
and made a part of this Agreement.
2.1.3 Development. ST agrees to implement in its involved
manufacturing lines, where requested, all the necessary steps to meet the
requirements regarding the XM Chipset and undertakes to enter into
subcontracts with Subcontractors for design or development of the XM
Chipsets in accordance with the XM Format.
2.1.4 Subcontracts. In the performance of its Work hereunder, it may
be necessary for ST to enter into subcontracts for the design or
development of all or part of the XM Chipsets. ST shall have the right to
select any subcontractor (each, a "Subcontractor"), after consultation with
-------------
XM. In the event that ST has a necessity to terminate or substitute a
Subcontractor, ST shall consult with XM and shall replace such
Subcontractor with an entity with substantially equal or greater
qualifications and capabilities which is acceptable to XM. Nothing in this
Agreement shall be construed as creating any contractual relationship
between XM and any Subcontractor. ST is fully responsible to XM for the
acts and omissions of any Subcontractor and of all persons used by ST or
any Subcontractor in connection with the performance of the Work under this
Agreement. Any failure by a Subcontractor to meet its obligations shall
not constitute a basis for excusable delay, and shall not relieve ST from
meeting any of its obligations under this Agreement. It is understood that
for performing the Work ST may freely utilize the services of the ST Group
of Companies. Such Companies will be bound by the same obligations
provided by ST according to this Agreement. For the purpose of this
Agreement, "ST Group of Companies" shall mean ST Microelectronics Srl and
---------------------
all of the companies now or hereafter owned or controlled, directly or
indirectly, by ST Microelectronics Srl
4
<PAGE>
2.1.5 Access to Work
2.1.5.1 XM shall have reasonable access to the Work performed
under this Agreement wherever the Work is being performed, provided
such access does not unreasonably interfere with such Work. ST shall,
at XM's request, deliver in a confidential way copies, free of charge,
of design and test data and other data, generated under this Agreement
necessary for XM to be able to monitor the progress of the Work being
performed by ST.
2.1.5.2 ST shall use its best efforts to ensure that XM is
provided the same access to the Work at the facilities of any
Subcontractor where the Work or part of the Work is being performed.
2.1.5.3 The Parties shall schedule meetings on a regular basis
to review the progress of the Work being performed by ST under this
Agreement. XM shall have the right to participate in and to make
recommendations at all meetings concerning the Work. Such
participation and/or recommendations by XM shall not constitute any
waiver or acceptance of a defect in the Work under this Agreement, nor
shall it constitute a waiver of any rights XM may have against ST
under this Agreement.
2.1.6 Second Source. ST shall provide for both a primary and a
secondary source within the ST Group of Companies for procurement of all XM
Chipsets developed by ST, which sources shall be satisfactory to XM. ST
shall initiate implementation of such secondary source at the time of ramp
up of production. Should, for any reason, ST decide to discontinue
production of XM Chipsets, then ST shall inform XM at least six (6) months
in advance, and shall transfer to an independent source, acceptable to XM,
masks and technical information necessary to activate this source.
2.1.7 Product Availability. ST undertakes to make available the mass
producible XM Chipsets to XM for purchase by manufacturers of XM Receivers
in accordance with Articles 2.3 and 3 of this Agreement.
2.1.8 Transfer of XM Information and Technical Assistance. At ST's
request, XM will furnish ST with such XM Information and technical
assistance as is reasonably necessary for ST's performance of the Work, at
no cost to ST, and will cooperate with the field testing of XM Receivers.
XM shall arrange for its Affiliates and contractors, including technical
consultants, to provide ST with
5
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
such technical assistance and access to such XM Information as shall be
reasonably necessary in connection with ST's participation in the
development of certain technologies relating to the XM System and for ST's
performance of the Work.
2.1.9 Limited Number of Other Producers. XM hereby agrees that during
the three year period following its Commencement of Commercial Operations,
no more than three independent commercial chipset manufacturers shall have
the right to commercialize and sell XM Chipsets to CEP manufacturers for
inclusion in XM Receivers.
2.2 XM NRE Funding and Chipset Development Timetable
2.2.1 For the full, satisfactory and timely design, development and
manufacture of mass producible XM Chipsets in accordance with the XM
Format, XM agrees to provide funding to ST for design and non-recurring
engineering expenses (collectively "NRE Funding") as follows: (a) [*****]
-----------
payable upon the completion of certain milestones, (b) up to an additional
[*****] payable only if and to the extent that such milestones are
completed on or prior to the applicable deadlines, and (c) up to an
additional [*****] in accordance with Article 2.2.4 hereof. Each base
milestone payment shall be made in connection with the attainment of the
related milestone; a bonus amount shall be paid only if the related
milestone shall be attained on or prior to the related deadline, and an
incentive bonus shall be paid only to the extent that an appropriate
milestone is attained prior to the related deadline (measured in increments
of whole weeks). Notwithstanding the foregoing, bonus amounts shall be
payable if a related milestone is achieved on a delayed basis due to the
fault of XM or any supplier to XM other than ST (such a delay, a "No-Fault
Delay"), and the availability of any related Incentive Bonus Amount shall
be determined as if such No-Fault Delay shall not have occurred.
In the event that it becomes impossible for ST to meet a milestone deadline
due to delays caused by XM or a contractor of XM participating in the
development and construction of the XM System (due to, the untimely
delivery of a workable chipset specification, the unavailability of
[*****], the production of materials required by XM under Article 2.2.4, or
otherwise), the Parties shall discuss the appropriate adjustment, if any,
to the milestone, bonus and incentive bonus deadlines set forth below.
Furthermore, in the event that the Parties determine that it is appropriate
to revise the sequence of tasks to be completed by ST in connection with
the Work, then the Parties shall agree upon a revised milestone table,
which may vary the
6
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
milestones, deadlines, and amounts from that set forth below, but which
shall retain the total base milestone amount, total bonus amount and total
incentive bonus amount set forth below.
<TABLE>
<CAPTION>
Milestone Deadline Base Milestone Incentive Bonus Amount
Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[*****]
</TABLE>
______________
The completion dates of the payment plan and deadline dates for the bonus are
subject of a mutual agreement of the contribution parties on the acceptance
criteria for the respective milestone.
2.2.2 Milestone Payment Conditions.
2.2.2.1 ST shall issue a request for the payment associated
with each milestone set forth in Section 2.2.1 above (each, a "Request
-------
for Payment"). Such Request for Payment shall include a statement (i)
-----------
that ST certifies that, as of the date of the Request for Payment, the
Work associated with the requested payment has been completed, (ii)
that ST guarantees that the Work has been accomplished in compliance
with the requirements of this Agreement, including the Acceptance
Criteria to be developed by XM and attached hereto and made a part
hereof as Appendix 3, and (iii) that such Work is free from any and
all defects to the best knowledge of ST.
7
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2.2.2.2 In the event XM does not approve ST-technical
documentation presented and/or the Acceptance Criteria as provided by
the Work milestones and, therefore, disputes the Request for Payment,
XM shall so notify ST within ten (10) calendar days from receipt of
the Request for Payment.
2.2.2.3 If justification for the milestone has been approved by
XM or no comment is given by XM within twenty (20) calendar days of
receipt of the Request for Payment, then XM shall issue an Acceptance
Certificate to ST. Upon receipt of the Acceptance Certificate from XM,
ST shall issue an invoice to XM and XM shall pay ST the corresponding
NRE Funding amount within thirty (30) calendar days of receipt of the
invoice including such bonuses as may apply; provided that the NRE
--------
Funding amount corresponding to [*****] shall be paid within (60)
calendar days of receipt of the related invoice.
2.2.2.4 If XM disputes the Request for Payment, then ST shall
correct or complete the activities necessary to complete the milestone
and after correction or completion ST shall issue a revised Request
for Payment and subject to XM's right to dispute ST's Request for
Payment in accordance with Article 2.2.2.2, the provision of Article
2.2.2.3 shall apply.
2.2.3 Option for Delivery of Preproduction Units. XM shall have the
option to require ST to produce and deliver up to [*****] units of
preproduction XM Chipsets which shall be delivered concurrently with the
completion of Milestone [*****]. In the event that ST shall be unable to
sell preproduction chipsets to CEP manufacturers for inclusion in XM
Receivers, XM shall be obligated to pay to ST [*****] of chipset so
delivered, to cover a portion of ST's costs for producing such
preproduction XM chipsets. Unless otherwise agreed by the Parties, XM
shall exercise this option by no later than the 38th week following the
completion of Milestone [*****]. The preproduction XM Chipsets so
delivered by ST shall be at the [*****] level of completion, as that term
is commonly used by ST in its internal product development evaluations.
2.2.4 Option for Production of Additional Mask Sets and Development
Wafers. In the event that the technical development of the XM Chipset shall
proceed in such a manner that XM considers it desirable to accelerate the
production of second generation or significantly improved Chipsets then XM
shall have the right to request
8
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ST to modify the XM Chipset development schedule and produce additional
mask and/or development wafers prior to the completion of Milestone
[*****]. XM understands that it shall reimburse ST for its actual out-of-
pocket cost of materials relating the production of such additional mask
sets and development wafers, which additional costs shall in no case exceed
[*****].
2.3 Marketing and Distribution of the XM Chipsets
2.3.1 Marketing Commitment. ST hereby agrees to use its best efforts
to market the XM Chipsets to all consumer electronic product ("CEP")
---
manufacturers that shall be identified by XM as being qualified to produce
XM Receivers. The CEP manufactures set forth on Appendix 4, as updated
from time to time by XM, are qualified to produce XM Receivers. If ST does
not effectively market and distribute the XM Chipsets at any time during
the term of this Agreement, XM shall notify ST in writing of its failure to
market the Chipsets. If ST fails to market the Chipsets to the reasonable
satisfaction of XM within a reasonable period of time for reasons that are
the fault of ST, XM shall have the right, upon written notice to ST, to
terminate this Agreement in accordance with Article 5.2.
2.3.2 Marketing Support. XM agrees to provide ST with marketing
support in the sale of its XM Chipsets to CEP manufacturers. Such
marketing support shall include introductions to all CEP manufacturers in
discussions with XM and the promotion to CEP manufacturers of the
availability of XM Chipsets.
2.3.3 Non-Exclusivity. ST and other qualified and licensed XM Chipset
manufacturers may distribute the Chipsets to all parts of the world and no
such manufacturers may claim exclusivity of distributorship in any
territories.
2.3.4 Sales At XM's Request. After the XM Chipsets are produced in
accordance with the Technical Specifications, XM has the right, at any
time, to request ST to sell the required volumes of XM Chipsets to XM's
designated buyers, provided, however, that such request does not interfere
with any prior commitment to an existing ST customer. ST shall make
reasonable efforts to increase its manufacturing capacity and make
available the quantities needed by such buyers.
2.3.5 Support of CEP Manufacturers. ST agrees to provide CEP
manufacturers with all necessary documentation (such as data sheets and
system application notes) for the incorporation of purchased XM Chipsets
into
9
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
XM Receivers, and to provide a reasonable amount of technical support as
might become necessary.
3. CHIPSET AVAILABILITY; PRICING
3.1 Upon acceptance of the mass producible prototypes of the XM Chipsets
and in accordance with Article 2.2 of this Agreement, ST agrees to make XM
Chipsets available to the CEP manufacturers set forth on Appendix 4.
3.2 ST agrees that the price of XM Chipsets shall be comparable to the
price of other chipsets then manufactured and marketed by ST which incorporate
state-of-the-art technologies. For the avoidance of doubt, ST represents that
as of the Effective Date, chipsets incorporating state-of-the-art technologies
have a price of approximately U.S. [*****]. ST shall make its best efforts to
reduce the cost of XM Chipsets as soon as possible.
4. PROPRIETARY RIGHTS AND INTELLECTUAL PROPERTY
4.1. Development Rights.
4.1.1. Joint Ownership. The Parties acknowledge that there are
valuable proprietary information and intellectual property rights
associated with the XM Chipset design and that XM and ST shall jointly own
and have joint exclusive right, title and interest in and to the overall
design of the XM Chipset developed by ST for XM. XM and ST will share
equally in the ownership and the benefits of all Development Information
and Development Patent Rights. To that end, all right, title and interest
in and to such Development Information and Development Patent Rights will
be obtained in the names of and on behalf of both XM and ST.
4.1.2. Right to Use and Sublicense. Each Party shall have the right to
use Development Information and Development Patent Rights for its own
benefit for any purpose and to license such Development Information and
Development Patent Rights to third parties. Any such license to a third
party shall be granted on the basis of reasonable compensation therefore
and pursuant to other reasonable terms and conditions; provided, however,
-----------------
that the Parties may agree to impose restrictions or prohibitions regarding
the granting of such rights to specific third parties. Neither Party shall
have the right to sublicense Development Information or Development Patent
Rights to any third party without prior approval of the other Party, which
will not be unreasonably withheld; provided, however, that (i) ST shall not
--------- --------
license Development Information or Development Patent Rights to other
providers of S-band Satellite Digital Audio Radio Services in the XM
Service Area and (ii) ST hereby consents to the sublicense of all
Development Information and Development Patent Rights to WorldSpace and its
Affiliates (provided, that WorldSpace shall have the right to further
--------
sublicense such Development Information
10
<PAGE>
and Development Patent Rights only for use in the WorldSpace international
digital satellite radio system). Any royalties, revenue or other
consideration received as compensation from such third party licensee shall
be shared equally by XM and ST.
4.1.3. Uses Other Than XM Receivers. If either Party sells or
otherwise disposes of products or services that use or incorporate the
Development Information and Development Patent Rights other than XM
Chipsets to be included in XM Receivers (or chipsets to be included in
WorldSpace receivers) as a stand alone product and/or as an integrated
product, then such Party will compensate the other Party in an amount to be
agreed upon in good faith by the Parties; provided that such compensation
will be payable only for the Term, and beyond the Term only to the extent
that the Development Patent Rights remain effective. The Parties will
cooperate in and equally share the costs of filing, prosecuting and
maintaining the Development Patent Rights.
4.1.4. Background and Foreground Information. It is understood that
the above intellectual property rights do not include the background and
foreground information, whether patented or not, relating to the silicon
processes used by ST to perform the Work as well as any elementary circuit
solutions used to implement the XM Chipset starting from the supplied
specifications and that such silicon processes and elementary circuit
designs shall remain the sole property of ST.
4.2 XM Information License, XM Patent Rights License and Marks License
4.2.1 License Grant. XM hereby grants to ST and its Affiliates a non-
exclusive, non-transferable, revocable, indivisible license and/or
sublicense under the XM Information, the XM Patent Rights and the Marks to
perform, and have performed, the Work. ST will have no right to sublicense
to any third party without XM's prior approval. XM reserves
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
the right to have XM Chipsets designed, developed and/or manufactured
for it or its Affiliates under XM's brand name.
4.2.2 Licensed and Sublicensed Territory. Pursuant to Article 4.2.1,
ST may design, develop and/or manufacture, and have designed, developed,
and/or manufactured, XM Chipsets anywhere in the world for sale only in the
XM Service Area; provided that ST will not use or authorize any public use,
direct or indirect, of the Marks outside the XM Service Area.
4.2.3 XM Trademark License. XM hereby agrees to grant, and ST hereby
accepts, an exclusive, worldwide, royalty-free license and obligation to
use the XM trademark on all XM Chipsets and associated catalogues and
advertising or promotional materials to the satisfaction of XM.
4.2.4 Certain Limitations. Notwithstanding anything in this Agreement
to the contrary, no license is herein granted, and no act or acts hereunder
shall be construed as or result in conveying any license to ST or to any
third Party, expressly or by implication, estoppel or otherwise excepting
the license herein expressly granted to ST with respect to the Intellectual
Property Rights.
4.3 Compensation For License and Sublicense. The rights and license granted
by XM under Article 4.2 hereof relating to the Intellectual Property Rights
existing on the Effective Date shall be provided on a royalty-free basis;
provided, however, that if XM shall be required to pay a royalty with respect
-------- -------
to the use of [*****] or other technology in the XM System which royalty shall
not have been determined as of the Effective Date, then ST agrees to pay XM
for the use of such technology or technologies a commercially reasonable
royalty determined based upon the royalty required to be paid by XM.
4.4 Reports and Statements of Chipset Sales and Royalty Payments. With
respect to this Article 4, ST agrees to submit to XM within thirty (30) days
after March 31, June 30, September 30 and December 31 of each calendar year of
the term of this Agreement a statement in writing, certified by a duly
authorized representative of ST, setting forth with respect to the preceding
quarterly period and, in the case of the first such statement, for each
quarterly period commencing on January 1, 1999 - on a per country basis, the
identity of the customers, the quantity of XM Chipsets sold during the period
of reference, the model number or product identification of XM Chipsets, and
the royalty, if any, due.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4.5 Payments of Royalties
4.5.1 Within thirty (30) days of submitting the statement pursuant to
Article 4.4, ST shall make the royalty payment to XM. All payments of
royalties under this Agreement shall be made to XM in U.S. Dollars.
Payments have to be made free from any bank charges. Royalties shall not be
deemed paid until actually received at a XM bank account and freely
withdrawable by XM to the same extent as cash.
4.5.2 Each of the amounts payable under this Article 4 shall, when
overdue, bear interest equal to the then current annual discount rate of
the Deutsche Bundesbank (German Federal Bank) plus [*****].
4.6 Termination of License and Sublicense
4.6.1 XM reserves the right to terminate this license and sublicense
agreement in the event that ST substantially fails to comply with any of
its obligations under this license and sublicense agreement and does not
remedy the failure of performance within ninety (90) days, after ST has
been notified in writing thereof by XM, without prejudice to any damages or
legal redress to which XM may be entitled. Any such termination shall not
affect any payments, the rights to which have fallen due under this license
and sublicense agreement prior to such termination.
4.6.2 XM reserves the right to terminate this license and sublicense
agreement in the event that ST files a revocation or nullity action against
one or more of the Intellectual Property Rights.
4.7 Auditing of Reports and Statements of Payments ST shall keep complete
and accurate records of all XM Chipsets sold upon which revenue provided
for hereunder shall accrue, which records shall be open, during normal
business hours, for three (3) years after the end of the particular period
for which the record was made, to an independent certified public
accountant selected by XM and reasonably acceptable to ST, who shall have
access to said records not more often than once each calendar year, for the
sole purpose of verifying the revenue accrued as herein provided. The
verification will take place at XM's expense if an error of three percent
(3%) or less is revealed and at ST's expense otherwise. If the result of
such audit is that an error is detected, the amount overpaid or underpaid,
as the case may be, will be credited against or paid together with the next
payment.
4.8 Limitations
4.8.1 Nothing in this Agreement shall constitute or be construed as:
4.8.1.1 a warranty or representation by XM as to the validity or
scope of any Intellectual Property Rights, or
4.8.1.2 a requirement that XM shall file any patent application,
secure any patent or maintain any patent in force, or
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4.8.1.3 an obligation on the part of XM, to furnish any
manufacturing or technical information, or any information concerning
pending patent applications of XM.
4.8.2 If any patent included in the Intellectual Property Rights is
declared void or any patent application included in the Intellectual
Property Rights is not granted, any payment made by ST under Article 4
hereof prior to such event will not be reimbursed to ST. However, no future
payments will be due with respect to a country for the period during which
there are no remaining Intellectual Property Rights in such country which
are valid and enforceable against XM or ST.
4.8.3 XM makes no representations, extends no warranties or
indemnifications of any kind, expressed or implied, nor assume any
responsibilities whatsoever with respect to the manufacture, use, sale or
other disposition by ST of products incorporating or made by the use of
inventions licensed under this Agreement.
4.8.4 Nothing in this Agreement shall constitute or be construed as a
warranty or representation by XM as to the commercial utility of any
Intellectual Property Right.
4.8.5 Nothing in this Agreement shall constitute or be construed as a
warranty or representation by XM that any XM Chipset manufactured, used or
sold in connection with the XM System does not infringe any patent or any
other intellectual property right owned by any third Party.
4.8.6 Product liability with respect to any XM Chipset manufactured,
used or sold in connection with the XM System by or on behalf of ST shall
be the sole responsibility of ST other than the product liability arising
from the technical information, patented or not, supplied by XM and
utilized in good faith without modifications by ST. ST agrees to hold XM
harmless from any claim or alleged claim of third Parties.
4.8.7 ST agrees to hold harmless XM from any claim or alleged claim
of third Parties concerning product liability with respect to any device
manufactured, used or sold in connection with the XM System under the
Intellectual Property Rights by ST.
4.8.8 XM represents that as of the Effective Date to the best of its
knowledge it is not aware of any pending claim or dispute relating to the
XM Information and the XM Patent Rights.
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5. TERM AND TERMINATION OF AGREEMENT
5.1 This Agreement shall be effective as of its Effective Date and shall
continue in full force and effect until the later of (a) the tenth anniversary
of the date hereof and (b) the expiration of the last to expire of the
Development Patent Rights.
5.2 In the event a Party hereto substantially fails to comply with any of
its obligations under this Agreement and does not remedy the failure of
performance within ninety (90) days after it has been notified in writing
thereof, the other Party may, by written notice, terminate this Agreement at the
end of said period, without prejudice to any damages or legal redress to which
it may be entitled. Any such termination shall not affect any payments, the
rights to which have fallen due under this Agreement prior to such termination,
or the furnishing of any statements as provided in Article 4.
5.3 Should either Party hereto become insolvent or be subjected to
bankruptcy or winding up proceedings, the other Party may, by written notice,
terminate this Agreement immediately.
5.4 Should a third Party, which does not now own or control ST, come to
own or control ST after the execution of this Agreement by the Parties, XM may,
by written notice, terminate this Agreement immediately, provided vital business
interests of XM are harmed.
5.5 XM is entitled to terminate this Agreement in accordance with Article
5.2 of this Agreement, should ST file a revocation or nullity action against one
or more of the Intellectual Property Rights.
6. CONFIDENTIALITY AND NONDISCLOSURE OF PROPRIETARY
INFORMATION
6.1 During the performance of this Agreement, one Party ("the Disclosing
----------
Party") may exchange information which may be of a proprietary or confidential
- -----
nature to the other Party ("the Receiving Party"), such as information
---------------
concerning inventions, techniques, processes, devices, discoveries and
improvements, or regarding administrative, marketing, financial or manufacturing
activities ("Information"). All such Information, in any form, including without
-----------
limitation, oral, written graphic, demonstrative, machine recognizable or sample
form, shall be considered proprietary and confidential Information of the
Disclosing Party, shall be retained in confidence and shall not be disclosed or
caused or permitted to be disclosed directly or indirectly to any third party
without the prior written approval of the Disclosing Party, and shall not be
used by the Receiving Party for any reason other than the performance of its
duties under this Agreement. The Receiving Party further agrees that any
material or data generated by the Receiving Party, based in whole or in part on
Information disclosed by the Disclosing Party shall also be retained in
confidence.
6.2 The obligation of the Receiving Party to retain Information in
confidence shall not apply to:
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(i) Information which is now in or hereafter enters the public domain
beyond the control of the Receiving Party and without its violation
of this Agreement;
(ii) Information rightfully known to the Receiving Party prior to the
time of disclosure by the Disclosing Party, or independently
developed by the Receiving Party personnel without access to
Information disclosed by the Disclosing Party;
(iii) Information disclosed in good faith to the Receiving Party by a
third party legally entitled to disclose the same; or
(iv) Information which the Receiving Party discloses under operation of
law, rule or legal process;
provided, however, that the burden shall be on the Receiving Party
-------- --------
to prove the applicability of one or more of the foregoing
exceptions by documentary evidence should the Disclosing Party
question the applicability of such exceptions; and, as to exception
(iv), the Receiving Party provides the Disclosing Party with prompt
written notice of any request or legal proceeding through which the
Receiving Party may be required to disclose such Information under
operation of law, rule or legal process.
6.3 The Receiving Party agrees to transmit the Information and/or material
or data generated by the Receiving Party based in whole or in part on such
Information, only to those directors, officers, employees, agents or other
representatives who need access to the Information and/or material or data
generated by the Receiving Party based in whole or in part on such Information,
for the purpose of performing its duties pursuant to this Agreement, and who are
informed by the Receiving Party of the confidential nature of the Information
and/or material or data generated by the Receiving Party based in whole or in
part on such Information, and who agree to be bound by the terms of this
Agreement. The Receiving Party further agrees to be responsible for any breach
of this Agreement by the Receiving Party or any director, officer, employee or
other representative of the Receiving Party.
6.4 The Receiving Party agrees that all Information disclosed to the
Receiving Party hereunder shall be and remains the property of the Disclosing
Party. Any tangible form of Information including, but not limited to,
documents, papers, computer diskettes and electronically transmitted Information
shall be destroyed by the Receiving Party or returned, together with all copies
thereof, to the Disclosing Party promptly upon the Disclosing Party's request.
If such tangible form of Information is destroyed, a certification of such
destruction executed by a duly authorized officer of the Receiving Party shall
be delivered to the Disclosing Party.
6.5 The Receiving Party agrees not to use the Information provided by the
Disclosing Party to engage, represent in any way or be connected with, as
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officer, director, partner, employee, sales representative, proprietor,
stockholder or otherwise of any business or activity that would compete with the
business of the Disclosing Party.
6.6 The Receiving Party's obligations under this Agreement shall survive
the termination of its business relationship, if any, with the Disclosing Party
regardless of the manner of such termination, and shall be binding upon its
successors and assigns. The obligation of the Receiving Party under this
Agreement shall terminate three (3) years from the date of this Agreement unless
sooner terminated by written notice given by the Disclosing Party to the
Receiving Party.
6.7 The Receiving Party acknowledges that the information provided and all
documentation thereto are commercially valuable, which reflect the effort of
skilled development experts and the investment of considerable time and money.
The Receiving Party accordingly agrees to protect the confidence of the
Information and prevent its unauthorized dissemination and use, using the same
degree of care that the Receiving Party uses to protect its own like
information. The Receiving Party agrees that money damages would not be
sufficient remedy for any breach of this Agreement by the Receiving Party or any
director, officer, employee, agent or other representative of the Receiving
Party, and that in addition to any other rights or remedies which it may have,
the Disclosing Party shall be entitled to equitable relief, including injunction
and specific performance, as a remedy for such breach, and the Receiving Party
further agrees to use its best efforts to cause any director, officer, employee,
agent or other representative of the Receiving Party to waive, any requirement
for the securing or posting of any bond in connection with such remedy.
6.8 Either Party shall be entitled to make copies of any documents
containing proprietary Information under the terms and conditions outlined in
this Article 6.
7. ASSIGNMENT
7.1 XM may freely assign, with thirty (30) day prior written notice, this
Agreement to any other company, person, firm or entity; provided, however, that
all of the terms and conditions of this Agreement shall be binding upon such
assignee and provided further that ST shall consent to such assignment, which
consent shall not be unreasonably withheld. Upon the assignment of this
Agreement by XM, ST shall expressly release XM from any liability under this
Agreement. XM shall promptly inform ST in writing of any such assignment.
7.2 Neither this Agreement nor the license granted herein shall be
assignable or transferable by the ST Group of Companies without XM's prior
written consent.
7.3 In the event ST sells its entire business related to chipset
development, and manufacturing, XM shall not unreasonably withhold its consent,
provided vital business interests of XM are not harmed, if ST requires the
assignment of this Agreement to the successor of such business, provided that,
after XM has given its consent, the assignee shall have assumed in writing all
of the obligations of ST under
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this Agreement. Such assignment shall not effect the liability of ST to XM to
perform all obligations which may have accrued on or prior to the date of such
assignment. After such assignment ST shall no longer be licensed under the
Intellectual Property Rights.
8. INFRINGEMENT
8.1 XM shall have no liability to ST for any infringement or alleged
infringement of any patent, patent application or other intellectual property
right owned by any third Party except to what is stated in Article 4.8.6 as
regards patented information arising out of the manufacture, sale or use of any
XM Chipset manufactured, used or sold by or on behalf of ST.
8.2 If ST shall become aware of any infringement by third Parties of any
of the Intellectual Property Rights, ST shall give written notice to XM of such
fact, it being understood and agreed that XM alone shall decide, in its sole
discretion, whether, and if so, what, measures shall be taken as a result of any
such infringement.
8.3 Nothing contained in this Agreement shall be construed:
8.3.1 as imposing on either Party any obligation to institute any suit
or action for infringement of any of the Intellectual Property Rights
hereunder, or to defend any suit or action brought by a third Party which
challenges or concerns the validity of any such Intellectual Property Right
hereunder;
8.3.2 as conferring by implication, estoppel or otherwise any license
or right to copy or to simulate the appearance, trade dress, trademark,
service mark and/or design of XM other than the XM trademark;
8.3.3 as conferring by implication, estoppel or otherwise any license
under the rights licensed pursuant to Article 4 hereof to manufacture, use,
sell, license or otherwise dispose of any product or device other than the
licensed XM Chipset.
9. SETTLEMENT OF DISPUTES
9.1 Amicable Resolution. The Parties shall endeavor to resolve amicably
any dispute arising out of the performance of this Agreement within thirty (30)
calendar days of receipt of notice of such dispute. If the Parties are unable to
resolve the dispute within a thirty (30) calendar day period, then they may
refer the dispute to an independent third party who will, within a further
thirty (30) calendar days, review the dispute and recommend a resolution
thereto. If the Parties cannot mutually agree on said third party, or either
Party disagrees with the recommendation of said third party, then Article 9.2
shall apply.
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9.2 Formal Arbitration:
9.2.1 All disputes arising in connection with this Agreement not
resolved pursuant to the provisions of Article 9.1 shall be finally settled
under the Rules of Conciliation and Arbitration of the International
Chamber of Commerce (ICC) by one or more arbitrators appointed in
accordance with the said Rules. In the event of any conflict between the
ICC Rules and this Agreement, the provisions of this Agreement shall
govern.
9.2.2 The arbitration proceedings shall take place in Washington, D.C.
and the language of such proceedings, including arguments and briefs, shall
be English.
9.2.3 This Article 9 shall not apply to Article 6 of this Agreement,
wherein the Parties hereto have agreed that monetary damages may not
suffice for a breach of confidentiality, as defined in Article 6. In such
cases, the Parties agree that the judgment will be carried out according to
the law and in the law court competent for the defendant.
9.2.4 Pending a decision by the arbitrators as referred to in this
Article 9, ST shall, unless directed otherwise by XM in writing, fulfill
all of its obligations under this Agreement, including, if and so far as it
is reasonably practical, the obligation to take steps necessary during the
arbitration proceedings to ensure that the Work hereunder will be delivered
within the time stipulated or within such extended time as may be allowed
under this Agreement, provided always that XM shall continue to make
payments therefore in accordance with this Agreement.
10. GENERAL PROVISIONS
10.1 Required Permits and Licenses
10.1.1 ST shall be responsible for and pay for all the legal permits,
licenses, certifications, process and other legal requirements relating to
all the sales of the XM Chipsets, including, without limitation, export and
import permits, and manufacturing licenses.
10.1.2 If required, XM shall promptly execute all documents and
forward the same to ST to obtain an export license to ship the XM Chipsets
to destinations designated by Purchaser. Upon request from a relevant
government, ST and XM agree to furnish to such government further written
assurance that in no event shall the XM Chipsets, any parts thereof, and/or
any design or technical data in any form relating to the Chipsets be
directly or indirectly disclosed, transferred, or shipped in any way to any
country prohibited from receiving such materials under the relevant export
laws and regulations.
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10.2 Notices
All notices, summons and communications related to this Agreement and
sent by either Party hereto to the other shall be written in English and shall
be given in writing by letter, telex or facsimile directed,
in respect of XM to:
XM Satellite Radio Inc. (XM)
1250 23rd Street, NW
Washington, D.C. 20037
United States of America
Attention: General Counsel
Telephone:+1-202-969-7074
Facsimile:+1-202-969-7124
With copies of all invoices being sent also to
XM Satellite Radio Inc. (XM)
1250 23rd Street, NW
Washington, D.C. 20037
United States of America
Attention: Senior Vice President, Chief Financial Officer
Attention: Senior Vice President, Engineering Technology & Operations
Telephone:+1-202-969-7100
Facsimile:+1-202-969-7050
and in respect of ST to:
ST Microelectronics Srl.
Via C. Olivetti, 2
Agrate Brianza (Milano), Italy
Attention: DPG-Audio Business Unit Director
Telephone: +39.39.603.5202
Facsimile: +39.39.603.5305
or such other addresses as may have been previously specified (in the
manner set forth above) in writing by either Party to the other.
10.3 Amendment
10.3.1 Except as otherwise specifically provided herein, this
Agreement shall not be modified except by a written agreement signed by
duly authorized representatives of the Parties. Such written agreement
shall state that it is an Amendment to the XM Chipset Development,
Production, License and Distribution Agreement. No oral agreement or
conversation with any officer, agent or employee of XM or ST, either before
or after execution of this Agreement, shall affect or modify any of the
terms or obligations contained in this Agreement. No purchase order,
acknowledgment, quotation, or other similar document issued by either Party
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with respect to the subject matter of this Agreement, nor any directive of
XM, shall be deemed to be a part of this Agreement or to modify this
Agreement in any respect relating to the Work hereunder, unless executed in
conformance with this Article 10.3.
10.3.2 At any time prior to final acceptance of all the Work under
this Agreement, either Party may, in writing, request a variation of the
Work within the general scope of the Agreement. If the other Party agrees
with the requesting Party for such variation of the Work and such variation
causes an increase or decrease in the cost of, or in the time required for,
the performance of the Agreement, or construction change in the
specifications of the XM Chipsets, the Parties shall negotiate in good
faith in equitable adjustment to the NRE Funding or any other terms
affected, including, if applicable, delivery dates or specifications, which
shall be formalized in an Amendment to the Agreement. ST shall not
implement such variation, and XM shall not be liable for any change in NRE
Funding or delivery dates pursuant to such variation, until and unless the
Parties have entered into a written Amendment to the Agreement.
10.3.3 The Parties shall issue all requests for clarification of the
Agreement, or any other requests, to the other Party in writing. Responses
to such requests shall be made in writing to the requesting party within
ten (10) days. The failure of the responding party to respond to the
request within ten (10) days, however, does not relieve the requesting
party from complying with the requirements of this Agreement, and the Work
shall be conducted in accordance therewith.
10.4 Non-Waiver
If at any time a Party shall elect not to assert its rights under any
provision of this Agreement, such action or lack of action in that respect shall
not be construed as a waiver of its rights under said provision or of any other
provision of this Agreement.
10.5 Governing Law
This Agreement shall be subject to, governed by and construed in
accordance with the laws of the state of New York, USA, without giving effect to
its conflicts of law provisions.
10.6 Governmental Approvals
In the event this Agreement, or any provision or other aspect hereof,
shall or may be subject to the review, approval and/or consent of any ministry,
department, agency or other entity of the government of the United States of
America, Italy or the European Union, this Agreement shall not be or become
effective nor be of any force of effect until and unless all such reviews,
approvals and consents shall have been favorably received from each such
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governmental entity having, or claiming to have, jurisdiction in this matter. In
the event any such governmental entity shall have failed or refused to give a
favorable review, approval or consent to any provision or other aspect of this
Agreement on or prior to the expiration of the ninetieth (90th) calendar day
following the date of execution hereof by the last of the Parties hereto to
sign, this Agreement shall be deemed to be, and shall be, void ab initio as if
the same had never been executed by either Party hereof.
10.7 Binding Effect
This Agreement shall be binding upon, and shall inure to the benefit
of the Parties hereto and to their assigns in accordance with the provisions of
Article 7 hereof.
10.8 Severability
Should any part or provision of this Agreement be held unenforceable
or in conflict with the law of any jurisdiction, the validity of the remaining
parts or provisions shall not be affected by this holding. Such unenforceable
part or provision shall then be replaced upon mutual written consent between the
Parties hereto, by other enforceable part or provision which, in its effect,
corresponds or comes closest to the effect of such unenforceable part or
provision.
10.9 Entire Agreement
This Agreement including its Appendices embodies the entire
understanding of the Parties and cancels and supersedes any prior
representations, warranties, or agreement between the Parties relating hereto,
and this Agreement is executed and delivered upon the basis of this
understanding.
10.10 Force Majeure
10.10.1 Neither Party shall be liable to the other for any failure of,
or delay in, its performance hereunder due to causes beyond its reasonable
control including, but not limited to, acts of God, catastrophic phenomena,
a total constructive loss of any of XM's satellites, fire, flood,
earthquake, epidemics, revolution, reasonable control, acts of government
(including, but not limited to, any law, rule, order, regulation or
direction of the United States or Italian government or of any other
government having jurisdiction over the Parties, whether foreign or
domestic, or of any department, agency or commission thereof), labor
dispute or other unforeseeable reasons beyond either Party's reasonable
control, national emergencies, insurrections, riots, acts of war (whether
declared or not), quarantine restrictions, embargoes, strikes, lockouts or
work stoppages (collectively, "Force Majeure").
10.10.2 In order for a Party to make a claim of Force Majeure
hereunder, it must give the other Party written notice within five (5) days
of the commencement of the Force Majeure, detailing the Force Majeure
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cause, the date the Force Majeure commenced and the anticipated length of
the Force Majeure. In the event (i) the notice provides that the Force
Majeure will last for more than thirty (30) days or (ii) the Force Majeure
in fact lasts for more than thirty (30) days, the Party not claiming the
Force Majeure shall have the right to terminate this Agreement by written
notice to the Party claiming Force Majeure within thirty (30) days of the
notice from the other Party indicating that the Force Majeure will last for
more than thirty (30) days or after the thirtieth (30th) day of the Force
Majeure, as applicable.
10.11 Attorney's Fees
In the event a dispute arises regarding this Agreement, the prevailing
Party shall be entitled to reasonable attorney's fees and costs incurred.
10.12 Additional Actions and Documents
Each of the Parties hereto hereby agrees to take or cause to be taken
such further actions, to execute, deliver, and file, such further documents and
instruments, and to use its best efforts to obtain such consents or approvals as
may be necessary or as may be reasonably requested in order fully to effectuate
the purposes of this Agreement.
10.13 Limitation on Benefits of this Agreement
It is the explicit intention of the Parties hereto that no person or
entity other than the Parties hereto is or shall be entitled to bring any action
to enforce any provision of this Agreement against either of the Parties hereto,
and that the covenants, undertakings, and agreements set forth in this Agreement
shall be solely for the benefit of, and shall be enforceable only by, the
Parties hereto and their respective successors and assigns as permitted
hereunder.
10.14 Captions
The captions contained in this Agreement are inserted for convenience
of reference only and shall not in any way define or affect the meaning,
construction, or scope of the provisions captioned.
10.15 Governing Language
The official language of this Agreement is the English language and
all notices, reports, orders, instructions, literature, records and other
written materials pertaining to this Agreement shall be maintained and delivered
in the English language.
10.16 Execution
To facilitate execution, this Agreement may be executed in
counterparts; and it shall not be necessary that the signatures of each Party
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appear on each counterpart; but it shall be sufficient that the signature of
each Party appear on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement.
10.17 Authority
The Parties represent that they each are duly authorized to execute
and deliver this Agreement.
10.18 Publicity
Each Party to the present Agreement warrants that all Information
exchanged between the Parties in connection with the Work hereunder shall not be
disclosed by either ST or XM nor by any of their representatives, independent
consultants, officers, employees, agents, contractors, subcontractors or
assignees, in any form whatsoever, including articles, films, brochures,
advertisements and photographs, or authorize other persons to disclose said
information, or to deliver speeches about the Work hereunder without prior
written approval of the other Party, which approval shall not be unreasonably
withheld.
IN WITNESS WHEREOF, each of the Parties hereto has caused this Chipset
Development, Production, License and Distribution Agreement to be duly executed
on its behalf, as of the day and year first hereinabove written.
XM Satellite Radio Inc. ST Microelectronics Srl
By: /s/ XM Satellite Radio Inc By: /s/ ST Microelectronics Srl
--------------------------- ----------------------------
Name: Name:
Title: Title:
Date: Date:
24
<PAGE>
Appendix 1
Marks
"XM"TM
25
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Appendix 2
Milestones
<TABLE>
<CAPTION>
<S> <C>
Milestone Deadline
- -------------------------------------------------------------------------------------------------------------
[*****]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
Appendix 3
Acceptance Criteria
[To be determined by XM and ST in due course.]
27
<PAGE>
Appendix 4
CEP Manufacturers
Sharp
[Others to be determined from time to time by XM and notified to ST.]
28
<PAGE>
EXHIBIT 10.10
**** Confidential treatment has been requested for portions of this
agreement. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as *****. A complete version
of this agreement has been filed separately with the Securities and Exchange
Commission.
OPERATIONAL ASSISTANCE AGREEMENT
--------------------------------
THIS AGREEMENT, made as of the 7th day of June, 1999, is by and between
Clear Channel Communications Inc. ("Clear Channel"), having its principal
offices at 200 Concord Plaza, Suite 600, San Antonio, Texas 90245, and XM
Satellite Radio Inc. ("XM Radio"), having its principal offices at 1250 23rd
Street, NW, Suite 57, Washington, D.C. 20037.
RECITALS
--------
WHEREAS, Clear Channel is a leader in the "out-of-home" advertising segment
with significant radio station and outdoor advertising holdings.
WHEREAS, XM Radio has developed and/or obtained licenses for the technology
and intellectual property rights necessary to provide S-band Satellite Digital
Audio Radio Service ("SDARS") in the Territory pursuant to a license from the
FCC;
WHEREAS, concurrently with entering into this Agreement, Clear Channel
intends to make a capital investment in XM Radio (the "Original Investment")
pursuant to the terms of that certain Investment Agreement (the "Investment
Agreement"), dated as of the same date as this Agreement, among XM Radio, Clear
Channel and American Mobile Satellite Corporation ("AMSC"); and
WHEREAS, in connection with entering into the Investment Agreement, the
Parties desire to establish a strategic business relationship between them that
will allow both Parties to benefit from the operational arrangements described
in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
contained herein, the parties, intending to be legally bound, hereby agree as
follows:
COMMITMENTS
-----------
The following COMMITMENTS are not assignable to third parties:
1. XM Radio shall make available to Clear Channel 409.6 kbps of
SDARS transmission capacity ("bandwidth") for programming (e.g., talk,
music, special events or other services, etc.) reasonably acceptable
to XM Radio and provided by Clear Channel. XM Radio shall make such
bandwidth available to Clear Channel at the same
<PAGE>
***** Certain information on this page has been omitted and
filed separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the omitted
portions.
time as or before it is made available to any other commercial
programmer on terms (either through revenue sharing or on a unit cost
basis) no less favorable than those of other similar commercial
programmers who provide programming similar to such programming
provided by Clear Channel in terms of subject matter, style, content
and quality; provided, however, that for the term of this Agreement
-----------------
and any renewal, extension or amendment hereof, each person making a
capital investment in XM Radio pursuant to the Investment Agreement,
including Clear Channel, shall be entitled to terms no less attractive
than a [*****] of revenues (net of agency commissions, sales expenses
and license fees where applicable) for content provided by such person
to XM Radio In connection with offering or accepting such terms,
neither party shall take into account any of the terms of, or
arrangements under, that certain Distribution Agreement by and between
XM Radio and OnStar, a division of General Motors Corporation to be
signed concurrently with entering into this agreement or other future
OEM agreements with major automobile manufacturers. Clear Channel may
at its option use all or only a portion of such bandwidth.
(a) Use of such bandwidth shall be subject to compliance with
applicable law, including without limitation, rules and regulations of
the FCC ("FCC Rules"). If requested by Clear Channel and permitted
under FCC rules, XM will make the programming provided by Clear
Channel available to all XM customers.
(b) Clear Channel agrees to use reasonable efforts to give XM at
least ninety (90) days prior notice, but in no case will give less
than sixty (60) days prior notice of its intent to utilize any
bandwidth allocated to Clear Channel hereunder. Such notice shall set
forth the amount of bandwidth to be utilized as well as the proposed
use of such bandwidth. Until actually utilized by Clear Channel, XM
shall be entitled to use the bandwidth allocated to Clear Channel
hereunder.
(c) To the extent Clear Channel elects to utilize any or all of
the bandwidth allocated to it hereunder, Clear Channel, at its
expense, shall deliver to a location in the continental United States
designated by XM a complete audio signal and/or data transmission, as
the case may be, by transmitting such signal and/or data via a
mutually acceptable means and in a form that is not encrypted or
2
<PAGE>
digitally compressed and that will not require XM to modify the signal
and/or data in order to receive or to transmit such signal and/or data
over the XM System. XM, at its expense, shall furnish all other
facilities necessary for the receipt of Clear Channel's transmission
and for the retransmission of such signals and/or data to subscribers
authorized to receive such signals and/or data.
(b) Clear Channel agrees that the technical quality of each audio
signal and/or data transmission transmitted by Clear Channel to XM
shall meet the minimum technology standards established by XM and
provided to other similar third party program providers.
(c) Clear Channel shall not use the bandwidth allocated to it
hereunder in a manner that could reasonably be expected to adversely
interfere with the XM business(es) or cause XM to be in breach of its
existing obligations to other third-party content providers.
(d) Clear Channel agrees that the technical quality of each audio
signal and/or data transmission transmitted by Clear Channel to XM
shall meet the minimum technology standards established by XM and
provided to other similar third party program providers.
(e) Clear Channel shall not use the bandwidth allocated to it
hereunder in a manner that could reasonably be expected to adversely
interfere with the XM business(es) or cause XM to be in breach of its
existing obligations to other third-party content providers.
(f) Clear Channel shall indemnify and hold harmless XM
Indemnitees from and against any and all Loss and Expense (as defined
below) arising out of the content of any of Clear Channel's
transmissions via such bandwidth or the sale or marketing by Clear
Channel of any products or services via such bandwidth.
2. Within thirty (30) days of the execution of this Agreement, a
Technology Advisory Committee (the "Committee") will be formed by XM. The
Committee will have no more than five (5) members (or such other number as may
be mutually agreed for efficient management of XM technology programs) and at
least one Clear Channel representative will serve as a member of the Committee.
Appropriate protections will be included to ensure that the recommendations of
the Committee and of the Clear Channel representative(s) are accorded
significant weight by XM Radio's Board of Directors. The Committee will direct
the analysis and selection of appropriate billing, customer service and
conditional access systems for XM, as well as the overall systems integration
effort.
3. XM Radio will grant Clear Channel access as soon as practicable to XM
Radio advertising at the lowest available commercial rates (without taking into
account any of the terms of or arrangements under the GM Distribution Agreement
3
<PAGE>
***** Certain information on this page has been omitted and
filed separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to the omitted
portions.
or other OEM agreements with major automobile manufacturers). In addition,
Clear Channel will as soon as practicable receive access to XM Radio customer
lists for direct mail solicitation for the Clear Channel service at no cost for
the first 5 years following the commencement of XM Radio's commercial operations
and thereafter on commercially reasonable terms. Clear Channel shall not resell
such customer lists and shall not use the customer lists for direct mail
solicitations or other purposes that could reasonably be expected to compete
with or adversely interfere with the XM business(es)
4. Clear Channel will make good faith efforts to grant XM Radio access to
Clear Channel advertising at the lowest available commercial rates (except for
rates governed under political advertising guidelines).
5. XM Radio hereby grants to Clear Channel a royalty-free, non-
transferable, non-exclusive license to use, sell, manufacture and have
manufactured, all technology developed by XM Radio (including patents and patent
applications and other related intellectual property) ("XM Technology"),
exclusive of technology owned by others; provided, however, that the foregoing
-----------------
rights to use, sell, manufacture and have manufactured may be used worldwide for
any purpose other than any application related to any Digital Audio Radio
Service.
DESIRED ARRANGEMENTS
--------------------
The following DESIRED ARRANGEMENTS are subject to further good faith
negotiation:
6. Jointly determine advertising barter arrangements between the
companies to provide access to unused advertising slots (avails) and outdoor
billboards.
7. [*****]
8. Explore the use of Clear Channel advertising sales force and expertise
to sell XM inventory based on competitive agency/compensation terms and
conditions.
9. Engage in good faith efforts to negotiate access to Clear Channel
[*****].
4
<PAGE>
INDEMNIFICATION AND LIMITATION OF LIABILITY
-------------------------------------------
10. Breach or Default. XM Radio and Clear Channel shall each indemnify,
-----------------
defend and forever hold harmless the other and the other's affiliated companies
and each of the others (and the other's affiliated companies) respective present
and former officers, shareholders, directors, employees, partners and agents
(such persons, "the Indemnitees", from and against any and all losses,
liabilities, claims, costs, damages, expenses, including without limitation,
fines, forfeitures, attorneys fees, disbursements and court and/or
administrative costs (collectively, "Loss and Expense"), arising out of the
-
breach of or default under any term, warranty, covenant, representation or other
provision contained herein.
11. Indemnification Procedures. Each party seeking indemnity hereunder
--------------------------
(the "Indemnified Party") shall give prompt written notice to the other party
(the "Indemnifying Party") of any circumstances which may give rise to any Loss
or Expense as soon as the Indemnified Party knows of such circumstances;
provided, however, that the failure to give such notice shall not relieve the
Indemnifying Party of its obligation to indemnify the Indemnified Party the
Indemnifying Party shall, at its own cost and expense and using counsel
acceptable to the Indemnified Party, contest and assume responsibility for the
defense of such litigation, provided that the Indemnified Party may, at the
Indemnifying Party's own cost and expense, participate in the defense of any
such claim, action or suit. The Indemnifying Party shall have the right to
control the defense and any settlement of such claim, action or suit. The
Indemnifying Party shall pay all expenses and satisfy all judgments, including
reasonable attorneys' fees and litigation expenses, which may be incurred by or
rendered against the Indemnified Party in connection therewith.
The indemnification obligations of the parties under the foregoing
provisions shall survive the expiration or termination of this Agreement.
12. Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY
-----------------------
CONTAINED IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF THE OTHER PARTY OR ANY THIRD PARTY,
WHETHER FORESEEABLE OR NOT AND REGARDLESS OF THE FORM, LEGAL, THEORY OR BASIS OF
RECOVERY OF ANY SUCH CLAIM. IN NO EVENT SHALL ANY PROJECTIONS OR FORECASTS BY
EITHER PARTY BE BINDING AS COMMITMENTS OR, IN ANY WAY, PROMISES BY SUCH PARTY,
AND ANY FAILURE BY EITHER PARTY TO ACHIEVE ANY MINIMUM NUMBER OF SUBSCRIBERS
SHALL NOT CONSTITUTE A BREACH OR OTHER CAUSE OF ACTION OR ENTITLE THE OTHER
PARTY TO REMEDIES EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT.
CONFIDENTIALITY
---------------
13. Each of the parties agrees that, except with respect to certain other
persons acknowledging receipt and review of this Agreement, such party and its
5
<PAGE>
employees will maintain in confidence all of the information provided to it by
the other party which the receiving party knows or reasonably should know is
confidential information of the other party (including all of the written data,
summaries, reports, other proprietary information, trade secrets and information
of all kinds, acquired, devised or developed in any manner from the other
party's personnel or files or pursuant to this Agreement) (the "Confidential
------------
Information"), and such party will not use the Confidential Information of the
- -----------
other party, except as required for performance of this Agreement and will not
reveal the same to any persons not employed by the other party except: (i) (a)
at the written direction of the other party; (b) to the extent necessary to
comply with the law (including required filings with the Securities and Exchange
Commission) or the valid order of a court of competent jurisdiction or in
connection with any arbitration proceeding, in which event the disclosing party
shall so notify the other party as promptly as practicable (and, if possible,
prior to making any disclosure) and shall seek confidential treatment of such
information; (c) as part of its normal reporting or review procedure to any of
its affiliates, its auditors and its attorneys, if such affiliates, auditors and
attorneys agree to be bound by the provisions of this Section; (d) in order to
enforce any of its rights pursuant to this Agreement; and (e) to potential
investors, insurers and financing entities, if any such person agrees to be
bound by the provisions of this Section; or (ii) (a) if, prior to the time of
disclosure to the recipient, the Confidential Information is in the public
domain, or is otherwise validly known to the recipient, (b) if, after disclosure
to the recipient the Confidential Information becomes part of the public domain
through no fault of the recipient. The parties further agree to maintain any
oral information which would be Confidential Information if reduced to writing
as confidential in accordance with standard industry practice (subject to the
foregoing exceptions for Confidential Information). Each party agrees to use
the same degree of care to protect the other party's Confidential Information as
it uses with its own proprietary information, but in no event with less than
reasonable care. Immediately upon the written request of the party providing
the other party with Confidential Information (which request the providing party
may make, as a specific or general request, in its sole discretion at any time
up to one year after the termination or expiration of this Agreement), the
receiving party shall provide to the providing party (or destroy if the
providing party so requests) all requested Confidential Information provided by
the providing party.
ADDITIONAL REPRESENTATIONS AND WARRANTIES
-----------------------------------------
14. Power and Authority; No Breach. Each of the parties represents and
------------------------------
warrants that all corporate action on the part of its officers, directors and
shareholders necessary for the authorization of this Agreement has been
completed and that each party has full power and authority to enter into this
Agreement and perform its obligations hereunder and that its execution of this
Agreement and performance of its obligations hereunder does not and will not
violate any law or result in a breach of or default under the terms of any
contract or agreement by which such party is bound. The enforcement and
enjoyment by either party of its rights and benefits hereunder do not and will
6
<PAGE>
not violate, and are not and will not be subject to restraint or curtailment
under, the terms of any contract or agreement by which the other party is bound.
15. Compliance With Law. Each party is in compliance with all applicable
-------------------
governmental statutes, laws, rules, regulations, ordinances, codes, directives,
and orders (whether federal, state municipal or otherwise) arising out of or
relating to its obligations under this Agreement and is solely responsible for
the compliance with all such laws (including, without limitation, consumer
disclosure and privacy laws).
TERMINATION
-----------
16. Term. This Agreement shall remain in effect for as long as (a) Clear
----
Channel holds common stock of XM Radio or securities convertible into either
(x) common stock of XM Radio or (y) other securities convertible into common
stock of XM Radio in such amounts as would provide Clear Channel with holdings
in excess of five (5) percent of the fully diluted ownership of XM Radio or (b)
Clear Channel continues to hold the full amount of its Original Investment in XM
Radio (whether or not converted into shares of Class A Preferred Stock or Class
A Common Stock).
17. Termination for Material Default. Either party may terminate this
--------------------------------
Agreement immediately in the event that the other party materially defaults in
the performance or observance of any material covenant, agreement or condition
set forth in this Agreement, which default remains uncured for a period of
thirty (30) days from the date that the notifying party provides notice to the
defaulting party.
18. Termination for Insolvency. Either party may in its sole discretion
--------------------------
terminate this Agreement effective immediately upon giving notice to the other
party (i) upon the institution by or against the other party of insolvency,
receivership or bankruptcy proceedings or any other proceedings for the
settlement of its debts and such proceeding is not dismissed within sixty (60)
days of its being filed; (ii) upon the other party making an assignment for the
benefit of creditors; or (iii) upon the other party's dissolution or
liquidation.
MISCELLANEOUS PROVISIONS
------------------------
19. Independent Contractor, No Agents; Relationship; No-Third Party
----------------------------------------------------------------
Beneficiaries. Each party is an independent contractor in performing the
- -------------
services described in this Agreement. Except as otherwise expressly provided
in this Agreement, no party (nor any of its officers, directors, agents or
employees) shall act or hold itself out as an agent of the other party hereto.
The parties do not intend this Agreement or the relationship hereunder to
constitute a joint venture or partnership. The provisions of this Agreement are
for the benefit only of the Parties hereto, and no third party may seek to
enforce, or benefit from, these provisions.
7
<PAGE>
20. Notices. All notices and other communications from either party to
-------
the other hereunder shall be in writing and shall be deemed received upon actual
receipt when personally delivered, upon acknowledgment of receipt if sent by
facsimile, or upon the expiration of the third business day after being
deposited in the United States mails, postage prepaid, certified or registered
mail, addressed to the other party at a location specified in writing by such
Party. Until notice in accordance with this Section is given to the contrary,
the addresses, phone numbers and facsimile number for purposes of giving notice
are as follows:
XM Radio
--------
XM Satellite Radio, Inc.
1250 23rd Street, NW, Suite 57
Washington, DC 20037
Attn: President & CEO
Fax: 202-969-7096
cc: General Counsel
Clear Channel
-------------
Clear Channel Communication Inc.
200 Concord Plaza, Suite 600
San Antonio, Texas 90245
Attn: Randall Mays, CFO
Fax: (210) 822-2828
cc: Senior Vice President, Corporate Development
21. Severability. Nothing contained in this Agreement shall be construed
------------
to require commission of any act contrary to law, and wherever there is any
conflict between any provision of this Agreement and any law, such law shall
prevail; provided, however, that in such event, the affected provisions of this
-------- -------
Agreement shall be modified to the minimum extent necessary to permit compliance
with such law and all other provisions shall continue in full force and effect.
22. Survival of Provisions. The rights and obligations pursuant to
----------------------
Sections 10, 11, 12, 13, 23 and 24 of this Agreement shall survive any
expiration or termination of this Agreement. In addition, any obligations which
expressly or by their nature are to continue after termination, cancellation or
expiration of this Agreement shall survive and remain in effect. All other
rights and obligations of Clear Channel and XM Radio under this Agreement shall
cease upon termination.
8
<PAGE>
APPLICABLE LAW; DISPUTE RESOLUTION
----------------------------------
23. This Agreement, and the rights and obligations of the parties
hereunder, are subject to all applicable federal, state and local laws, rules
and regulations (including without limitation, the Communications Act of 1934,
as amended, and the rules and regulations of the FCC) and shall be construed in
accordance with and shall be governed by the laws of the State of New York,
without giving effect to the principles of conflict of laws thereof.
24. In case of any controversy or claim arising out of or related to this
Agreement, the parties agree to meet to resolve such dispute in good faith.
Should such a resolution not be reached, the parties further agree that the
matter shall be settled by arbitration administered by JAMS/Endispute (or such
other alternative dispute resolution service provider as may be mutually agreed
upon by the parties) in accordance with such entity's expedited arbitration
rules, and judgment on the award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof. The arbitration shall be conducted in
Washington, D.C. unless another location is agreed upon by the parties.
MODIFICATION
------------
25. No amendment of or modification to this Agreement shall be valid unless
made in writing and signed by the authorized representative(s) of the parties.
As to XM, the authorized representatives means both (a) XM's President or any
Vice President and (b) its General Counsel.
HEADINGS
--------
26. The headings and numbering of paragraphs in this Agreement are for
convenience only and shall not be construed to define or limit any of the terms
herein or affect the meaning or interpretation hereof.
ENTIRE AGREEMENT
----------------
27. This Agreement, including all appendices hereto, constitutes the
entire agreement between the parties hereto and supersedes all prior oral or
written agreements, representations, statements, negotiations, understandings,
proposals, and undertakings with respect to the subject matter hereof. All
appendices hereto are expressly incorporated herein by reference and made a
material part of this Agreement.
EFFECTIVE TIME
--------------
28. This agreement shall be effective upon the closing under that certain
Exchange Agreement dated as of June 7, 1999 between American Mobile Satellite
Corporation, WorldSpace, Inc. and XM Satellite Radio Holdings, Inc.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first above written.
XM SATELLITE RADIO INC.
By: /s/ Hugh Panero
--------------------------------
Hugh Panero
Its: President & CEO
--------------------------------
Clear Channel Communications
By: /s/ Mark Hubbard
--------------------------------
Mark Hubbard
Its: Senior Vice President Corporate
--------------------------------
Development
--------------------------------
10
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT
BETWEEN
XM SATELLITE RADIO HOLDINGS INC.,
XM SATELLITE RADIO, INC.
AND
GARY PARSONS
THIS AGREEMENT is entered into as of July 16, 1999 (the "Effective Date"),
by and between XM Satellite Radio Holdings Inc., a Delaware corporation, and its
subsidiary XM Satellite Radio Inc., a Delaware corporation, both having a place
of business at 1250 23rd Street NW, Suite 57, Washington, D.C. 20036
(hereinafter collectively referred to as "XM") and Gary Parsons ("EMPLOYEE") a
resident of the State of Maryland.
WHEREAS, XM is engaged in the development, implementation and operation of
a digital audio satellite service to portable receivers (the "XM System"); and
WHEREAS, XM is interested in employing EMPLOYEE as its Chairman of the
Board of Directors and EMPLOYEE is interested in being employed in that position
subject to the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements of the parties contained herein, the parties hereby
agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the terms defined in this Article I shall
have the respective meanings set forth below:
1
<PAGE>
1.1 "Affiliate" shall mean any corporation, partnership or other entity
controlling, controlled by, or under common control with XM, by virtue of direct
or indirect beneficial ownership of voting securities of or voting interest in
the controlled entity (or ownership of over 10% of the then outstanding voting
shares of XM)
1.2 "Confidential Information" shall mean all information known to XM or
learned by EMPLOYEE, during the term of employment and not generally known,
including any and all general and specific knowledge, experience, information
and data, technical or non-technical, and whether or not patentable, including,
without limitation processes, skills, information, knowhow, trade secrets, data,
designs, formulae, algorithms, specifications, samples, methods, techniques,
compilations, computer programs, devices, concepts, inventions, developments,
discoveries, improvements, and commercial or financial information, in any form,
including without limitation, oral, written, graphic, demonstrative, machine
recognizable, specimen or sample form.
1.3 "Conflicting Product or Service" shall mean any product or service of
any person or organization other than XM, in existence or under development,
which resembles or competes with a product or service of XM.
1.4 "Conflicting Organization" shall mean any person or organization
engaged in, or about to become engaged in, research on or development,
production, marketing, or selling of a "Conflicting Product or Service."
1.5 "Inventions" shall mean inventions, designs, discoveries,
developments, creations, and improvements created, discovered, developed,
conceived or reduced to practice.
2
<PAGE>
1.6 "Works of Authorship" shall mean all computer software programs or
other writings, including, without limitation, verbal works, designs, models,
drawings, or audio, visual or audiovisual recordings.
ARTICLE 2
TERM OF AGREEMENT; EMPLOYMENT
2.1 Term. Subject to the provisions of Article 4 hereof, this
Agreement shall be in effect as of the Effective Date, and EMPLOYEE shall serve
at the pleasure of the Board of Directors with no specified term of service.
For the term of this Agreement, each twelve (12) month period beginning on the
Effective Date or an anniversary thereof shall be considered a "Contract Year",
although such term shall not imply a right to employment for such period.
2.2 Employment. XM agrees to employ EMPLOYEE as Chairman of the
Board of Directors and EMPLOYEE agrees to accept such employment by XM, on the
terms and conditions set forth herein. EMPLOYEE represents and warrants that
neither the execution and delivery nor performance by him of this Agreement will
violate any agreement, order, judgment or decree to which he is a party or by
which he is bound.
2.3 Duties. As Chairman of the Board of XM, EMPLOYEE shall have the
duties and responsibilities related to building the organization and business,
including but not limited to, raising funding required to pursue the business,
corporate and Board governance, shareholder and strategic investor relations,
and management oversight, and shall report to the Board of Directors. While
acting as Chairman of the Board of Directors, EMPLOYEE shall also serve as a
director of XM.
3
<PAGE>
(a) EMPLOYEE's employment with XM shall be one-half-time. During the
term of employment, EMPLOYEE shall devote one-half of EMPLOYEE's time,
attention, skill and ability to the faithful and diligent fulfillment of
EMPLOYEE's duties hereunder. EMPLOYEE acknowledges and agrees that EMPLOYEE may
be required, without additional compensation, to perform services for any
Affiliates, and to accept such office or position with any Affiliate as the
Board may require, including, but not limited to, service as an officer or
director of XM or any Affiliate. EMPLOYEE shall comply with all applicable
policies of XM and Affiliates. It is understood that EMPLOYEE currently serves
as Chairman of the Board of Directors of American Mobile Satellite Corporation.
(b) During the term of this Agreement, XM shall provide EMPLOYEE with
directors and officers insurance and indemnification for any and all claims
arising out of or related to his activities as an officer or director of XM or
any of its Affiliates on the same basis as that provided to other officers and
directors of XM and its Affiliates.
ARTICLE 3
COMPENSATION
3.1 Base Salary. For services rendered by EMPLOYEE pursuant to this
Agreement, XM agrees to pay EMPLOYEE a base salary ("Base Salary") commencing as
of the Effective Date at the rate of .275 shares of Class A Common Stock of XM
Satellite Radio Holdings, Inc. Such shares will be issued to you as soon as
practicable after the Effective Date and will be subject to repurchase on a
proportionate basis by XM at a valuation of $509,711 per share should EMPLOYEE's
service with XM terminate prior to the first anniversary of the Effective Date
in accordance with Article 4 hereof. Such Base Salary shall be subject to
review and increase at least annually by the Compensation Committee of the Board
as may be agreed by the Compensation Committee of the Board and
4
<PAGE>
EMPLOYEE. In determining any such increase, the Compensation Committee of the
Board shall consider any increases in the cost of living and may provide for any
performance or merit increases, on the same basis as may apply from time to time
to other XM executive employees generally. The term "Base Salary" as used herein
shall include any adjustments thereto made from time to time as permitted by
this Section 3.1.
3.2 [Intentionally Omitted]
3.3 Participation in Benefit Plans. Subject to applicable eligibility
requirements, during the term of this Agreement, EMPLOYEE shall be eligible to
participate in any stock option, employee stock ownership, pension, thrift,
profit sharing, group life or disability insurance, medical or dental coverage,
education, or other retirement or employee benefit plan or program that XM has
adopted or may adopt for the benefit of its employees, on the same basis as
other executive employees. Such participation shall be subject to the terms and
conditions of such plans or programs, including, but not limited to, such
generally applicable eligibility provisions as may be in effect from time to
time.
3.4 Expenses. XM shall reimburse EMPLOYEE in connection with
performance of the services and duties hereunder for all reasonable, ordinary
and necessary business expenses actually incurred by EMPLOYEE in connection with
such performance, including ordinary and necessary expenses incurred by EMPLOYEE
in connection with travel on XM business, provided all such expenses have been
approved in advance by XM in accordance with and subject to the terms and
conditions of XM's then-prevailing expense policy, As a condition precedent to
obtaining such reimbursement, EMPLOYEE shall provide to XM any and all
statements, bills, or receipts evidencing the expenses for which EMPLOYEE seeks
reimbursement, and such other related information or materials as XM may from
time to time reasonably require. EMPLOYEE shall account to XM for any expenses
5
<PAGE>
that are eligible for reimbursement under this Section 3.4 in accordance with XM
policy.
3.5 Employment and Supplies. XM shall provide EMPLOYEE with
administrative support relating to the performance of EMPLOYEE's duties of the
same type and extent as is provided to other executive employees. XM shall
acquire and/or provide to EMPLOYEE for his business use: multimedia portable
computer and subscriptions to various trade publications and various trade
books. Such items shall remain the exclusive property of XM, are to be used
solely for XM's benefit, and shall be returned promptly to XM upon the
termination of EMPLOYEE's employment for whatever reason.
3.6 Withholding. Anything in this Agreement to the contrary
notwithstanding, all payments required to be made by XM hereunder to EMPLOYEE or
EMPLOYEE's estate or beneficiaries in connection with EMPLOYEE's employment
hereunder shall be subject to the withholding of such amounts relating to taxes
as XM may reasonably determine it should withhold pursuant to any applicable law
or regulation.
3.7 Stock Option Grant. EMPLOYEE shall receive a stock option grant
on the following terms:
(a) The Option will be non-qualified, ten year stock option with
respect to five (5) shares of XM common stock, with an exercise price and based
on a valuation of $509,711 per share, and with a date of grant as of the
Effective Date.
(b) Vesting of the five (shares) shall be as follows: Two (2) shares
shall be exercisable on the first anniversary of the date of grant. The three
(3) remaining shares shall be exercisable in three (3) equal annual
installments, with the first installment beginning on the first anniversary of
the date of grant, provided that
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additional performance objectives are met, as shall be mutually agreed upon
between the EMPLOYEE and the Compensation Committee of the Board of Directors.
(c) Post-termination Exercise. Vested stock options will be
-------------------------
exercisable following termination of employment for the following periods: 0
months in the case of termination for Cause (as defined in Article 4); 3 months
following a voluntary termination; 6 months following an involuntary
termination; or 1 year following death, disability, retirement, or termination
(voluntary or involuntary) within one year following a change of control.
(d) If and when Form S-8 is available, XM will register EMPLOYEE's
stock.
(e) Exercising/Vesting. In the event of death, or involuntary
------------------
termination (which shall include termination by employee following default by
XM) within one year of a change of control, vesting of all options would occur.
In all other cases, non-vested options would be unexercisable and forfeited upon
termination of employment. A "change of control" will occur where (1) any person
or group becomes beneficial owner of securities of XM representing more than 40%
of the then voting power of XM; (2) board members (together with new members
appointed by at least 2/3 of those members) at the beginning of a two-year
period no longer constitute 2/3 of the Board during such two-year period; (3) a
merger/consolidation of XM occurs wherein the XM voting securities immediately
prior thereto do not constitute at least 60% of the combined voting securities
after the merger/consolidation; or (4) the stockholder approve a plan of
complete liquidation or winding-up or an agreement for sale/disposition of all
or substantially all of company's assets, provided that no change of control
--------
will be deemed to occur as a result of the following (a) an initial public
offering of XM; (b) any change necessitated by the conversion of Class B
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Common Stock to Class A Common Stock by American Mobile Satellite Corporation,
and/or (c) a private placement by XM of up to $150,000,000 of XM securities.
(f) Cashless exercise/tax withholding provisions would also be
---------------------------------
included, as well as other standard stock option plan/agreement provisions.
ARTICLE 4
TERMINATION
4.1 General. EMPLOYEE's service hereunder shall terminate upon
EMPLOYEE's death or "Disability" and may be terminated by XM with or without
"Cause" (each term as defined in this Article 4) effective as of the date
written notice of termination is given to EMPLOYEE by or on behalf of the Board,
or may be terminated by EMPLOYEE on the giving of notice of not less than 30
days.
4.2 Termination for "Cause" or without "Cause" or Voluntarily by
Employee. In the event EMPLOYEE's employment is terminated by XM for Cause (as
defined in this Article 4) or without Cause or in the event EMPLOYEE voluntarily
terminates employment, XM shall thereafter pay to EMPLOYEE (or EMPLOYEE's legal
representatives, estate, beneficiaries or heirs), in accordance with XM's then-
prevailing executive payroll practices, all compensation benefits and other
payments to which EMPLOYEE was entitled hereunder only through the effective
date of termination of employment, and XM shall thereafter have no further
obligation to EMPLOYEE (or EMPLOYEE's legal representatives, estate,
beneficiaries or heirs) for any compensation benefits, or other payments
hereunder.
4.3 Death or Disability
(a) In the event of EMPLOYEE's death, XM shall continue to pay
EMPLOYEE's then current Base Salary to EMPLOYEE's legal representatives,
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estate, beneficiaries or heirs, in accordance with XM's then-prevailing
executive payroll practices, through the end of the calendar month following
EMPLOYEE's death but shall have no further obligation to EMPLOYEE or EMPLOYEE's
legal representatives, estate, beneficiaries or heirs for any compensation,
benefits or other payments hereunder.
(b) Upon EMPLOYEE's "Disability", the payment of benefits under XM's
short-term and long-term disability insurance programs, if any, shall offset
XM's obligations under the foregoing Article 3.1 to the extent such benefits are
received. For purposes of this Agreement, EMPLOYEE shall be deemed to be under a
Disability if EMPLOYEE shall be unable, by virtue of illness or physical or
mental incapacity or disability (from any cause or causes whatsoever), to
perform EMPLOYEE's essential job functions hereunder, whether with or without
reasonable accommodation, in substantially the manner and to the extent required
hereunder prior to the commencement of such disability, for a period exceeding
90 consecutive days. Subject to any applicable legal requirements, in the event
EMPLOYEE shall remain under a Disability for a period exceeding 120 days in any
12 month period, XM shall have the right to terminate EMPLOYEE's employment
hereunder at the end of any calendar month during the continuance of such
disability upon at least thirty (30) days prior written notice to EMPLOYEE.
(e) Definition of "Cause". For purposes of this Agreement, Cause shall mean: (i)
EMPLOYEE's willful or gross misconduct or willful or gross negligence in the
performance of his duties for XM (ii) EMPLOYEE's intentional or habitual neglect
of his duties for XM, or (iii) EMPLOYEE's theft or misappropriation of funds of
XM or commission of a felony.
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ARTICLE 5
RESTRICTIVE COVENANTS
5.1 Confidentiality. Except as authorized or directed by XM,
EMPLOYEE shall not, at any time during or subsequent to the term of this
Agreement, directly or indirectly publish or disclose any Confidential
Information of XM or any of its Affiliates, or Confidential Information of
others that has come into the possession of XM or any of its Affiliates, or into
the EMPLOYEE's possession in the course of his employment with XM or of his
services and duties hereunder, to any other person or entity, and EMPLOYEE shall
not use any such Confidential Information for EMPLOYEE's own personal use or
advantage or make it available to others for use. All Confidential Information,
whether oral or written, regarding the business or affairs of XM or any of its
Affiliates, including, without limitation, information as to their products,
services, systems, designs, inventions, software, finances (including prices,
costs and revenues), marketing plans, programs, methods of operation,
prospective and existing contracts, customers and other business arrangements or
business plans, procedures, and strategies, shall all be deemed Confidential
Information, except to the extent the same, shall have been lawfully and without
breach of the EMPLOYEE's confidential obligation made available to the general
public without restriction, or that EMPLOYEE can prove, by documentary evidence,
was previously known to EMPLOYEE prior to the term of EMPLOYEE's employment. The
Company shall be under no obligation to identify specifically any information as
to which the protection of this Section 5.1 extends by any notice or other
action. Upon expiration or termination of this Agreement for any reason,
EMPLOYEE shall promptly return to XM all Confidential Information, including all
copies thereof in EMPLOYEE's possession, whether prepared by him or others.
5.2 Unfair Competition. During the tam of this agreement and for a
period of one (1) year after the termination thereof, provided EMPLOYEE has
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served at least one year, EMPLOYEE shall not, within the United States, directly
or indirectly, and whether or not for compensation, as a stockholder owning
beneficially or of record more than five percent (5%) of the outstanding shares
of any class of stock of an issuer, or as an officer, director, employee,
consultant, partner, joint venturer, proprietor, or otherwise, engage in or
become interested in any Conflicting Organization in connection with research,
development, consulting, manufacturing, purchasing, accounting, engineering,
marketing, merchandising or selling of any Conflicting Product or Service,
directly or indirectly, in competition with XM (or its successor) as conducted
from time to time during such period. During the period in which EMPLOYEE is
receiving any payments under this Agreement and for a period of one (1) year
thereafter, EMPLOYEE shall not, without the prior written consent of XM, solicit
or hire or induce the termination of employment of any employees or other
personnel providing services to XM, for any business activity, other than a
business activity owned or controlled, directly or indirectly, by XM.
5.3 Injunctive Relief.
(a) EMPLOYEE acknowledges and warrants that he will be fully able to
earn an adequate livelihood for himself and his dependents if Section. 5.2
should be specifically enforced against him, and that Section 5.2 merely
prevents unfair competition against XM for a limited period of time. EMPLOYEE
agrees and acknowledges that, by virtue of EMPLOYEE's employment with XM,
EMPLOYEE shall have access to and maintain an intimate knowledge of XM's
activities and affairs, including trade secrets, Confidential Information, and
other confidential matters. As a result of such access and knowledge, and
because of the special, unique, and extraordinary services that EMPLOYEE is
capable of performing for XM or one of its competitors, EMPLOYEE acknowledges
that the services to be rendered by EMPLOYEE pursuant to this Agreement are of a
character giving them a peculiar value, the loss of which cannot adequately or
reasonably be
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compensated by money damages. Consequently, EMPLOYEE agrees that any breach or
threatened breach by EMPLOYEE of EMPLOYEE's obligations under this Article 5
would cause irreparable injury to XM, and that XM shall be entitled to (i)
preliminary and permanent injunctions enjoining EMPLOYEE from violating such
provisions, and (ii) actual money damages suffered by XM as a result of such
breach, in the amount of any fees, compensation, benefits, profits, or other
remuneration earned by EMPLOYEE or any competitor or XM as a result of such
breach, together with interest, and costs and attorneys' fees expended to
collect such damages or secure such injunctions. Nothing in this Agreement,
however, shall be construed to prohibit XM from pursuing any other remedy, XM
and EMPLOYEE having agreed that all such remedies shall be cumulative.
(b) The restrictions set forth in this Article 5 and the following
Article 6 shall be construed as independent covenants, and shall survive the
termination or expiration of this Agreement, and the existence of any claim or
cause of action against XM, whether predicated upon this Agreement or otherwise,
shall not constitute a defense to the enforcement by XM of the restrictions
contained in this Article 5 or the following Article 6. EMPLOYEE hereby consents
and waives any objection to the jurisdiction over his person or the venue of any
courts within the District of Columbia with respect to any proceedings in law or
in equity arising out of this Article 5 or the following Article 6. If any court
of competent jurisdiction shall hold that any of the restrictions contained in
Section 5.2 are unreasonable as to time, geographical area, or otherwise, said
restrictions shall be deemed to be reduced to the extent necessary in the
opinion of such court to make their application reasonable.
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ARTICLE 6
INVENTIONS, WORKS OF AUTHORSHIP,
PATENTS AND COPYRIGHTS
6.1 Ownership of Inventions and Works of Authorship. EMPLOYEE agrees
that all Inventions made, conceived, discovered, developed or reduced to
practice by EMPLOYEE and all software and other works of authorship created by
EMPLOYEE, either alone or with others, at any time, within or without normal
working hours, during the term of this Agreement, arising out of such employment
or based upon Confidential Information, or pertinent to any field of business or
research in which, during such employment, XM is engaged or (if such is known or
ascertainable by EMPLOYEE) is considering engaging, whether or not patented or
patentable, shall be and remain the sole property of XM with respect to all
rights of EMPLOYEE arising from any discovery, conception, development,
reduction to practice, or creation by EMPLOYEE. XM shall have the full right to
assign, license, or transfer all rights thereto.
6.2 Disclosure of Inventions and Works of Authorship. EMPLOYEE shall
promptly make full disclosure to XM or to an authorized representative thereof
of all information relating to the making, conception, discovery, development,
creation or reduction to practice of Inventions, or of software and other works
of authorship owned by XM pursuant to Section 6.1 above.
6.3 Patent and Copyright Applications. At the request of XM and at
XM's expense, EMPLOYEE shall execute such documents and perform such acts as XM
deems necessary to obtain patents or the like, on such Inventions or copyright
registrations for such software and other works of authorship in any
jurisdiction or jurisdictions. Such obligation shall continue beyond the term
of this Agreement. In the event that XM is unable because of EMPLOYEE's mental
or physical capacity or for any other reason to secure EMPLOYEE's signature to
apply for or to pursue
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any applications for patent or copyright covering Inventions, software and other
works of authorship owned by XM pursuant to Section 6.1, then EMPLOYEE hereby
irrevocably designates and appoints XM as EMPLOYEE's agent and attorney in fact,
upon prior notice, to act for and in his behalf and stead to execute and file
any such applications and to do all other lawfully permitted acts to further the
prosecution and issuance of patents and copyright registrations thereon with the
same legal force and effect as if executed by EMPLOYEE. EMPLOYEE further agrees
not to file any patent applications relating to or describing or otherwise
disclosing any Confidential Information or any such Inventions, or to claim any
copyright or file and applications to register any copyright in such software or
other works of authorship, except with the prior written consent of XM.
6.4 Assignment of Inventions and Works of Authorship. EMPLOYEE agrees
to assign to XM or its Affiliates all of EMPLOYEE's right, title and interest in
and to any and all such Inventions and the patent applications and patents
relating thereto and to the copyright in any and all such software and other
works of authorship and any copyright applications and registrations relating
thereto conceived, reduced to practice, discovered, created or otherwise
developed by EMPLOYEE and owned by XM pursuant to Section 6.1 above.
ARTICLE 7
MISCELLANEOUS
7.1 Assignment. The rights and obligations of XM under this
Agreement shall be binding upon its successors and assigns and may be assigned
by XM to the successors in interest of XM. The rights and obligations of
EMPLOYEE under this Agreement shall be binding upon EMPLOYEE's heirs, legatees,
personal representatives, executors or administrators. This Agreement may not be
assigned by EMPLOYEE, but any amount owed EMPLOYEE upon EMPLOYEE's death shall
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inure to the benefit of EMPLOYEE's heirs, legatees, personal representatives,
executors, or administrators.
7.2 Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when hand delivered, sent by overnight courier,
or mailed by first-class, registered, or certified mail, return receipt
requested, postage prepaid, or transmitted by telegram, telecopy, or telex,
addressed as follows:
If to EMPLOYEE: (Copy to XM Executive Office)
Gary Parsons
11009 Stanmore Drive
Potomac, MD 20854
Tel: 301-299-5491
Fax: 301-299-6166
If to XM:
XM Satellite Radio Holdings Inc.
1250 23rd Street NW
Washington, DC 20036
Tel: 202-969-7100
202-969-7050
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7.3 Entire Agreement. From and after the Effective Date, this
Agreement constitutes the entire agreement between the parties hereto, and
expressly supersedes all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein,
15
<PAGE>
7.4 Headings. Article and Section headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
7.5 Severability. In the event any provision of this Agreement, or
any portion thereof, is determined by any arbitrator or court of competent
jurisdiction to be unenforceable as written, such provision or portion thereof
shall be interpreted so as to be enforceable. In the event any provision of this
Agreement, or any portion thereof is determined by any arbitrator or court of
competent jurisdiction to be void, the remaining portions of this Agreement
shall nevertheless be binding upon XM and EMPLOYEE with the same effect as
though the void provision or portion thereof had been severed and deleted.
7.6 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the substantive laws of the State of New
York (excluding the choice of law rules thereof).
7.7 Amendment; Modification; Waiver. No amendment, modification or
waiver of the terms of this Agreement shall be valid unless made in writing and
duly executed by EMPLOYEE and XM. No delay or failure at any time on the part of
XM in exercising any right, power or privilege under this Agreement, or in
enforcing any provision of this Agreement, shall impair any such right, power,
or privilege, or be construed as a waiver of any default or as any acquiescence
therein, or shall affect the right of XM thereafter to enforce, each and every
provision of this Agreement in accordance with its terms.
7.8 Additional Obligations. Both during and after the term of
employment, EMPLOYEE shall, upon reasonable notice, furnish XM with such
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information as may be in EMPLOYEE's possession or control, and cooperate with
XM, as may reasonably be requested by XM (and, after the term of employment,
with due consideration for EMPLOYEE's obligations with respect to any new
employment or business activity) m connection with any litigation or other
adversarial proceeding in which XM or any Affiliate is or may become a party. XM
shall reimburse EMPLOYEE for all reasonable expenses incurred by EMPLOYEE in
fulfilling EMPLOYEE's obligations under this Article 7.8.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the Effective Date.
XM Satellite Radio Holdings Inc. Gary Parsons
XM Satellite Radio Inc.
By: /s/ Joseph M. Titlebaum By: /s/ Gary M. Parsons
--------------------------------- -----------------------
Name: Joseph M. Titlebaum Name: Gary M. Parsons
------------------------------- ---------------------
Title: Senior Vice President, General Title: Chairman of the Board
------------------------------ ---------------------
Counsel and Secretary
---------------------
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PERFORMANCE CRITERIA - STOCK OPTION VESTING
Performance criteria required for the Chairman of the Board of XM Satellite
Radio Inc. shall be established and/or modified from time to time by the
Compensation Committee of the Board of Directors. Absent specific additional or
substitute performance criteria, successful completion of the following
objectives must be achieved, or the requirement waived, by the Compensation
Committee of the Board, prior to the vesting of any stock options which carry
performance requirements as a vesting criteria:
Year One Performance Objective:
. XM Satellite Radio Inc. shall have successfully completed a public offering
of its shares and be listed on a recognized public market exchange (NASDAQ).
. XM Satellite Radio Inc. shall have secured sufficient additional capital
resources to fund its operation during the year.
Year Two Performance Objective:
. XM Satellite Radio Inc. shall have secured sufficient funding, whether
through debt or equity offerings, at least equaling its projected cash needs
through its commercial service launch.
. XM Satellite Radio Inc. shall not be in default on any of its financing
instruments or major contracts.
Year Three Performance Objective:
. XM Satellite Radio Inc. shall have commercially launched its service
offerings as evidenced by significant numbers of revenue-producing
subscribers, and widespread availability of XM Radio's service throughout the
United States.
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Exhibit 10.13
EMPLOYMENT AGREEMENT
BETWEEN
AMRC HOLDINGS, INC.,
AMERICAN MOBILE RADIO CORPORATION
AND
HUGH PANERO
THIS AGREEMENT is entered into as of June 1, 1998 (the "Effective Date"),
by and between AMRC Holdings, Inc., a Delaware corporation, and its subsidiary
American Mobile Radio Corporation, a Delaware corporation, both having a place
of business at 10802 Parkridge Boulevard, Reston, Virginia 20191 (hereinafter
collectively referred to as "AMRC") and Hugh Panero ("EMPLOYEE") a resident of
the State of Colorado.
WHEREAS, AMRC is engaged in the development, implementation and operation
of a digital audio satellite service to portable receivers (the "AMRC System");
and
WHEREAS, AMRC is interested in employing EMPLOYEE as its Chief Executive
Officer and EMPLOYEE is interested in being employed in that position subject to
the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements of the parties contained herein, the parties hereby
agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the terms defined in this Article 1 shall
have the respective meanings set forth below:
<PAGE>
1.1 "Affiliate" shall mean any corporation, partnership or other entity
controlling, controlled by, or under common control with AMRC, by virtue of
direct or indirect beneficial ownership of voting securities of or voting
interest in the controlled entity (or ownership of over 10% of the then
outstanding voting shares of AMRC).
1.2 "Confidential Information" shall mean all information known to AMRC or
learned by EMPLOYEE during the term of employment and not generally known,
including any and all general and specific knowledge, experience, information
and data, technical or non-technical, and whether or not patentable, including,
without limitation processes, skills, information, knowhow, trade secrets, data,
designs, formulae, algorithms, specifications, samples, methods, techniques,
compilations, computer programs, devices, concepts, inventions, developments,
discoveries, improvements, and commercial or financial information, in any form,
including without limitation, oral, written, graphic, demonstrative, machine
recognizable, specimen or sample form.
1.3 "Conflicting Product or Service" shall mean any product or service of
any person or organization other than AMRC, in existence or under development,
which resembles or competes with a product or service of AMRC.
1.4 "Conflicting Organization" shall mean any person or organization
engaged in, or about to become engaged in, research on or development,
production, marketing, or selling of a "Conflicting Product or Service."
1.5 "Inventions" shall mean inventions, designs, discoveries,
developments, creations, and improvements created, discovered, developed,
conceived or reduced to practice.
2
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1.6 "Works of Authorship" shall mean all computer software programs or
other writings, including, without limitation, verbal works, designs, models,
drawings, or audio, visual or audiovisual recordings.
ARTICLE 2
TERM OF AGREEMENT; EMPLOYMENT
2.1 Term. Subject to the provisions of Article 4 hereof, this Agreement
shall be in effect for a term of three (3) years commencing as of the Effective
Date. For the term of this Agreement, each twelve (12) month period beginning on
the Effective Date or an anniversary thereof shall be considered a "Contract
Year."
2.2 Employment. AMRC agrees to employ EMPLOYEE as Chief Executive Officer
and EMPLOYEE agrees to accept such employment by AMRC, on the terms and
conditions set forth herein. EMPLOYEE represents and warrants that neither the
execution and delivery nor performance by him of this Agreement will violate any
agreement, order, judgment or decree to which he is a party or by which he is
bound.
2.3 Duties. As Chief Executive Officer of AMRC, EMPLOYEE shall have the
duties and responsibilities related to building the organization and business,
including but not limited to, achieving agreed revenue, cost, profit and
cash-flow targets, and shall report to the Board of Directors and the Board
Chairman. While acting as CEO, EMPLOYEE shall also serve as a director of AMRC.
(a) EMPLOYEE's employment with AMRC shall be full-time and exclusive.
During the term of employment, EMPLOYEE shall devote the whole of EMPLOYEE's
time, attention, skill and ability to the faithful and diligent fulfillment of
EMPLOYEE's duties hereunder. EMPLOYEE acknowledges and agrees that EMPLOYEE may
be required, without additional compensation, to
3
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perform services for any Affiliates, and to accept such office or position with
any Affiliate as the Board may require, including, but not limited to, service
as an officer or director of AMRC or any Affiliate. EMPLOYEE shall comply with
all applicable policies of AMRC and Affiliates.
(b) During the term of employment, it shall not be a violation of this
Agreement for EMPLOYEE to serve as an officer or director of a cooperative
housing, or civic or charitable organization or committee, or to manage personal
passive investments, so long as such activities (individually or collectively)
do not conflict or materially interfere with the performance of EMPLOYEE's
duties hereunder.
(c) During the term of this Agreement, AMRC shall provide EMPLOYEE with
directors and officers insurance and indemnification for any and all claims
arising out of or related to his activities as an officer or director of AMRC or
any of its Affiliates on the same basis as that provided to other officers and
directors of AMRC and its Affiliates.
ARTICLE 3
COMPENSATION
3.1 Base Salary. For services rendered by EMPLOYEE pursuant to this
Agreement, AMRC agrees to pay EMPLOYEE a base salary ("Base Salary") commencing
as of the Effective Date at the rate of Two Hundred Eighty Thousand Dollars
($280,000) per year, payable in accordance with AMRC's then-prevailing executive
payroll practices. Such Base Salary shall be subject to review and increase at
least annually by the Board in the Board's sole discretion. In determining any
such increase, the Board shall consider any increases in the cost of living and
may provide for any performance or merit increases, on the same basis as may
apply from time to time to other AMRC executive employees generally. The
4
<PAGE>
term "Base Salary" as used herein shall include any adjustments thereto made
from time to time as permitted by this Section 3.1.
3.2 Bonuses. During the term of this Agreement, EMPLOYEE shall be entitled
to such bonuses as may be authorized and declared by the Board, and on the same
basis as may apply from time to time to other AMRC executive employees
generally. As an annual bonus guideline, EMPLOYEE's objective bonus with respect
to any calendar year shall be forty percent (40%) of EMPLOYEE's annual Base
Salary. Such bonus shall be awarded on a pro-rata basis for the portion of the
calendar year for which EMPLOYEE is employed by AMRC. Half of the annual bonus
shall be determined with reference to EMPLOYEE's personal job performance and
half shall be determined with reference to mutually agreed-upon corporate goals
and objectives.
3.3 Participation in Benefit Plans. Subject to applicable eligibility
requirements, during the term of this Agreement, EMPLOYEE shall be eligible to
participate in any stock option, employee stock ownership, pension, thrift,
profit sharing, group life or disability insurance, medical or dental coverage,
education, or other retirement or employee benefit plan or program that AMRC has
adopted or may adopt for the benefit of its employees, on the same basis as
other executive employees. Such participation shall be subject to the terms and
conditions of such plans or programs, including, but not limited to, such
generally applicable eligibility provisions as may be in effect from time to
time. EMPLOYEE shall be entitled to paid vacation, paid sick leave, and holidays
on the same basis as may from time to time apply to other AMRC executive
employees generally. For each month of waiting period, if any, prior to
eligibility under the AMRC medical benefit plan (or applicable Affiliate plan),
EMPLOYEE will receive a monthly payment of Two Thousand Dollars to cover
expenses to extend EMPLOYEE's current plan.
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<PAGE>
3.4 Expenses. AMRC shall reimburse EMPLOYEE in connection with performance
of the services and duties hereunder for all reasonable, ordinary and necessary
business expenses actually incurred by EMPLOYEE in connection with such
performance, including ordinary and necessary expenses incurred by EMPLOYEE in
connection with travel on AMRC business, provided all such expenses have been
approved in advance by AMRC in accordance with and subject to the terms and
conditions of AMRC's then-prevailing expense policy. As a condition precedent to
obtaining such reimbursement, EMPLOYEE shall provide to AMRC any and all
statements, bills, or receipts evidencing the expenses for which EMPLOYEE seeks
reimbursement, and such other related information or materials as AMRC may from
time to time reasonably require. EMPLOYEE shall account to AMRC for any expenses
that are eligible for reimbursement under this Section 3.4 in accordance with
AMRC policy.
3.5 Employment and Supplies. AMRC shall provide EMPLOYEE with
administrative support relating to the performance of EMPLOYEE's duties of the
same type and extent as is provided to other executive employees. AMRC shall
acquire and/or provide to EMPLOYEE for his business use: multimedia portable
computer and subscriptions to various trade publications and various trade
books. Such items shall remain the exclusive property of AMRC, are to be used
solely for AMRC's benefit, and shall be returned promptly to AMRC upon the
termination of EMPLOYEE's employment for whatever reason.
3.6 Withholding. Anything in this Agreement to the contrary
notwithstanding, all payments required to be made by AMRC hereunder to EMPLOYEE
or EMPLOYEE's estate or beneficiaries in connection with EMPLOYEE's employment
hereunder shall be subject to the withholding of such amounts relating to taxes
as AMRC may reasonably determine it should withhold pursuant to any applicable
law or regulation.
6
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3.7 Stock Option Grant. EMPLOYEE shall receive a stock option grant on the
following terms:
(a) The Option will be non-qualified, ten year stock option with respect
to five (5) shares of AMRC common stock, with an exercise price and based on a
valuation of $875,000 per share, and with a date of grant as of the first date
of beginning employment with AMRC.
(b) Vesting of the five (shares) shall be as follows: Two (2) shares shall
be exercisable in three (3) equal annual installments, with the first
installment beginning on the first anniversary of the date of grant. The three
(3) remaining shares shall be exercisable in three (3) equal annual
installments, with the first installment beginning on the first anniversary of
the date of grant, provided that additional performance objectives are met, as
shall be mutually agreed upon between the EMPLOYEE and the Board.
(c) In the event that there is not an initial public offering on or prior
to the first anniversary following the in-orbit acceptance of the second AMRC
satellite, and the EMPLOYEE desires to exercise the stock option, AMRC will
provide the EMPLOYEE the difference between the exercise price and the fair
market value of the stock as of the date of exercise as mutually agreed upon by
the Board of Directors of AMRC and failing mutual agreement an independent
appraiser will be appointed to determine fair market value.
(d) Post-termination Exercise. Vested stock options will be exercisable
following termination of employment for the following periods: 0 months in the
case of termination for Cause (as defined in Article 4); 3 months following a
voluntary termination; 6 months following an involuntary termination; or 1 year
following death, disability, retirement, or termination (voluntary or
involuntary) within one year following a change of control.
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(e) If and when Form S-8 is available, AMRC will register EMPLOYEE's
stock.
(f) Exercising/Vesting. In the event of death, or involuntary termination
(which shall include termination by employee following default by AMRC) within
one year of a change of control, vesting of all options would occur. In all
other cases, non-vested options would be unexercisable and forfeited upon
termination of employment. A "change of control" will occur where (1) any person
or group becomes beneficial owner of securities of AMRC representing more than
40% of the then voting power of AMRC; (2) board members (together with new
members appointed by at least 2/3 of those members) at the beginning of a
two-year period no longer constitute 2/3 of the Board during such two-year
period; (3) a merger/consolidation of AMRC occurs wherein the AMRC voting
securities immediately prior thereto do not constitute at least 60% of the
combined voting securities after the merger/consolidation; or (4) the
stockholders approve a plan of complete liquidation or winding-up or an
agreement for sale/disposition of all or substantially all of company's assets,
provided, that no change of control will be deemed to occur as a result of the
following (a) an initial public offering of AMRC; (b) any change in percentage
ownership of WorldSpace International Network or its affiliates or American
Mobile Satellite Corporation or its affiliates, and/or (c) a private placement
by AMRC of up to $150,000,000 of AMRC securities.
(g) Cashless exercise/tax withholding provisions would also be included,
as well as other standard stock option plan/agreement provisions.
8
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ARTICLE 4
TERMINATION
4.1 General. EMPLOYEE's service hereunder shall terminate upon EMPLOYEE's
death or "Disability" and may be terminated by AMRC with or without "Cause"
(each term as defined in this Article 4) effective as of the date written notice
of termination is given to EMPLOYEE by or on behalf of the Board, or may be
terminated by EMPLOYEE on the giving of notice of not less than 30 days.
4.2 Termination for "Cause" or Voluntarily by Employee. In the event
EMPLOYEE's employment is terminated by AMRC for Cause (as defined in this
Article 4) or in the event EMPLOYEE voluntarily terminates employment, AMRC
shall thereafter pay to EMPLOYEE (or EMPLOYEE's legal representatives, estate,
beneficiaries or heirs), in accordance with AMRC's then-prevailing executive
payroll practices, all compensation, benefits and other payments to which
EMPLOYEE was entitled hereunder only through the effective date of termination
of employment, and AMRC shall thereafter have no further obligation to EMPLOYEE
(or EMPLOYEE's legal representatives, estate, beneficiaries or heirs) for any
compensation, benefits or other payments hereunder.
4.3 Death, Disability or Termination Without "Cause".
(a) In the event of EMPLOYEE's death, AMRC shall continue to pay
EMPLOYEE's then current Base Salary and pro-rated non-discretionary bonus
compensation to EMPLOYEE's legal representatives, estate, beneficiaries or
heirs, in accordance with AMRC's then-prevailing executive payroll practices,
through the end of the calendar month following EMPLOYEE's death, but shall have
no further obligation to EMPLOYEE or EMPLOYEE's legal representatives, estate,
beneficiaries or heirs for any compensation, benefits or other payments
hereunder.
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(b) Upon EMPLOYEE's "Disability", the payment of benefits under AMRC's
short-term and long-term disability insurance programs, if any, shall offset
AMRC's obligations under the foregoing Article 3.1 to the extent such benefits
are received. For purposes of this Agreement, EMPLOYEE shall be deemed to be
under a Disability if EMPLOYEE shall be unable, by virtue of illness or physical
or mental incapacity or disability (from any cause or causes whatsoever), to
perform EMPLOYEE's essential job functions hereunder, whether with or without
reasonable accommodation, in substantially the manner and to the extent required
hereunder prior to the commencement of such disability, for a period exceeding
90 consecutive days. Subject to any applicable legal requirements, in the event
EMPLOYEE shall remain under a Disability for a period exceeding 120 days in any
12 month period, AMRC shall have the right to terminate EMPLOYEE's employment
hereunder at the end of any calendar month during the continuance of such
disability upon at least thirty (30) days prior written notice to EMPLOYEE.
(c) In the event AMRC terminates EMPLOYEE's employment without Cause, as
defined in this Article 4, and provided further that EMPLOYEE has released AMRC
from any other claims or actions related to EMPLOYEE's employment with AMRC,
AMRC shall continue to pay EMPLOYEE (or EMPLOYEE's legal representatives,
estate, beneficiaries or heirs) EMPLOYEE's then current Base Salary and accrued
benefits up to the date of termination (as defined in Section 3.1), in
accordance with AMRC's then-prevailing executive payroll practices, for one (1)
year.
(d) Definition of "Cause". For purposes of this Agreement, Cause shall
mean: (i) EMPLOYEE's willful or gross misconduct or willful or gross negligence
in the performance of his duties for AMRC (ii) EMPLOYEE's intentional or
habitual
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neglect of his duties for AMRC, or (iii) EMPLOYEE's theft or misappropriation of
funds of AMRC or commission of a felony.
ARTICLE 5
RESTRICTIVE COVENANTS
5.1 Confidentiality. Except as authorized or directed by AMRC, EMPLOYEE
shall not, at any time during or subsequent to the term of this Agreement,
directly or indirectly publish or disclose any Confidential Information of AMRC
or of any of its Affiliates, or Confidential Information of others that has come
into the possession of AMRC or of any of its Affiliates, or into the EMPLOYEE's
possession in the course of his employment with AMRC or of his services and
duties hereunder, to any other person or entity, and EMPLOYEE shall not use any
such Confidential Information for EMPLOYEE's own personal use or advantage or
make it available to others for use. All Confidential Information, whether oral
or written, regarding the business or affairs of AMRC or any of its Affiliates,
including, without limitation, information as to their products, services,
systems, designs, inventions, software, finances (including prices, costs and
revenues), marketing plans, programs, methods of operation, prospective and
existing contracts, customers and other business arrangements or business plans,
procedures, and strategies, shall all be deemed Confidential Information, except
to the extent the same shall have been lawfully and without breach of the
EMPLOYEE's confidential obligation made available to the general public without
restriction, or that EMPLOYEE can prove, by documentary evidence, was previously
known to EMPLOYEE prior to the term of EMPLOYEE's employment. The Company shall
be under no obligation to identify specifically any information as to which the
protection of this Section 5.1 extends by any notice or other action. Upon
expiration or termination of this Agreement for any reason, EMPLOYEE shall
promptly return to AMRC all Confidential Information, including all copies
thereof in EMPLOYEE's possession, whether prepared by him or others.
11
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5.2 Unfair Competition. During the term of this agreement and for a period
of one (1) year after the termination thereof, EMPLOYEE shall not, within the
United States, directly or indirectly, and whether or not for compensation, as a
stockholder owning beneficially or of record more than five percent (5%) of the
outstanding shares of any class of stock of an issuer, or as an officer,
director, employee, consultant, partner, joint venturer, proprietor, or
otherwise, engage in or become interested in any Conflicting Organization in
connection with research, development, consulting, manufacturing, purchasing,
accounting, engineering, marketing, merchandising or selling of any Conflicting
Product or Service, directly or indirectly, in competition with AMRC or any of
its Affiliates (or any of their successors) as conducted from time to time
during such period. During the period in which EMPLOYEE is receiving any
payments under this Agreement and for a period of one (1) year thereafter,
EMPLOYEE shall not, without the prior written consent of AMRC, solicit or hire
or induce the termination of employment of any employees or other personnel
providing services to AMRC, or any of its Affiliates, for any business activity,
other than a business activity owned or controlled, directly or indirectly, by
AMRC or any of its Affiliates.
5.3 Injunctive Relief.
(a) EMPLOYEE acknowledges and warrants that he will be fully able to earn
an adequate livelihood for himself and his dependents if Section 5.2 should be
specifically enforced against him, and that Section 5.2 merely prevents unfair
competition against AMRC for a limited period of time. EMPLOYEE agrees and
acknowledges that, by virtue of EMPLOYEE's employment with AMRC, EMPLOYEE shall
have access to and maintain an intimate knowledge of AMRC's activities and
affairs, including trade secrets, Confidential Information, and other
confidential matters. As a result of such access and knowledge, and because of
the special, unique, and extraordinary services that EMPLOYEE is capable of
12
<PAGE>
performing for AMRC or one of its competitors, EMPLOYEE acknowledges that the
services to be rendered by EMPLOYEE pursuant to this Agreement are of a
character giving them a peculiar value, the loss of which cannot adequately or
reasonably be compensated by money damages. Consequently, EMPLOYEE agrees that
any breach or threatened breach by EMPLOYEE of EMPLOYEE's obligations under this
Article 5 would cause irreparable injury to AMRC, and that AMRC shall be
entitled to (i) preliminary and permanent injunctions enjoining EMPLOYEE from
violating such provisions, and (ii) actual money damages suffered by AMRC as a
result of such breach, in the amount of any fees, compensation, benefits,
profits, or other remuneration earned by EMPLOYEE or any competitor or AMRC as a
result of such breach, together with interest, and costs and attorneys' fees
expended to collect such damages or secure such injunctions. Nothing in this
Agreement, however, shall be construed to prohibit AMRC from pursuing any other
remedy, AMRC and EMPLOYEE having agreed that all such remedies shall be
cumulative.
(b) The restrictions set forth in this Article 5 and the following Article
6 shall be construed as independent covenants, and shall survive the termination
or expiration of this Agreement, and the existence of any claim or cause of
action against AMRC, whether predicated upon this Agreement or otherwise, shall
not constitute a defense to the enforcement by AMRC of the restrictions
contained in this Article 5 or the following Article 6. EMPLOYEE hereby consents
and waives any objection to the jurisdiction over his person or the venue of any
courts within the State of Virginia with respect to any proceedings in law or in
equity arising out of this Article 5 or the following Article 6. If any court of
competent jurisdiction shall hold that any of the restrictions contained in
Section 5.2 are unreasonable as to time, geographical area, or otherwise, said
restrictions shall be deemed to be reduced to the extent necessary in the
opinion of such court to make their application reasonable.
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ARTICLE 6
INVENTIONS, WORKS OF AUTHORSHIP,
PATENTS AND COPYRIGHTS
6.1 Ownership of Inventions and Works of Authorship. EMPLOYEE agrees that
all Inventions made, conceived, discovered, developed or reduced to practice by
EMPLOYEE and all software and other works of authorship created by EMPLOYEE,
either alone or with others, at any time, within or without normal working
hours, during the term of this Agreement, arising out of such employment or
based upon Confidential Information, or pertinent to any field of business or
research in which, during such employment, AMRC is engaged or (if such is known
or ascertainable by EMPLOYEE) is considering engaging, whether or not patented
or patentable, shall be and remain the sole property of AMRC with respect to all
rights of EMPLOYEE arising from any discovery, conception, development,
reduction to practice, or creation by EMPLOYEE. AMRC shall have the full right
to assign, license, or transfer all rights thereto.
6.2 Disclosure of Inventions and Works of Authorship. EMPLOYEE shall
promptly make full disclosure to AMRC or to an authorized representative thereof
of all information relating to the making, conception, discovery, development,
creation or reduction to practice of Inventions, or of software and other works
of authorship owned by AMRC pursuant to Section 6.1 above.
6.3 Patent and Copyright Applications. At the request of AMRC and at
AMRC's expense, EMPLOYEE shall execute such documents and perform such acts as
AMRC deems necessary to obtain patents or the like on such Inventions or
copyright registrations for such software and other works of authorship in any
jurisdiction or jurisdictions. Such obligation shall continue beyond the term of
this Agreement. In the event that AMRC is unable because of EMPLOYEE's mental or
physical capacity or for any other reason to secure EMPLOYEE's signature to
apply
14
<PAGE>
for or to pursue any applications for patent or copyright covering Inventions,
software and other works of authorship owned by AMRC pursuant to Section 6.1,
then EMPLOYEE hereby irrevocably designates and appoints AMRC as EMPLOYEE's
agent and attorney in fact, upon prior notice, to act for and in his behalf and
stead to execute and file any such applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents and copyright
registrations thereon with the same legal force and effect as if executed by
EMPLOYEE. EMPLOYEE further agrees not to file any patent applications relating
to or describing or otherwise disclosing any Confidential Information or any
such Inventions, or to claim any copyright or file and applications to register
any copyright in such software or other works of authorship, except with the
prior written consent of AMRC.
6.4 Assignment of Inventions and Works of Authorship. EMPLOYEE agrees to
assign to AMRC or its Affiliates all of EMPLOYEE's right, title and interest in
and to any and all such Inventions and the patent applications and patents
relating thereto and to the copyright in any and all such software and other
works of authorship and any copyright applications and registrations relating
thereto conceived, reduced to practice, discovered, created or otherwise
developed by EMPLOYEE and owned by AMRC pursuant to Section 6.1 above.
ARTICLE 7
MISCELLANEOUS
7.1 Assignment. The rights and obligations of AMRC under this Agreement
shall be binding upon its successors and assigns and may be assigned by AMRC to
the successors in interest of AMRC. The rights and obligations of EMPLOYEE under
this Agreement shall be binding upon EMPLOYEE's heirs, legatees, personal
representatives, executors or administrators. This Agreement may not be assigned
by EMPLOYEE, but any amount owed EMPLOYEE upon
15
<PAGE>
EMPLOYEE's death shall inure to the benefit of EMPLOYEE's heirs, legatees,
personal representatives, executors, or administrators.
7.2 Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when hand delivered, sent by overnight courier,
or mailed by first-class, registered, or certified mail, return receipt
requested, postage prepaid, or transmitted by telegram, telecopy, or telex,
addressed as follows:
If to EMPLOYEE: (Copy to AMRC Executive Office)
Hugh Panero
2223 South Alton Way
Denver, Colorado 80231
If to AMRC:
American Mobile Radio Corporation
10802 Parkridge Boulevard
Reston, Virginia 20191
Telephone: 703-758-6116
Telecopy: 703-758-6106
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7.3 Entire Agreement. From and after the Effective Date, this Agreement
constitutes the entire agreement between the parties hereto, and expressly
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided for herein.
7.4 Headings. Article and Section headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
16
<PAGE>
this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
7.4 Severability. In the event any provision of this Agreement, or any
portion thereof, is determined by any arbitrator or court of competent
jurisdiction to be unenforceable as written, such provision or portion thereof
shall be interpreted so as to be enforceable. In the event any provision of this
Agreement, or any portion thereof is determined by any arbitrator or court of
competent jurisdiction to be void, the remaining portions of this Agreement
shall nevertheless be binding upon AMRC and EMPLOYEE with the same effect as
though the void provision or portion thereof had been severed and deleted.
7.6 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the substantive laws of the State of
Virginia (excluding the choice of law rules thereof).
7.7 Amendment; Modification; Waiver. No amendment, modification or waiver
of the terms of this Agreement shall be valid unless made in writing and duly
executed by EMPLOYEE and AMRC. No delay or failure at any time on the part of
AMRC in exercising any right, power or privilege under this Agreement, or in
enforcing any provision of this Agreement, shall impair any such right, power,
or privilege, or be construed as a waiver of any default or as any acquiescence
therein, or shall affect the right of AMRC thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
7.8 Additional Obligations. Both during and after the term of employment,
EMPLOYEE shall, upon reasonable notice, furnish AMRC with such information as
may be in EMPLOYEE's possession or control, and cooperate with AMRC, as may
reasonably be requested by AMRC (and, after the term of
17
<PAGE>
employment, with due consideration for EMPLOYEE's obligations with respect to
any new employment or business activity) in connection with any litigation or
other adversarial proceeding in which AMRC or any Affiliate is or may become a
party. AMRC shall reimburse EMPLOYEE for all reasonable expenses incurred by
EMPLOYEE in fulfilling EMPLOYEE's obligations under this Article 7.8.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the Effective Date.
AMRC Holdings, Inc.
/s/ Hugh Panero American Mobile Radio Corporation
- ---------------------------
Hugh Panero By: /s/ Gary Parsons
Title: Chief Executive Officer
Date: May 26, 1998 Date: May 22, 1998
18
<PAGE>
Exhibit 10.14
AMERICAN MOBILE RADIO CORPORATION
10802 PARKRIDGE BOULEVARD
RESTON, VIRGINIA 20191-5416
- --------------------------------------------------------------------------------
GARY M. PARSONS PHONE: 703-758-6116
CHIEF EXECUTIVE OFFICER FAX: 703-758-6106
May 22, 1998
Mr. Lee Abrams
17126 Club Hill Drive
Dallas, Texas 75248
Dear Lee,
I am pleased to offer you the position as Senior Vice President, Content and
Programming for the American Mobile Radio Corporation (AMRC). In this position,
you will be responsible for developing, negotiating, acquiring and creating
content across 50 satellite radio channels in various formats. You will be
responsible for the creative management of the channels and will maximize
revenues through structuring and negotiating deals to meet capacity. You will
report to the Chief Executive Officer or the Chief Operating Officer. However,
until such time as a permanent President and CEO is hired, you will report to
the Board of Directors for AMRC. The current AMRC Board consists of Noah Samara,
Jack Shaw, and myself.
The position offers the following:
Annual Base Salary: You will receive an annual base salary of $215,000, minus
applicable withholding taxes. I am sure you recognize that the quotation of an
annual salary rate is for purposes of communication and is not intended to imply
a specific condition or length of employment.
Discretionary Bonus: Your annual bonus potential will be equal to 30% of your
annual base compensation, minus applicable withholding taxes, based upon agreed
performance measures. For performance during 1998, your bonus will be based upon
the pro-rata portion of 1998 for which you are an employee. In addition, you
will receive a one-time signing bonus of $28,000 upon commencing your
employment.
Stock Option Plan: A recommendation will be made to the Board of Directors of
AMRC that you be granted stock options to purchase one (1) share of AMRC stock
with a strike price of $875,000 per share. To help you in assessing the option
value,
<PAGE>
Mr. Lee Abrams
May 22, 1998
Page 2
you should be aware that AMRC currently has 125 shares outstanding between AMRC
and WorldSpace, with WorldSpace having the option to acquire additional shares
in the future. Your one (1) share will vest on a schedule of one-third on each
anniversary dates in 1999, 2000, 2001. The granting of stock options is wholly
discretionary in nature in recognition of performance or anticipated performance
and does not create any obligation on the part of AMRC to maintain your
employment through any part of the vesting schedule or to grant additional
options in the future.
Location: As discussed, in order for you to effectively perform your job duties,
you will be required to be available on a full-time basis no later than June 8,
1998 and for you to relocate from Dallas, Texas to the Washington, D.C.,
metropolitan area within 90 days.
Relocation Allowance: You will receive a gross relocation allowance in an amount
up to $40,000, supported by receipts and subject to applicable taxes, to cover
actual and reasonable costs associated with moving your family and your
household belongings to the Washington, D.C., metropolitan area. This allowance
is expected to cover costs such as air and associated ground transportation,
transportation of household belongings, temporary living expenses, etc. The
Human Resources Department will assist by providing you with the names of
national household companies with which WorldSpace has established moving
contracts. Please consult your tax advisor regarding any possible tax
implications pertaining to this payment.
Employee Benefits: You will participate in the WorldSpace Employee Benefits
program until such time as a separate plan is developed for AMRC. WorldSpace and
its affiliates in the United States generally observe 11 holidays per year and
will provide four (4) weeks (20 working days) of paid vacation. On the first day
of the month following your date of hire, you will become eligible for our group
medical, dental, short-term disability, long term disability, life insurance and
flexible spending plans. You will become eligible for our 401(k) plan the first
quarter following six (6) months of employment. Benefits programs are reviewed
from time to time and may be changed at the discretion of WorldSpace (or AMRC
once its separate plan is instituted.
Eligibility to Work in the U.S.: The Immigration Reform and Control Act requires
employers to verify eligibility of all personnel for employment in the United
States. The Human Resources department will be happy to assist you in completing
the necessary paperwork to complete this verification.
<PAGE>
Mr. Lee Abrams
May 22, 1998
Page 3
This offer letter is the complete offer for employment and may not be amended or
altered in any way by oral statements, and can only be altered by a written
amendment signed by officer of AMRC. As you know, we are serious about moving
quickly to put the necessary leadership in place at AMRC, and as such, we would
hope to receive a timely response to this offer letter.
Lee, I look forward to working with you. We are all confident that you have the
vision, skills and ability to lead this key function within AMRC and fulfill the
bright promise that this business opportunity presents. If you have any
questions or would like to discuss this offer, I would be happy to speak with
you.
Your signature at the bottom of this page indicates your acceptance of this
offer. Please sign all three originals, retaining one copy for your files,
returning one copy to me, and forwarding the third copy to McKinley G.
Littlejohn, Senior Vice President, Human Resources, WorldSpace Corporation.
Sincerely,
/s/ Gary M. Parsons
Gary M. Parsons
Chief Executive Office - AMRC
I accept this offer:
/s/ Lee Abrams
- ------------------------------------------
Lee Abrams (Date)
6/8/98
- ------------------------------------------
Start Date
<PAGE>
Exhibit 10.15
AMERICAN MOBILE RADIO CORPORATION
1250 23rd Street
Washington, D.C. 20037
September 14, 1998
PERSONAL AND CONFIDENTIAL
Mr. Stelios J. Patsiokas
9324 Northwest 18th Street
Plantation, FL 33322
Dear Stell:
I felt that our meeting this past Tuesday was very productive, and am pleased to
offer you the position of Senior Vice President-Receiver Development for
American Mobile Radio Corporation (AMRC), reporting directly to me. You will be
responsible for ensuring that AMRC achieves its full market potential by
delivering the highest sound quality in the industry, at CE prices that
accelerate market acceptance.
The position offers the following:
Annual Base Salary: You will receive an annual base salary of $210,000, minus
applicable withholding taxes. (I am sure you are aware that the quotation of an
annual salary is for purposes of communication and is not intended to imply a
specific condition or length of employment.)
Discretionary Bonus: Your annual on-target bonus potential (at 100% of plan)
will be equal to 40% or ($84,000) of your annual base compensation, minus
applicable withholding taxes, based upon agreed performance measures. Bonus
calculations will be based on a calendar year. The awarding of a discretionary
bonus is in recognition of performance and should not be construed as conferring
upon you the right to a future discretionary bonus, nor does it imply a specific
condition or length of employment commitment.
Stock Option Plan: A recommendation will be made to the Board of Directors of
AMRC that you are granted employee stock options to purchase one share of AMRC
stock, at a strike price of $875,000 per share. Your one share option will vest
on a schedule of one-third on each anniversary date in 1999, 2000, and 2001. The
granting of
<PAGE>
Mr. Stelios J. Patsiokas
September 14, 1998
Page 2
stock options is wholly discretionary in recognition of performance or
anticipated performance and does not create any obligation on the part of AMRC
to maintain your employment through any part of the vesting schedule or to grant
additional options in the future.
Signing Bonus: In consideration of your annual performance bonus at Motorola,
AMRC will provide the prorated portion of your estimated $50,000 achievement,
based on your start date. (For example, if you start on October 1, the signing
bonus will be $37,500, payable at the first month's paycheck.) Likewise, your
AMRC bonus will be prorated for 1998. In addition, in consideration of your
expected $25,000 grant for achieving your 25th patent at Motorola, AMRC will
also provide $25,000 as a bonus, payable January 1. Finally, our offer includes
an additional $20,000 bonus, payable at the first month's paycheck.
Relocation: As you and I discussed this past Tuesday, it is our goal to build
the best receiver development team in the industry, starting with 3-4 key RF
engineers in Phase I, and building as business conditions warrant. To do so
quickly, we are willing to locate the team in Boca Raton for its start-up phase.
In order for you to be a full and contributing member of AMRC's senior executive
team, it is our mutual understanding that you will commute to D.C. when
necessary, and will plan to relocate within 2 years. At that time, we will also
re-evaluate the location of the balance of the receiver development group. In
consideration of this understanding, AMRC will provide a full relocation package
to you at any time between now and 2 years, according to timing mutually agreed
upon. This relocation package will include all reasonable expenses, including
double living expenses during the move, capped at $50,000.
Employment Agreement: In the event your employment is terminated for any reason,
within three years of your initial date of hire, other than for cause, you will
receive a lump sum severance payment, subject to applicable taxes, equal to one
year's base salary. In consideration of this severance payment, AMRC shall
receive a confidentiality undertaking and a release of potential claims.
Employee Benefits: AMRC generally observes 11 holidays per year and you will be
provided three (3) weeks (15 working days) of paid vacation. On the first day of
the month following your date of hire, you will become eligible for our group
medical, dental, short-term disability, long-term disability, life insurance and
flexible spending plan. You will become eligible for our 401(k) plan at the
closest registration period occurring one month (20 workdays) after your hire
date. Benefits programs are reviewed from time to time and may be changed at the
discretion of AMRC.
<PAGE>
Mr. Stelios J. Patsiokas
September 14, 1998
Page 3
Eligibility to Work in the U.S.: The Immigration Reform and Control Act requires
employers to verify eligibility of all personnel for employment in the United
States. The Human Resources Department would be happy to assist you in the
preparation of the necessary paperwork to complete this verification.
This offer letter is the complete offer for employment and may not be amended or
altered in any way by oral statements, and can only be altered by a written
amendment signed by an officer of AMRC.
Stell, our meeting this past Tuesday simply validated my conviction that your
leadership will contribute significantly to the success of AMRC, and I hope to
soon count you as a member of our executive team. I would truly enjoy working
with someone who shares our enthusiasm and conviction.
Your signature at the bottom of this page indicates your acceptance of this
offer. Please sign both originals, retaining one copy for your files and
returning the other to Shelley Berger in Human Resources. As I am sure you are
aware, time is of the essence to meet our availability before Christmas in the
year 2000, so please advise us of your decision by September 18. As I will be
traveling this week, certainly feel free to get in touch with Tina Mayland if
you have any questions regarding this offer.
Sincerely,
/s/ Hugh Panero
Hugh Panero
CEO - AMRC
I accept this offer:
/s/ Stelios J. Patsiokas 9/22/98
- -----------------------------------
Stelios J. Patsiokas (Date)
October 19, 1998
- -----------------------------------
Start Date
<PAGE>
Exhibit 10.16
May 22, 1998
Mr. Heinz Stubblefield
14736 Locustwood Lane
Silver Spring, Maryland 20905
Dear Heinz:
I am pleased to offer you the position as Senior Vice President and Chief
Financial Officer of American Mobile Radio Corporation (AMRC). You will be
responsible for the overall financial performance of the company, and, at least
initially, for the Human Resources and Information Technology functions of the
company. In this capacity, you will report to the President and Chief Executive
Officer.
The position offers the following:
Annual Base Salary: You will receive an annual base salary of $200,000, minus
applicable withholding taxes, effective June 1, 1998.
Discretionary Bonus: Your annual bonus potential will be equal to 30% of your
annual base compensation, minus applicable withholding taxes, based upon agreed
performance measures. You will be eligible for the full annual bonus (i.e.,
$60,000) retroactive to January 1, 1998 and at the end of every calendar year
thereafter. The awarding of a discretionary bonus is in recognition of
performance and should be not be construed as conferring upon you the right to a
future discretionary bonus, nor does it imply a specific condition or length of
employment commitment.
Stock Option Plan: A recommendation will be made to the Board of Directors of
AMRC that you be granted stock options to purchase one (1) share of AMRC stock
with a strike price of $875,000 per share. Your one (1) share option will vest
on a schedule of one-third on each anniversary date in 1999, 2000, and 2001. The
granting of stock options is wholly discretionary in recognition of performance
or anticipated performance and does not create any obligation on the part of
AMRC to maintain your employment through any part of the vesting schedule or to
grant additional options in the future.
<PAGE>
Mr. Heinz Stubblefield
May 22, 1998
Page 2
Continuing Worldspace Stock Participation: In recognition of the affiliate
relationship between Worldspace and AMRC, your existing options for Worldspace
stock will continue to vest and continue to be exercisable, under the terms of
the Worldspace plan and your former Worldspace employee contract, for so long as
you remain an employee of either Worldspace of AMRC. Should you cease to be an
employee of Worldspace or AMRC, then your Worldspace options would be treated as
if you left employment of Worldspace with applicable vesting and other terms
governed by your Worldspace employee contract, and your AMRC options would be
treated as if you left the employment of AMRC. All other terms and conditions of
the options shall be governed by the receptive plans.
Terms of Employment and Severance: In the event of voluntary termination with or
without cause during a three year period from June 1, 1998, employee agrees to
provide ninety (90) days advance notice. Also, in case of involuntary
termination by AMRC for any reason other than cause during such three year
employment period, you will be eligible for a lump-sum payment of one (1) years
base salary and bonus, plus the pro-rated portion of earned bonus and options
scheduled to vest for the current year. At the end of such three year
employment period, this offer will be automatically renewed under terms and
conditions to be agreed upon at the time for an additional two (2) years, unless
either party gives sixty (60) days notice to the other.
Employee Benefits: You will continue to participate in the Worldspace Employee
Benefits program until such time as a separate plan is developed for AMRC. AMRC
will generally observe 11 holidays per year, and you will be provided four (4)
weeks of paid vacation. Benefit programs are reviewed from time to time and may
be changed at the discretion of Worldspace (or AMRC once its separate plan is
instituted). For the purposes of benefit calculations, your date of hire with
AMRC, while effective on June 1, 1998, will be based upon your original date of
hire with Worldspace.
This offer letter is the complete offer for employment and may not be amended or
altered in any way by oral statements, and can only be altered by a written
amendment signed by an officer of AMRC. As you know, we are serious about moving
quickly to put the necessary leadership in place at AMRC, and as such, we would
hope to receive a timely response to this offer letter.
<PAGE>
Mr. Heinz Stubblefield
May 22, 1998
Page 3
Your signature at the bottom of this page indicates your acceptance of this
offer. Please sign all three originals, retaining one copy for your files,
returning one copy to me, and forwarding the third copy to McKinley G.
Littlejohn, Senior Vice President, Human Resources, WorldSpace Corporation.
Sincerely,
/s/ Gary M. Parsons
Gary M. Parsons
Chief Executive Officer -- AMRC
I accept this offer:
/s/ Heinz Stubblefield 6/1/98
- ------------------------------------
Heinz Stubblefield (Date)
6/1/98
- ------------------------------------
Start Date
<PAGE>
Exhibit 10.20
***Confidential treatment has been requested for portions of this agreement. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*****]. A complete version of this
agreement has been filed separately with the Securities and Exchange Commission.
[Execution Copy]
Firm Fixed Price Contract
Contract #001
Technical Consulting on XM Radio
BETWEEN
XM Satellite Radio Inc.
1250 23rd Street, N.W.
Suite 57
Washington, D.C. 20037
AND
Fraunhofer Gesellschaft zur Forderung
Der angewandten Forschung e.V.,
ADDRESS
Leonrodstr. 54
D-80636 Munchen, Germany
July 16, 1999
<PAGE>
Firm Fixed Price Contract
NO. 001
This Contract is made and entered into this 16th day of July, 1999 by and
between XM SATELLITE RADIO INC., a satellite digital audio radio services (DARS)
company, with offices at 1250 23rd Street, N.W., Washington, DC 20037, U.S.A.
(hereinafter referred to as the "Customer" which expression shall include its
successors and permitted assigns) and the FRAUNHOFER-GESELLSCHAFT ZUR FORDERUNG
DER ANGEWANDTEN FORSCHUNG E.V., a corporation organized and existing under the
laws of Germany, (hereinafter referred to as "FhG" which expression shall
include its successors and permitted assigns).
WITNESSETH THAT: The Customer and FhG (collectively referred to hereunder
as "Parties" and individually as "Party") hereto mutually agree as follows:
1. CONTRACT TYPE AND SCOPE OF WORK
FhG shall furnish the necessary personnel, equipment, material, services
and facilities to provide the deliverables specified in Exhibit A
("Statement of Work") and in accordance with the Payment Plan in Exhibit
B.
2. PERIOD OF PERFORMANCE
The period of performance for this Contract is July 16, 1999 through
December 30, 2000.
3. PRICE
3.1 For the performance of the requirements of this Firm-Fixed Price
Contract, FhG shall receive payment by Customer in DM, which shall
be paid in accordance with Article 4 of this Contract entitled
"Payment".
3.2 All travel costs incurred by FhG in any month in connection with its
performance under this Contract shall be communicated to Customer in
the following month in a report using the form attached hereto as
Exhibit E, including any other information that Customer may
reasonably request from time to time. Customer shall reimburse FhG
the amounts set forth in such reports, on a fixed sum per trip
basis, as set out in Exhibit B, subject to Customer's reasonable
approval, in accordance with the terms of Article 4 hereof.
4. PAYMENT
4.1 Payment shall be made by customer in accordance with completion of
milestones by FhG set forth in Exhibit B. All payments shall be in
DM until such time as the Euro is the only legal currency in the
Federal Republic of Germany, at which time the payment obligations
hereunder, particularly the monetary value stipulated in this
Contract, shall be regarded as being stipulated in Euro. In any case
the conversion of D-Mark in Euro will be effected on the basis of
the then-current published fixed conversion rate, which is currently
1.95583 DM per Euro.
4.2 Any amounts due to FhG shall be paid within thirty (30) days after
FhG provides to Customer (i) a facsimile invoice stating the
milestone (with reference to the Payment Plan) for which payment is
being requested and (ii) an e-mail to Stell Patsiokas and Paul Marko
notifying them that such invoice has been faxed. Fixed
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
monthly payments according to the Payment Plan (Exhibit B) shall be
paid by Customer within thirty (30) days after FhG provides an
invoice for such amount to Customer. Customer shall have ten (10)
business days following receipt of such invoice to notify FhG that
such milestone has not been met in accordance with the requirements
of this Contract. The Parties acknowledge that the "substantial"
standard for performance set forth in Article 18.1 hereof does not
apply to the acceptance of performance milestones. If FhG does not
receive such notice within such ten (10) business day period, then
such milestone shall be deemed to have been met. Payment shall be
made by wire transfer to FhG, Reference No. [*****] or said payments
shall be express couriered to FhG at the address shown in Article
26.1 of the Contract.
4.3 Any amounts for payments under Exhibit B that have been met or
deemed to have been met that are not received by FhG within the
above stated time periods shall bear interest from the date of
invoice, at the rate of [*****] per month or the maximum rate
allowed by law, whichever is lower. If any invoiced amount is in
dispute, the Party disputing such amount shall notify the other
Party thereof in writing within ten (10) business days after such
amount was due. No interest shall be payable unless, until, and to
the extent the dispute is settled in favor of FhG. The Parties agree
that work under this Contract shall continue during the resolution
of such dispute.
4.4 Subject to Article 4.3, and provided FhG is not in default
hereunder, the Customer's failure to make payments in accordance
with the terms of this Contract shall be deemed to be a default. FhG
will provide the Customer with a written notice of the default and
if the default is not cured by the Customer within 15 days of
receipt of FhG's written notice, FhG may suspend all work hereunder
until such default is cured. If such default is not cured within 30
days of receipt of FhG's written notice, FhG may terminate work
under this Contract without further obligation to the Customer. In
the event of such termination, the Customer's liability shall be
determined by the provisions relating to the Customer's liability in
Article 19 of the Contract hereof entitled Termination for
Convenience.
4.5 In the event FhG suspends work due to late payment by the Customer,
as described in Article 4.4 above, and if following receipt of
payment by the Customer FhG subsequently proceeds with the work, the
period of performance set forth in this Contract shall be extended
by an amount of time equal to the period of time necessary for FhG
to reconstitute its efforts plus an amount of time equal to the
number of days that the work was suspended. Furthermore, any
additional cost impact resulting from such suspension shall be
determined and agreed by the Parties as an allowable cost under this
Contract. Any extension of time or additional cost agreed upon by
the Parties shall be included in an agreement to amend the Contract.
The Parties agree that work under this Contract shall continue
during the negotiation of such additional costs (or any disputes
related thereto).
5. TECHNICAL AND CONTRACTUAL REPRESENTATIVES
The following authorized representatives are hereby designated for this
Contract:
XM Satellite Radio Inc. FhG
----------------------- ---
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<S> <C>
Technical and Program: Stell Patsiokas Technical and Program: Stefan Meltzer
Contractual: Joseph Titlebaum Contractual: Dr. Birgit Homma
</TABLE>
6. TAXES AND DUTIES
All national, regional or local taxes, duties, and similar liabilities,
shall be paid by FhG.
7. CONSULTATIONS
At the request of Customer, FhG shall make available all relevant key
personnel pertaining to this Contract and the Statement of Work for
meetings either in the United States or Europe in connection with design
reviews, troubleshooting, other requests for assistance, or progress
reports.
8. FORCE MAJEURE
8.1 FhG shall not be liable for any loss damage, detention, or delay
resulting from causes beyond its reasonable control, including, but
not limited to: acts of God, acts of governments in their sovereign
capacity (except to the extent that such acts of governments arise
out of an act or failure to act by FhG), fires, floods, epidemics,
quarantine restrictions, strikes labor disputes, freight embargoes,
unusually severe weather, insurrection or riot, damage in
transportation, and inability due to causes beyond its reasonable
control to obtain necessary labor, materials, or facilities. In the
event of a temporary delay specified in this Contract is required,
an equitable adjustment shall be made in the Contract price and the
performance dates hereof shall be extended at least by an amount of
time equal to the number of days that work was suspended, not to
exceed a reasonable length of time. In the event the parties agree
that it is reasonably likely that such an excusable delay will
exceed forty-five (45) days (an "Extended Force Majeur") resulting
from any such causes, the Customer shall be entitled to terminate
this Contract in accordance with Article 17 hereof entitled
Termination for Extended Force Majeure. The Parties acknowledge that
the occurrence of any force majeur event described herein shall not
excuse any default by FhG existing prior to the occurrence of such
event.
8.2 FhG shall take all reasonable steps to mitigate the impact of any
force majeure event.
9. INDEMNITY AND LIMITATION OF LIABILITY
9.1 The liability of FhG with respect to any service, sale, or anything
done in connection therewith, such as the performance or breach
thereof, or from the manufacture, sale, delivery, resale,
installation or use of any goods or services covered by or furnished
under this Contract whether arising out of statute, contract,
negligence, strict liability in tort, or under any warranty, or
otherwise, and whether or not occasioned by FhG's negligence, shall
not exceed 25% of the price of each work package (i.e., system
engineering, [*****] development and test equipment) affected by the
action or inaction resulting in such liability and resulting from
the willful misconduct or gross negligence of FhG.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
9.2 Notwithstanding any other provision of this Contract, neither Party
shall under any circumstances be liable for special, incidental,
indirect or consequential damages, such as, but not limited to, loss
or damage of other property or equipment, loss of profits or revenue
cost of capital, cost of purchased or replaced goods, or claims of
customers or contractors of the other Party for, but not limited to
delays, penalties or service interruptions.
9.3 FhG shall indemnify, defend and hold harmless Customer against any
costs or expenses, with the exception of those costs identified in
Article 9.2 above, including reasonable attorneys' fees, incurred by
Customer as a result of legal actions brought against Customer by
third parties caused by default of FhG in the performance of the
work under the Contract, subject to the limitation of liability set
forth as Clause 9.1 above.
9.4 Notwithstanding the foregoing, the Customer and FhG agree to a
no-fault, no-subrogation inter-party waiver of liability under which
each Party shall be responsible for any damage it sustains as a
result of damage to its own property and employees, including death,
while involved in the conduct of the activities which are the
subject of this Contract, which damage is not caused by the other
Party. It is the intent of the Parties that this inter-party waiver
of liability be construed broadly to achieve the intended
objectives.
10. PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY
10.1 Each Party shall identify to the other, and the receiving Party
shall hold in confidence, any proprietary or confidential
information marked as proprietary or confidential or obtained in
connection with FhG's work under this Contract, any deliverables
hereunder, or any proprietary or confidential information so marked
furnished by one Party to the other. Subject to Customer's rights
described in Article 10.2 hereof, each Party shall use the same
efforts to avoid disclosure, publication or dissemination of such
proprietary or confidential information as they use with respect to
their own proprietary or confidential information, but in no event
less than best efforts. Said information shall remain the
proprietary information of the Party disclosing it and shall not be
disclosed to others without the disclosing Party's prior written
consent either during or after the term of the Contract. All
technical data based upon proprietary or confidential information
furnished by Customer that is essential to the design, function or
operation of any deliverable under this Contract (including, without
limitation, any patents or patent applications anywhere in the world
owned by or licensed to Customer) shall be considered as the
Customer's proprietary or confidential data and shall not be
disclosed to others without the Customer's prior written consent
either during or after the term of the Contract. Proprietary or
confidential information or data shall not include information or
data which becomes generally known in the industry, or is known to
either Party prior to its disclosure by the other Party as
demonstrated by written records, or is authorized in writing by the
disclosing Party for release, or which is subject to judicial or
governmental compelled disclosure.
10.2 FhG hereby grants to Customer:
(a) An exclusive, paid-up, royalty-free, transferable, perpetual,
and irrevocable world-wide license in and to the [*****] code
or other source
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
or executable code for [*****] developed by FhG under this
Contract and all patent applications, patents, trade secrets,
mask works, copyrights and other intellectual property for
work or inventions performed or developed in connection with
such Code for Customer (the "Code"). Such license shall
include the right of Customer to use, copy, maintain, modify,
create derivative works of, transfer, sublicense or otherwise
convey the Code as necessary in connection with Customer's
business in Customer's sole discretion and without the consent
of FhG.
(b) A non-exclusive, non-transferable, paid-up, royalty-free
perpetual and irrevocable worldwide license to use the test
equipment developed hereunder in connection with Customer's
business.
(c) The Parties acknowledge that nothing in this Article 10.2 is
intended to grant to Customer the rights to modify, transfer
or otherwise convey any rights in the FhG Background IP
(defined in Article 10.5).
10.3 FhG agrees that its ownership rights in the Code shall be limited by
the following:
(a) FhG shall not sell, transfer, distribute, loan, disclose,
reproduce or otherwise convey the Code (in its entirety as
delivered to Customer hereunder) to or for any other person or
entity. FhG acknowledges that the Code comprises a material
element in Customer's digital radio system and that Customer
would suffer material financial and market share losses in the
event the Code were to be disclosed. Accordingly, FhG agrees
to maintain strict confidentiality of the Code.
(b) Subject to the limitation described in Article 10.3(c) below,
FhG may modify the Code for use in future projects for which
FhG is commissioned by future FhG clients; provided, however,
that such modifications shall be substantial enough to make
the Code unrecognizable to such clients and such that such
modifications will not be able to be reverse-engineered to
obtain the Code.
(c) Under no circumstances shall FhG modify the Code for any
Customer Competitor. For purposes of this Contract, "Customer
Competitor" shall mean (i) any entity involved in the business
of satellite or terrestrial digital broadcasting in [*****],
(ii) any individual employed by, serving as an officer or
director for, or owning any equity interest in, such an
entity, (iii) any entity controlling, controlled by, or under
common control with such an entity, or also (iv) any entity
owning any equity interest in such an entity. "Customer
Competitor" shall also include the following companies, as
well as any other company that Customer notifies FhG in
writing shall be considered a Customer Competitor: CD Radio
and any company involved with IBOC technology or having an
equity interest in a license for the wireless communication
system (WCS) frequency spectrum. "Customer Competitor" shall
not include WorldSpace Satellite Company or any principal
affiliate thereof as it operates in [*****].
(d) For FhG and FhG customer purposes other than XM Radio
Program related projects, FhG will retain all rights to reuse
the following blocks and subblocks included in the [*****]
design:
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
[*****]
10.4 Customer hereby grants to FhG a royalty-free, non-exclusive,
non-transferable license for the development, manufacturing and sale
of the test equipment specified in Exhibit A; provided, however,
that FhG shall be entitled to sublicense such rights to Fraunhofer
IZT. FhG shall inform its customers that such license is for
engineering development uses and not for consumer receiver
production tests.
10.5 The Parties acknowledge that the intellectual property listed in
Exhibit D hereto, as may be modified from time to time during the
term of this Contract, belonging to FhG, with associated patent
applications, patents, trade secrets, and copyright references
identified (the "FhG Background IP") are all of the technologies
owned by FhG required to complete the deliverables under this
Contract. FhG hereby grants a royalty-free, non-exclusive,
non-transferable perpetual and irrevocable worldwide right and
license to Customer to such FhG Background IP. Customer shall
provide FhG on a non-exclusive, non-transferable, royalty-free basis
with all licenses to intellectual property owned by Customer
necessary for the performance of the Contract.
10.6 FhG shall notify Customer promptly upon its filing of any patents
resulting from or in connection with the deliverables under this
Contract.
11. PATENT INDEMNITY
11.1 FhG shall reasonably ensure that the FhG Background IP and any
intellectual property arising out of this Agreement embodied in each
deliverable does not infringe on third Party patents or other
proprietary right, and FhG represents that, to the best of its
knowledge, no such infringement claims are pending or threatened
against FhG. FhG shall promptly notify the Customer in writing of
potential patent infringement claims related to the FhG Background
IP and any intellectual property arising out of this Agreement and
FhG shall diligently defend or settle such claims at its own
expense.
11.2 In the event that use of the services and deliverables to be
provided by FhG hereunder is enjoined or that the parties mutually
determine that an infringement claim is likely, FhG shall either
obtain the necessary license for the Customer or modify the subject
deliverable to avoid infringement. The Customer would have no
further remedy beyond these two actions. The costs of modifications
or additional licenses shall be borne by Customer up to $500,000.
FhG shall in no respect bear the costs of additional licenses.
11.3 FhG agrees to indemnify and hold harmless the Customer and its
officers and defend at its own expense any claims, actions, or
proceeding based on an allegation that FhG uses materials or items
for the performance of services or provision of goods under this
Contract which directly infringes any trademark, copyright, or trade
secret, provided that FhG is given prompt written notice of such
claims by the Customer. Notwithstanding the foregoing, FhG shall
have no liability or responsibility for any infringement resulting
from FhG following the directions of or specifications provided by
the Customer.
<PAGE>
11.4 This Article 11 is subject to the limitations of Article 9.1.
12. COPYRIGHT
Copyright in all reports and other documents which are produced by FhG and
delivered under this Contract shall vest in and be the sole property of
the Customer. The foregoing shall not be deemed to preclude FhG from
making and retaining copies of such materials for record keeping purposes.
All such reports and other documents shall clearly state that they were
authored by FhG.
13. WARRANTY
FhG warrants that the services provided under this Contract and the
Statement of Work shall be carried out with all reasonable skill, care and
diligence. Any claim for breach of the foregoing warranty shall be deemed
to have been waived unless asserted in writing within one (1) year after
completion of performance of the services to be provided under this
Contract. FhG agrees to correct defects discovered by Customer within 30
days of notification of such defect(s).
FhG warrants that the products and other deliverables provided under this
Contract shall be free from defects in materials and workmanship under
normal use and service, and such products and other deliverables will be
new, of good quality, and of recent manufacture (unless otherwise
permitted by Customer) for one (1) year from the date of acceptance of
such product or deliverable by Customer.
14. DISPUTES
FhG and the Customer shall make every effort to reach an amicable
settlement of any dispute or disagreement arising under this Contract
including if deemed appropriate and requested by either Party submission
to the principal officers of FhG and the Customer. If no agreement can be
reached within 7 days, the matter shall be settle definitively by three
(3) arbitrators, using the Rules of the International Chamber of Commerce
(ICC), who shall sit in London, England applying the laws of Switzerland.
Each Party shall designate one (1) arbitrator and both Parties shall
designate the third arbitrator. All arbitration shall be in the English
language. The arbitration award shall be final and binding upon the
Parties and judgment may be entered thereon, upon the application of
either Party, by any court having jurisdiction. Each Party shall bear the
cost of preparing and presenting its case, and the cost of the arbitration
(including fees and expenses of the arbitrators) shall be shared equally
by the Parties unless the award otherwise provides.
Pending a decision by the arbitrators, each Party shall, unless directed
by the other Party in writing, fulfill all of its obligations under this
Contract, including the obligation to take all steps necessary during the
pendency of the arbitration to ensure the services and deliverables will
be delivered within the time stipulated, or within such extended time as
may be allowed under this Contract, provided Customer shall continue to
make payments therefore in accordance with this Contract.
15. GOVERNMENT APPROVALS
15.1 FhG shall be responsible for obtaining any governmental
authorizations, consents, and approvals in Germany necessary for the
performance of FhG's obligations herein. In the event that lawful
performance of this Contract or any part of this Contract by either
Party is delayed or rendered impossible by, or as a consequence of
any law, regulation, or any Government having jurisdiction over
<PAGE>
it, such Party shall not be considered to be in default by reason of
such delay or failure to perform, and the Parties shall consult in
good faith to develop an equitable resolution of the issue with due
regard for the respective interests of the Parties.
15.2 All provisions in this Article shall remain binding on the Parties
after the termination of the Contract.
16. LANGUAGE AND COMMUNICATIONS
16.1 All data, documents, descriptions, reports, certificates, studies,
technical data provided by FhG shall be written in English.
16.2 This Contract and all documentation and communications required
hereunder, shall be in the English language.
17. TERMINATION FOR EXTENDED FORCE MAJEURE
In the event of an Extended Force Majeur resulting from a force majeure
event as stated in Article 8, the Customer by written notice, may
terminate this Contract in whole or in part at any time upon giving thirty
(30) days notice to FhG. The Customer shall pay FhG for the services
rendered and ODC's incurred up to the date of termination in accordance
with the provisions of Article 4 of this Contract. FHG shall take all
reasonable steps to mitigate costs incurred after receiving notice of any
such force majeure event.
18. TERMINATION FOR DEFAULT
18.1 The Customer may, by written Notice of Default to FhG, terminate the
whole or any part of this Contract in any one of the following
circumstances; (1) if FhG fails substantially to make delivery of
any deliverable as defined in Exhibit A or to perform the services
within the time specified herein; or (2) if FhG fails to make
progress as to materially endanger performance of this Contract in
accordance with its terms; or (3) the amounts described in Article
11.2 hereof exceed the limit stated therein; or (4) if proceedings
are commenced or threatened, the result of which will be to place
FhG into liquidation, receivership or administration or FhG
otherwise becomes insolvent or admits its inability to meet its
debts as they fall due or if it enters into any form of composition
or arrangement with its creditors and in either of (1) (2) or (3)
above FhG does not effect a satisfactory plan to cure such failure
within a period of thirty (30) days (or such longer period as the
Customer may authorize in writing) after receipt of notice from the
Customer specifying such failure.
18.2 In the event of a default under Article 18.1 above, the Customer
may: (i) rescind the whole or portion of the Contract so terminated
whereupon FhG shall promptly reimburse the Customer all amounts
previously paid to FhG by the Customer for the work so terminated
(less the amounts for supplies or services delivered and accepted or
performed and accepted prior to the date of termination or desired
by the Customer notwithstanding such termination). .FhG shall have
no further liability.
<PAGE>
19. TERMINATION FOR CONVENIENCE
The Customer may, by thirty (30) calendar days written notice, terminate
the whole or any part of this Contract for any reason. All work performed
and expenses incurred by FhG up to and including said thirty (30) day
period shall be paid by Customer according to the provisions of this
agreement. In the event of termination for convenience, FhG shall receive
termination fees in an amount equal to FhG's reasonable wind-down costs
plus ten percent (10%) of such wind-down costs.
20. KEY PERSONNEL
20.1 FhG agrees that the individuals identified in the schedule attached
hereto as Exhibit C, entitled Key Personnel, is necessary for the
successful completion of its services under the Contract. Upon the
completion of any work package, the key personnel associated with
such work package shall no longer be considered key personnel
(except for purposes of Article 7 hereof), even if their names
remain on Exhibit C, provided they are not to be assigned to
subsequent work packages hereunder.
20.2 Such key personnel shall not be removed from the performance of the
Contract unless replaced with personnel of substantially equal
qualifications and ability. The Customer shall have the right to
review the qualifications of any proposed replacements and, if for
good and sufficient reasons, the Customer deems such personnel to be
unsuitable, the Customer may require FhG to offer alternative
candidates where such are available.
20.3 Notwithstanding the Customer's role in approving key personnel and
their replacements, nothing in this Article shall relieve FhG of any
of its obligations under this Contract or of its responsibility for
any acts or omissions of its personnel.
21. REPORTS
21.1 FhG shall submit reports to the Customer consistent with the
requirements contained in Exhibit A, Statement of Work. These
reports will reflect the status of the activities by FhG and other
information related to the project.
21.2 FhG will promptly inform the Customer about extraordinary
circumstances arising during the performance of the services and
about all matters under this Contract requiring the consent of the
Customer.
21.3 FhG shall furnish to the Customer such information related to the
services as the Customer may reasonably request from time to time.
This information will be furnished on a non-interfering basis with
the progress of the project.
22. AMENDMENTS TO THE CONTRACT
Any amendment or modification of this Contract, except in writing and
signed by the authorized representatives of the Parties (in the case of
the Customer, the Chief Executive Officer), shall be void and of no
effect.
23. DOCUMENTS FORMING PART OF CONTRACT
<PAGE>
The following documents shall be deemed to form and be read and construed
as parts of this Contract, and shall hereinafter be called the Contract
documents:
1) These Contractual Terms and Conditions
2) Statement of work (Exhibit A)
3) Exhibit B (Payment Plan)
4) Exhibit C (Key Personnel)
5) Exhibit D (FhG Background IP)
6) Exhibit E (Monthly Air Travel Report Form)
In the event of conflict or inconsistencies between this Contract and the
Exhibits attached hereto, this Contract shall take precedence over such
Exhibits and Appendices.
24. INFORMATION AND ACCESS
24.1 FhG shall grant Customer reasonable access to all information
performed under the contract and all work in progress.
24.2 The Customer shall ensure that FhG shall have the access that the
Customer is given at all reasonable times to the facilities of all
relevant spacecraft program contractors, launch vehicle program
contractor and subcontractors, and that FhG shall have full access
at all reasonable times to relevant data available from such
contractors and subcontractors.
25. PERMITS AND AUTHORIZATIONS
FhG shall be responsible for all permits and authorizations required in
Germany to perform the efforts defined in this contract. The Customer
shall obtain all necessary US licenses.
26. NOTICE
26.1 Any notice, request, demand, approval, consent, or other
communication ("Communication") permitted or required to be given by
this Contract shall be effective only if in writing and delivered
(I) personally, or (ii) by registered or certified mail, postage
prepaid, return receipt requested, or (iii) by prepaid domestic
courier, receipt acknowledged, or (iv) by facsimile or other
electronic communications or similar conveyance, transmission
confirmed, and addressed as follows:
If to FhG: FhG Fraunhofer Institut fur Integrierte Schaltungen
Am Weichselgarten 3,
D-91058 Erlangen, Germany
Attn: Stefan Meltzer
Contracts Manager
Telephone: +9131-776-6340
Facsimile: +9131-776-6399
If to Customer: XM Satellite Radio Inc.
XM Innovation Center
600 West Hillsboro Blvd., Suite 210
Deerfield Beach, FL 33441
Attn: Dr. Stell Patsiokas
Senior Vice President, Technology
<PAGE>
Telephone: (954) 419-9693
Facsimile: (954) 419-1694
26.2 If delivered personally, or by facsimile or their electronic
conveyance, the deemed date of delivery shall be the date on which
the Communication is dispatched. If delivered by mail or by courier,
the deemed date of delivery shall be the date on which the
Communication is received. All Communications shall bear the date on
which the are dispatched or deposited in the mail. Either Party may
change the address at which it will receive Communications upon the
giving of notice to the other Party as provided above.
27. GENERAL
27.1 Except for assignment of delegation to a wholly-owned subsidiary of
FhG or the Customer, neither Party shall assign or delegate this
Contract or any of its rights, duties or obligations thereunder to
any other person without the prior written consent of the other
Party, which consent shall not be unreasonably withheld, provided
that the assignor shall execute a guarantee in a form acceptable to
the other Party which guarantees the due performance of the
assignees and the observation of its duties and obligations under
the Contract. Any attempt by either Party to assign or delegate any
of its rights, duties or obligations under this Contract without
such consent shall be void and of no effect.
27.2 FhG may subcontract portions of the work. Customer's written
approval is required for any such subcontracts accounting for more
than 300,000 -DM; or in the case of software, only for those
subcontracts accounting for 150,000 -- DM or more. FhG shall provide
sufficient detail on subcontractors experience, expertise and
compliance with this Contract so that the Customer can adequately
assess such subcontractor.
27.3 If either Party, at its option, agrees to a waiver of any of the
terms and conditions recited herein, such waiver shall not for any
purpose be construed as a waiver of any succeeding breach of the
same or any other terms and conditions; not shall such a waiver be
deemed as a course of conduct.
27.4 If any provision or clause, or portion thereof, of this Contract, or
application thereof to any person or circumstances is held invalid
or unconscionable, such invalidity or unconscionability shall not
affect other provisions, or portions thereof, or applications of
this Contract which can be given effect without the invalid or
unconscionable provision, or portion thereof, or application, and to
this end the provisions of these terms and conditions are declared
to be severable.
27.5 Except as required to obtain necessary licenses or Governmental
approvals, each Party shall give the other thirty (30) days advanced
written notice to comment upon the content and timing of news
releases, articles, brochures, advertisements, prepared speeches and
other information releases, concerning this Contract or the work
performed or to be performed hereunder.
27.6 Unless otherwise provided herein, any time limits to which this
Contract binds FhG or the Customer shall be counted in calendar days
from the day following that of the event marking the start of the
time limit, and shall end of the last day of the period laid down.
When the last day of a time limit is a Saturday or Sunday, or a
recognized public holiday in the country in which the particular
<PAGE>
contractual performance is required, such time limit shall be
extended to the first working day following.
27.7 This Contract shall be governed by the laws of Switzerland.
28. ON CALL SERVICES
The Customer may request FhG to provide other or additional related
services beyond those described in Exhibit A, Statement of work or
additional work upon the expiration of the Period of Performance as
defined in Article 2. FhG will provide a quotation of labor, expenses and
associated schedule in response to any such request on a time and
materials basis. Upon written notification by the Customer of approval of
the quotation, and formal incorporation into this Contract, and subject to
Article 15 hereof, FhG shall provide the requested services.
29. ENTIRE AGREEMENT
This Contract constitutes the entire agreement between the Parties in
connection with the subject matter hereof, and there are no other
agreements or understandings, written or oral, except as provided herein.
IN WITNESS WHEREOF, the representatives of the parties hereto have
executed this Contract, the present text of which shall be the only authentic
version.
FhG XM Satellite Radio Inc.
By:_______________________________ By:_______________________________
Name:_____________________________ Name:_____________________________
Title:____________________________ Title:____________________________
Date:_____________________________ Date:_____________________________
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Exhibit A
SOW between XM Radio and FhG for the XM Radio System
development
Version 1.1
August 20, 1999
1 Introduction
The Statement of Work between XM Radio and Fraunhofer IIS-A for the DARS
development program describes the work packages for each area and the respective
deliverables for the Fraunhofer contribution.
2 Scope of Work
Fraunhofer will mainly contribute to the development of the XM Radio DARS system
in the following areas:
o System Engineering
o Receiver development
o Test equipment development and production
o [*****]
This list can be extended on the basis of a common written agreement between XM
Radio and Fraunhofer IIS-A on the content, deliverables and cost for each work
package. The details for the already agreed work packages are described below.
3 General
3.1 Applicable Documents
[1] DARS-FHG-FDSC-603-110000 [*****]
"Waveform Requirements - Service Layer"
[2] DARS-FHG-FDSC-602-110000 [*****]
"Waveform Requirements - Transport Layer"
[3] DARS-FHG-FDSC-601-110000 [*****]"Waveform Requirements -
Terrestrial Physical Layer"
[4] DARS-STEL-608-110000 "Waveform Requirements -Satellite Physical
Layer"
[5] DARS-FHG-FDSB-600-600000 [*****]
"Test Equipment Specification"
[6] DARS-FHG-FDSC-601-520 000 [*****]
"[*****] Specification"
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4 Work Package Overview
This section will give an overview to the work package. A more detailed
description will be given in the
o chapter 8.1 for system engineering
o chapter 8.2 for [*****] development
For the test equipment the detailed definition is part of the work package
"Definition of the required test equipment".
4.1 System Engineering
The contributions in system engineering cover all work packages related to the
system definition, system validation and system optimization until the release
of the final system and waveform specifications. It also includes support of the
[*****] and test equipment development for the XM Radio system.
- --------------------------------------------------------------------------------
Work package Description Deliverables Completion
Date
- --------------------------------------------------------------------------------
[*****]
2
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
The work package [*****] will be finalized with the release of the [*****] by
the end of [*****]. With the official release XM Radio will [*****] of these
documents.
The [*****] on the availability and content of the [*****]. XM Radio and FhG
will agree mutually on a [*****], after both consider the [*****]. Any changes
to the [*****] after the release of this final version will require a change
request for the implementation.
4.2 [*****]
4.2.1 General Remarks
The area of XM-Radio Receiver Development covers all development activities
related to the commercial receiver and its key components. The main focus of
FhG-activities is the [*****].
For the development of the [*****] Fraunhofer will work in close cooperation
with XM and with ST Microelectronics ( ST is acting as an agent of XM for the
[*****] development ), and Aptix. The design for the [*****] includes the
verification of [*****] will be supplied by XM.
3
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
The [*****] will be developed in a way that it is to the highest extent reusable
for [*****]. Nevertheless its integration and the development of the required
[*****] is part of the SOW.
[*****] requirements for the evaluation on the [*****] will be defined by FhG.
The software will be developed by ST. The [*****] is required for the operation
of the [*****].
The work packages related to the [*****] assume the delivery of required
specifications, design documents, design modules and hardware to be provided by
XM-Radio .
4.2.2 [*****]
For the purpose of validation of the [*****] has been selected by XM. The
hardware consists of an [*****]. One complete [*****] will be available for FhG
in Erlangen.
The [*****] will be functionally tested and provided by XM . The definition of
the [*****] has already been performed by FhG on basis of the [*****] and
reviewed by XM. All other [*****] are not subject to specification or review by
FhG.
A [*****]. This function is performed via a [*****] provided by ST.
The [*****] is purchased and delivered to FhG without any cost. At the
discretion of XM radio, based on performance associated with schedule
milestones, the [*****] may remain at FhG after finalizing the integration work
and program termination. In any case the [*****] shall remain at FhG until the
end of the warranty period defined in the contract. Notwithstanding anything to
the contrary in this paragraph, FhG and the customer acknowledge and agree that
the [*****] is the property solely of the Customer, and that FhG retains no
ownership right, title or interest in the [*****].
4.2.3 [*****]
For the integration of the [*****] are required. For the integration a setup
similar to the [*****] is sufficient. For the verification of the [*****] are
necessary. XM Radio will provide to FhG one [*****] as soon as they are
available.
4
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4.2.4 Hardware Validation of the [*****]
The integration and validation of the [*****] is performed in 2 phases:
Phase A
[*****]
Phase B
[*****]
Deliverables from XM for [*****]:
- --------------------------------------------------------------------------------
Part: Due Date
- --------------------------------------------------------------------------------
[*****]
4.2.5 [*****] relevant documentation
The [*****] is based on the [*****] and documentation listed in section 3.1
Applicable Documents [*****]. The relevant [*****] consists of [*****] which has
been provided by FhG to XM at [*****]. After [*****], any change to these
specifications or to [*****] will require a change request from XM.
Note: [*****]
5
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4.2.6 [*****]
In addition to the [*****] and documentation the [*****] are listed in the table
below.
[*****]
6
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4.2.7 Work Package definition
The following table identifies the work-packages and deliverable dates.
- --------------------------------------------------------------------------------
Completion
ID Work package Description Deliverables Date
- --------------------------------------------------------------------------------
[*****]
7
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Note: All completion dates are very aggressive target dates which depend highly
on the availability of specifications, hardware implementations and
control software from XM, STMicroelectonics and Aptix. If non-FhG
deliverables do not meet the dates specified in this SOW, according
adjustments of the schedule and the price have to be discussed.
4.2.8 Required Reviews:
- --------------------------------------------------------------------------------
ID Review Comment Proposed Date
- --------------------------------------------------------------------------------
[*****]
8
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4.2.9 [*****]
The [*****] from FhG only. The [*****] will be delivered to XM.
o [*****]
o [*****]
o [*****]
Note: The design documentation of the [*****] is under the responsibility of ST.
FhG will support XM and ST with the content of the final documentation
set.
4.3 Test Equipment
For the development verification and maintenance of the different equipment of
the XM Radio system test equipment is required. Test equipment is especially
required for the following activities:
The following test equipment requirements are identified:
o [*****]
o [*****]
The different requirements of the above described applications can be reduced to
a basic set of functions which are:
o [*****]
These basic functions will be supplemented with specific functions required for
the specific applications. [*****].
- --------------------------------------------------------------------------------
Work package Description Deliverables Date
- --------------------------------------------------------------------------------
4.3.1 [*****]
- --------------------------------------------------------------------------------
4.3.2
- --------------------------------------------------------------------------------
4.3.3
- --------------------------------------------------------------------------------
4.3.4
- --------------------------------------------------------------------------------
4.3.5
- --------------------------------------------------------------------------------
4.3.6
- --------------------------------------------------------------------------------
9
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Note: Schedule dependent on XM delivery of [*****]. The business model for the
Test Equipment is described in the Cost Estimate
The [*****]. Therefore it may have limited functionality, performance and
reliability. Therefore it is the common understanding of XM Radio and FhG that
no guarantee for the functionality of this pre-production unit can be given. FhG
will provide the necessary update the pre-production unit to the level of a
production unit, when the production units will be available. In case of an
hardware update XM Radio will bear the cost for shipping the unit.
The details of the [*****].
The specifications for the [*****] test equipment will be added. At the present
moment no work package for the development of the [*****] test equipment is
defined.
10
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4.4 [*****]
- --------------------------------------------------------------------------------
Work package Description Deliverables Date
- --------------------------------------------------------------------------------
4.4.1 [*****] [*****] [*****] [*****]
- --------------------------------------------------------------------------------
4.4.2 [*****] [*****] [*****] [*****]
- --------------------------------------------------------------------------------
The feasibility analysis should cover the following topics
1. [*****]
2. [*****]
3. [*****]
4. [*****]
The schedule will be as follows:
1. Kick-Off meeting
Define in detail the content of the analysis, the target market and the
overall schedule within the system development
Date: [*****]
2. Final presentation
Presentation of the results and selection of one option for the
implementation
Date: [*****]
3. Discussion about implementation work plan
Presentation of implementation work plan based on selected option
Date: [*****]
[*****] XM Radio has to decide [*****]. In this case the [*****].
11
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
5 Project Management
FhG shall be responsible for the program management of all of the tasks detailed
in this SOW.
5.1 Program Management
FhG shall designate a single point contact for all activities which are the
subject of this SOW. The program manager shall be responsible for managing
internal FhG resources, timely delivery of all deliverables, organization of all
key meetings, configuration control of all deliverables, progress reporting to
XM.
5.1.1 Meetings
FhG shall conduct the following meetings:
1) [*****]
2) [*****]
3) [*****]
FhG shall participate to the following meetings:
1) Weekly project review teleconference and written program status
update
2) [*****]
3) [*****]
4) [*****]
5.1.2 Weekly Progress Reports
A weekly progress report shall be submitted to the XM Program manager by the
last working day of each week. The report shall contain a description of
progress and major issues.
5.1.3 Quarterly Management Meetings
FhG shall conduct a Quarterly Management Meeting scheduled by XM to review
overall program status.
5.1.4 [*****]
FhG shall [*****] for all deliverable documents and equipment which are subject
of this SOW. [*****]. FhG shall electronically submit all required deliverable
documents to the XM documentation manager upon revision. In monthly reports, a
list of all program documentation shall be maintained with indication of current
revision.
5.1.5 Schedule
FhG shall provide a [*****] for approval by XM at EDC
5.2 Documentation
5.2.1 Document Organization
Documents shall be organized into 1) Performance / Functional Requirements, 2)
Test/Validation Requirements, 3) ICD Documents, 4) Design Specification 5) Test
and Analysis Reports 6) Software / Hardware User Manuals.
12
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
5.2.2 Document Configuration Management
A configuration management system as defined by FhG will be used.
5.2.3 Document Tools
FhG shall use Microsoft Office 97 and Microsoft Project 98 v4.1 for all program
documentation. [*****].
5.2.4 Review/Release of Documents
The specification documents will be distributed among the partners (according to
the responsibilities) for comments. At least the reviewer shall provide
comments. The following steps are assumed:
o Outline: Outline of the contents of the document or a very first
draft. Depending on the document different outlines may be
distributed.
o Draft: The term "draft" shall be used for documents close to the
planned release. At least 90% of the contents shall be
included.
o Final Draft:Document is reviewed, but not officially released
o Release: The document is released.
After sending a draft typically a period of two weeks for review is assumed. The
reviewer shall provide comments within this time period. After this period the
final draft will be distributed. If no further comments are received the
document will be released one week after sending the final draft.
5.2.5 Distribution List
XM shall provide a documentation distribution list to FhG no later than [*****]
and shall update the list quarterly. XM shall identify a program documentation
manager and review list by [*****] for submittal of all configuration controlled
documentation. All documents and memorandum submitted to XM shall be reviewed by
XM and comments within two weeks after submittal. The document shall be deemed
acceptable after that period if no comments are received.
5.3 Product assurance
FhG will use its internal product and quality assurance procedures in the course
of the project.
6 Acceptance
6.1 Documents
Deliverable documents are accepted with their official release.
6.2 [*****]
The [*****]. The package will be considered as accepted by XM Radio if there is
no written notice from XM Radio stating any problem within 30 days after
delivery.
13
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
6.3 Equipment
For the test equipment common acceptance test between XM Radio and FhG will be
conducted.
7 Approval of documentation
7.1 Document to be approved
The following documents will be submitted to XM by FhG for approval.
[*****]
14
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8 Detailed Work Package Description
8.1 System Engineering - Description of the Work packages
8.1.1 System Specification
[*****]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
WP-ID Work package Description Deliverables Required Input
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SYS-1-2 [*****] Final Document Released none
- ----------------------------------------------------------------------------------------------
SYS-1-3 [*****] Final Document Released none
- ----------------------------------------------------------------------------------------------
SYS-1-4 [*****] Final Document Released none
- ----------------------------------------------------------------------------------------------
SYS-1-5 [*****] Final Document Released XM, ST
- ----------------------------------------------------------------------------------------------
SYS-1-6 [*****] Final Document Released none
- ----------------------------------------------------------------------------------------------
SYS-1-7 [*****] Final Document Released none
- ----------------------------------------------------------------------------------------------
</TABLE>
PAGE 215
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.1.2 Development of System Reference Model
[*****]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
WP-ID Work package Description Deliverables Required Input
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SYS-2-1 [*****]
- -------------------------------------------------------------------------------------
SYS-2-2 [*****]
- -------------------------------------------------------------------------------------
SYS-2-3 [*****]
- -------------------------------------------------------------------------------------
</TABLE>
Note: [*****]
PAGE 216
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.1.3 [*****]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
WP-ID Work package Description Deliverables Required Input
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SYS-4-1 [*****]
- -------------------------------------------------------------------------------------
SYS-4-2 [*****]
- -------------------------------------------------------------------------------------
SYS-4-3 [*****]
- -------------------------------------------------------------------------------------
SYS-4-4 [*****]
- -------------------------------------------------------------------------------------
SYS-4-5 [*****]
- -------------------------------------------------------------------------------------
</TABLE>
PAGE 217
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.1.4 [*****]
[*****].
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
WP-ID Work package Description Deliverables Required Input
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SYS-5-1 [*****]
- -------------------------------------------------------------------------------------
SYS-5-2 [*****]
- -------------------------------------------------------------------------------------
</TABLE>
PAGE 218
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.2 [*****]
8.2.1 [*****]
- --------------------------------------------------------------------------------
Work Package Content Input Requirements Deliverables from FhG
- --------------------------------------------------------------------------------
[*****]
- --------------------------------------------------------------------------------
PAGE 219
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.2.2 [*****]
- --------------------------------------------------------------------------------
Work Package Content Input Requirements Deliverables from FhG
- --------------------------------------------------------------------------------
[*****]
- --------------------------------------------------------------------------------
PAGE 220
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
[*****]
PAGE 221
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.2.3 [*****]
- --------------------------------------------------------------------------------
Work Package Content Input Requirements Deliverables from FhG
- --------------------------------------------------------------------------------
[*****]
- --------------------------------------------------------------------------------
Note: [*****]
PAGE 222
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.2.4 [*****]
- --------------------------------------------------------------------------------
Work Package Content Input Requirements Deliverables from FhG
- --------------------------------------------------------------------------------
[*****]
- --------------------------------------------------------------------------------
[*****]
PAGE 223
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.2.5 [*****]
- --------------------------------------------------------------------------------
Work Package Content Input Requirements Deliverables from FhG
- --------------------------------------------------------------------------------
[*****]
- --------------------------------------------------------------------------------
PAGE 224
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.2.6 [*****]
- --------------------------------------------------------------------------------
Work Package Content Input Requirements Deliverables from FhG
- --------------------------------------------------------------------------------
[*****]
- --------------------------------------------------------------------------------
PAGE 225
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
9 Annex A: [*****]
[*****]
9.1 [*****]
- --------------------------------------------------------------------------------
Review Purpose Input Requirements Expected review result
- --------------------------------------------------------------------------------
o [*****]
- --------------------------------------------------------------------------------
9.2 [*****]
- --------------------------------------------------------------------------------
Review Purpose Input Requirements Expected review result
- --------------------------------------------------------------------------------
o [*****]
- --------------------------------------------------------------------------------
PAGE 226
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
9.3 [*****]
- --------------------------------------------------------------------------------
Review Purpose Input Requirements Expected review result
- --------------------------------------------------------------------------------
o [*****] o [*****] o [*****]
- --------------------------------------------------------------------------------
*** End of document ***
[*****]
PAGE 227
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Exhibit B
Payment Plan for Contract #001 between XM Radio and FhG for
Technical Consulting on XM Radio
Version 1.2
August 23, 1999
1 Payments Summary
The payments associated with the Work Packages described Exhibit A will be split
between Milestone payments and Monthly payments as summarized in the Table
below.
Milestone PMT Monthly PMT Total
- --------------------------------------------------------------------------------
System Engineering [*****]
- --------------------------------------------------------------------------------
Receiver Development
- --------------------------------------------------------------------------------
Receiver Development Bonus
- --------------------------------------------------------------------------------
Test Equipment
- --------------------------------------------------------------------------------
Program Management
- --------------------------------------------------------------------------------
[*****]
- --------------------------------------------------------------------------------
Travel (Maximum)
- --------------------------------------------------------------------------------
Total [*****] [*****] DM 8,150,000 to
DM 10,850,000
- --------------------------------------------------------------------------------
Travel costs will be invoiced on a monthly basis after the travel has been
completed. Travel within Europe will be charged at [*****] per person per trip
and travel to the US will be charged at [*****] per person per trip.
The test equipment developed and delivered to XM are not included in the payment
summary and will be invoiced separately after delivery.
The test equipment hardware cost is summarized in the table below.
- --------------------------------------------------------------------------------
[*****] DM 111,000
- --------------------------------------------------------------------------------
[*****] DM 35,000
- --------------------------------------------------------------------------------
[*****] DM 180,000
- --------------------------------------------------------------------------------
[*****] DM 100,000
- --------------------------------------------------------------------------------
[*****] DM 100,000
- --------------------------------------------------------------------------------
PAGE 21
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Note. The [*****] hardware cost is preliminary and will be finalized when the
specification is complete [*****]
2 Monthly Payments
The monthly down payments will be organized as follows:
[*****]
PAGE 22
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3 Milestone Payments
3.1 Systems Engineering
- --------------------------------------------------------------------------------
Work package Milestone Completion Date Payment
- --------------------------------------------------------------------------------
[*****]
PAGE 23
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3.2 Receiver Development
The following table identifies the work-packages and deliverable dates.
- --------------------------------------------------------------------------------
ID Work package Milestone Completion Date Payment
- --------------------------------------------------------------------------------
[*****]
PAGE 34
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3.3 Test Equipment
- --------------------------------------------------------------------------------
Work package Milestone Completion Date Payment
- --------------------------------------------------------------------------------
[*****]
Note 1. The Test Equipment hardware costs underlined in Table 4.3 above will be
separately invoiced after delivery to XM on or about the corresponding Milestone
Completion Date.
Note 2. The [*****] hardware cost in 4.3.6 is preliminary and will be finalized
when the specification is complete [*****].
PAGE 15
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3.4 [*****]
- --------------------------------------------------------------------------------
Work package Milestone Completion Date Payment
- --------------------------------------------------------------------------------
[*****]
4 Bonus
- --------------------------------------------------------------------------------
1.4.1 Work Package Milestone Deadline Bonus Amount Early/Late
Adjustment
- --------------------------------------------------------------------------------
[*****]
A bonus amount of up to an additional [*****] shall be payable to FhG upon the
full and satisfactory completion of key milestones on or prior to the
corresponding deadlines as outlined in Table 1.4. At the discretion of XM, bonus
amounts may be payable if a milestone is not met on its corresponding deadline
due to the fault of XM or any supplier to XM other than FhG (such a delay, a
"No-Fault Delay").
The acceptance criteria for the bonus milestones shall be the same acceptance
criteria as set forth in exhibit A, which shall be subject to mutual agreement
by the parties; provided, however, that in the event the parties cannot agree to
such criteria by [*****], such criteria shall be determined by XM and shall be
reasonable in light of the parties' mutual desire to achieve the bonus
milestones.
For the purpose of computing the bonus amount in Table 1.4, a week shall be
defined as 7 calendar days and each corresponding deadline shall be defined as
the end of the day in Germany.
PAGE 16
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Exhibit C
Key Personnel for Contract #001 between XM Radio and FhG for
Technical Consulting on XM Radio
Version 1.2
August 24, 1999
1 Key Personnel
[*****] Program Manager
[*****] System Engineer
[*****] IC Design Manager
[*****] Test Equipment
PAGE 11
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Exhibit D
FhG Background IP
Version 1.1
August 19, 1999
1 Patents
1. [*****]
All of the above listed patents [*****] are exclusively licensed to WorldSpace.
XM Radio will be in charge to obtain a license for these patents from
WorldSpace.
2 Other Intellectual Property Rights
Includes all other intellectual proprietary to FhG and necessary for FhG to
fulfill its obligations under the Agreement.
PAGE 11
<PAGE>
Exhibit E
MONTHLY AIR TRAVEL SUMMARY
For the Month and Year:_________________________________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Destination Return
Name and Title of Person Traveling (Place & Date) (Place & Date) Purpose Amount*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total for Month
-----------------------------------------------
-----------------------------------------------
Maximum Available Allowance 360,000 DM
-----------------------------------------------
Total Spent (including this month) -( )
-----------------------------------------------
*Trips to US = 10,000 DM per person per trip -----------------------------------------------
Trips within Europe = 4,000 DM per person per trip Remaining Allowance
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 11
<PAGE>
CONFIDENTIAL
***Confidential treatment has been requested for portions of this agreement. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*****]. A complete version of this
agreement has been filed separately with the Securities and Exchange Commission.
Exhibit 10.21
CONTRACT
FOR
ENGINEERING AND CONSTRUCTION
OF
TERRESTRIAL REPEATER NETWORK SYSTEM
By and Between
XM Satellite Radio Inc.
and
LCC International, Inc.
CONFIDENTIALITY NOTICE
This attached Contract and the information contained herein is confidential to
XM Satellite Radio Inc. and LCC International, Inc., and shall not be published
or disclosed to any third party without the express written consent of a duly
authorized representative of XM Satellite Radio Inc. and LCC International, Inc.
<PAGE>
CONFIDENTIAL
TABLE OF CONTENTS
CONTRACT
FOR
ENGINEERING AND CONSTRUCTION
OF
TERRESTRIAL REPEATER NETWORK SYSTEM
TERMS AND CONDITIONS
EXHIBIT A - NETWORK DESIGN CRITERIA AND PROCESS
EXHIBIT B - STATEMENT OF WORK (SOW)
EXHIBIT C - CONTRACT PRICING, PAYMENTS AND MILESTONE ACHIEVEMENT
CRITERIA
EXHIBIT D - DATA AND DOCUMENTATION
EXHIBIT E - NETWORK TESTING AND ACCEPTANCE CRITERIA
Terms and Conditions
Page -i-
<PAGE>
CONFIDENTIAL
CONTRACT
FOR
ENGINEERING AND CONSTRUCTION
OF
TERRESTRIAL REPEATER NETWORK SYSTEM
By and Between
XM SATELLITE RADIO INC.
and
LCC International, Inc.
TERMS AND CONDITIONS
<PAGE>
CONFIDENTIAL
TABLE OF CONTENTS
TERMS AND CONDITIONS
1. DEFINITIONS AND CONSTRUCTION.............................................2
1.1 CERTAIN DEFINITIONS....................................................2
1.2 OTHER TERMS............................................................9
1.3 INTEGRATION AND CONSTRUCTION...........................................9
1.4 HEADINGS; NUMBER AND GENDER...........................................10
2. SCOPE OF WORK...........................................................11
2.1 GENERAL...............................................................11
2.2 ASSURANCES OF CONTRACTOR AND SUBCONTRACTOR PERFORMANCE................12
3. EFFECTIVE DATE OF CONTRACT ("EDC"); CONDITIONS PRECEDENT................13
3.1 EFFECTIVE DATE OF CONTRACT............................................13
3.2 CONDITIONS PRECEDENT..................................................13
4. CONTRACT SUM............................................................14
4.1 CONTRACT SUM..........................................................14
4.2 CHANGES IN CONTRACT SUM...............................................14
4.3 TAXES AND DUTIES......................................................14
5. PAYMENT.................................................................15
5.1 INVOICING.............................................................15
5.2 PAYMENT...............................................................15
5.3 RESERVED..............................................................16
5.4 FINAL PAYMENT FOR A CITY NETWORK......................................16
5.5 SET OFF...............................................................16
5.6 LATE PAYMENT..........................................................17
5.7 RESERVED..............................................................17
5.8 WITHHOLDING OF PAYMENT................................................17
5.9 CONTRACTOR'S RIGHT TO SUSPEND THE WORK................................18
5.10 ACCESS TO RECORDS...................................................18
6. ACCESS TO WORK..........................................................20
6.1 ACCESS TO WORK........................................................20
6.2 DATA AND DOCUMENTATION................................................20
6.3 ELECTRONIC ACCESS.....................................................20
6.4 MEETINGS..............................................................20
6.5 FINANCING ENTITIES....................................................21
7. TIME FOR PERFORMANCE....................................................22
7.1 INITIAL CITY SCHEDULE AND ACCEPTANCE DATE.............................22
7.2 DELIVERY INCENTIVES AND LIQUIDATED DAMAGES............................22
7.3 SUSPENSION OF WORK BY OWNER...........................................23
7.4 EXCUSABLE DELAY DEFINED...............................................24
7.5 CONTRACT ADJUSTMENTS..................................................24
7.6 NO CLAIMS FOR WEATHER CONDITIONS OTHER THAN EXTRAORDINARY WEATHER
CONDITIONS............................................................25
7.7 NO CLAIMS FOR PREVENTION OF EARLY COMPLETION..........................25
8. ACCEPTANCE..............................................................26
Terms and Conditions
Page -i-
<PAGE>
8.1 REPEATER ACCEPTANCE TESTING (CITY NETWORK TESTING OF REPEATERS ONLY)..26
8.2 CITY NETWORK TESTING OF REPEATERS AND ONE SATELLITE...................28
9. TITLE AND RISK OF LOSS..................................................29
9.1 TRANSFER OF TITLE.....................................................29
9.2 TRANSFER OF RISK OF LOSS..............................................29
10. PERFORMANCE WARRANTIES..................................................30
10.1 WARRANTIES..........................................................30
10.2 DUTY TO CORRECT.....................................................33
10.3 DISCLAIMERS OF WARRANTY.............................................33
11. CHANGES IN SCOPE OF WORK................................................35
11.1 CHANGES REQUESTED BY OWNER..........................................35
11.2 CHANGES REQUESTED BY CONTRACTOR.....................................36
11.3 PRICING OF CHANGES..................................................36
12. PERMITS AND LICENSES; COMPLIANCE WITH LAWS..............................38
12.1 PERMITS, LICENSES, AND APPROVALS....................................38
12.2 COMPLIANCE WITH LAWS................................................38
13. SUBCONTRACTS............................................................40
13.1 SUBCONTRACTS........................................................40
13.2 REPLACEMENT OF MATERIAL SUBCONTRACTORS..............................40
13.3 NO PRIVITY OF CONTRACT..............................................40
13.4 SUBCONTRACTOR RELATIONS.............................................40
13.5 ASSIGNMENT OF SUBCONTRACTS UPON TERMINATION.........................41
14. PERSONNEL AND KEY PERSONNEL.............................................42
14.1 PERSONNEL QUALIFICATIONS............................................42
14.2 KEY PERSONNEL POSITIONS.............................................42
14.3 ASSIGNMENT OF KEY PERSONNEL.........................................42
15. CONTRACTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS..................43
16. OWNER'S REPRESENTATIONS AND WARRANTIES..................................45
17. INTELLECTUAL PROPERTY RIGHTS............................................47
18. INTELLECTUAL PROPERTY INFRINGEMENT INDEMNIFICATION......................51
18.1 CONTRACTOR INTELLECTUAL PROPERTY INDEMNIFICATION....................51
18.2 OWNER INTELLECTUAL PROPERTY INDEMNIFICATION.........................51
19. CONFIDENTIAL INFORMATION................................................52
19.1 CONFIDENTIALITY OBLIGATIONS.........................................52
19.2 EXCEPTIONS..........................................................53
19.3 NO LICENSE..........................................................53
19.4 RETURN OF CONFIDENTIAL INFORMATION..................................53
19.5 INCONSISTENT LEGENDS................................................54
20. INDEMNIFICATION.........................................................55
20.1 CONTRACTOR'S INDEMNIFICATION........................................55
20.2 OWNER'S INDEMNIFICATION.............................................55
20.3 INDEMNIFICATION PROCEDURES..........................................55
20.4 WAIVER OF SUBROGATION...............................................56
Terms and Conditions
Page -ii-
<PAGE>
21. INSURANCE...............................................................57
21.1 GENERAL.............................................................57
21.2 SPECIFIC INSURANCE REQUIREMENTS.....................................57
21.3 CERTIFICATES OF INSURANCE...........................................61
22. DISPUTE RESOLUTION......................................................62
22.1 INFORMAL DISPUTE RESOLUTION.........................................62
22.2 ARBITRATION.........................................................62
22.3 LITIGATION..........................................................64
22.4 CONTINUED PERFORMANCE...............................................65
23. OWNER'S RESPONSIBILITIES................................................66
24. LIMITATION OF LIABILITY.................................................67
25. DEFAULT AND CORRECTION PLAN.............................................68
25.1 MATERIAL BREACH.....................................................68
25.2 FAILURE TO ACHIEVE KEY TASK.........................................68
26. TERMINATION.............................................................70
26.1 TERMINATION FOR OWNER'S CONVENIENCE.................................70
26.2 TERMINATION FOR CONTRACTOR'S DEFAULT................................72
26.3 TERMINATION FOR OWNER'S DEFAULT.....................................75
26.4 TERMINATION/EXPIRATION ASSISTANCE...................................77
27. MECHANICS' LIENS AND CLAIMS.............................................78
27.1 WAIVER OF LIENS.....................................................78
27.2 DISCHARGE OF LIENS..................................................78
27.3 SUBORDINATION OF LIENS..............................................78
28. GENERAL.................................................................79
28.1 ASSIGNMENT..........................................................79
28.2 ENTIRE AGREEMENT....................................................80
28.3 AMENDMENTS..........................................................80
28.4 WAIVER OF BREACH OF CONTRACT........................................80
28.5 REMEDIES CUMULATIVE.................................................80
28.6 SEVERABILITY........................................................80
28.7 APPLICABLE LAW......................................................81
28.8 NOTICES.............................................................81
28.9 RELATIONSHIP OF THE PARTIES.........................................82
28.10 MEDIA RELEASES......................................................82
28.11 CALCULATION OF INTEREST.............................................82
28.12 SURVIVAL............................................................82
28.13 NO THIRD-PARTY BENEFICIARIES........................................82
28.14 CONSENTS AND APPROVALS..............................................82
28.15 LENDER REQUIREMENTS.................................................83
28.16 NO SOLICITATION.....................................................83
28.17 TIME OF THE ESSENCE.................................................83
28.18 COVENANT OF GOOD FAITH..............................................83
28.19 COUNTERPARTS........................................................84
Terms and Conditions
Page -iii-
<PAGE>
CONFIDENTIAL
Terms and Conditions
Page -iv-
<PAGE>
ATTACHMENTS
Attachment A Key Personnel
Attachment B Form of Certification Accompanying
Invoices
Attachment C Contractor's Software License Terms and
Conditions
Terms and Conditions
Page i
<PAGE>
CONTRACT FOR ENGINEERING AND CONSTRUCTION
OF
TERRESTRIAL REPEATER NETWORK SYSTEM
THIS CONTRACT FOR ENGINEERING AND CONSTRUCTION OF TERRESTRIAL REPEATER
NETWORK SYSTEM (this "Contract") is made and entered into as of this 18th day of
August, 1999, by and between XM Satellite Radio Inc., a Delaware corporation
with its principal offices located at 1250 23rd Street, NW, Suite 57,
Washington, DC 20037 (hereinafter "Owner"), and LCC International, Inc., a
Delaware corporation with its principal offices located at 7925 Jones Branch
Drive, McLean Virginia 22102 (hereinafter "Contractor"). As used in this
Contract, "Party" means either Owner or Contractor, as appropriate, and
"Parties" means Owner and Contractor.
WHEREAS, Owner is implementing a satellite system designed to provide
digital audio radio services to the continental United States; and
WHEREAS, Owner anticipates providing the business referred to above
through two (2) geostationary satellites, a system of terrestrial repeater
networks located in various cities within the continental United States
("Terrestrial Repeater Network System" or "System") and end-user receivers; and
WHEREAS, Contractor is a company qualified to design, engineer, and
construct the Terrestrial Repeater Network System, has the necessary skill and
experience to perform the services described in this Contract in a
cost-effective, professional and timely manner, and has performed similar
services with respect to other wireless systems; and
WHEREAS, the Parties have reached agreement on the terms and conditions of
procurement by Owner from Contractor of the engineering, design and construction
of the Terrestrial Repeater Network System, and related items, services and
activities as set forth and further defined in this Contract.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and intending to be legally bound hereby, the Parties agree as
follows:
Terms and Conditions
Page 1
<PAGE>
CONFIDENTIAL
1. DEFINITIONS AND CONSTRUCTION
1.1 Certain Definitions.
In this Contract, the following terms shall have the meaning stated
hereunder:
(a) "Acceptance" of the Work with respect to a City Network has the
meaning set forth in Article 8.1(c) (Acceptance).
(b) "Acceptance Date" means April 15, 2001, as such date may be extended
in accordance with the Contract.
(c) "Affiliate" means, with respect to an entity, any other entity
Controlling or Controlled by or under common Control with such entity.
(d) "Agreed Performance Threshold" means that either Contractor (i) has
achieved Acceptance of all Cities or (ii) would have achieved Acceptance of all
Cities but for underperformance in one or more Cities due to the absence of the
lesser of two Sites per City or five percent (5%) of all Sites in any such City.
(e) "Amendment to this Contract" or "Amendment" means a written agreement
modifying the terms of this Contract executed in accordance with Article 28.3
(Amendments).
(f) "Approval" means written approval. This term is as defined, whether or
not capitalized in this Contract.
(g) "Architecture and Engineering" or "A&E" means the architecture and
engineering services Contractor shall furnish Owner in accordance with Exhibit B
(SOW).
(h) "Associates" means, with respect to an entity, its directors,
officers, employees agents, consultants, and assigns.
(i) "Business Day" means any day other than the following: a Saturday,
Sunday, and any other day on which national banks are authorized to be closed in
New York City, New York.
(j) "Calendar Day" means any day.
Terms and Conditions
Page 2
<PAGE>
CONFIDENTIAL
(k) "Change Directive" means a written directive executed by Owner
directing Contractor to proceed with a change in the Work pending final
determination of the appropriate change, if any, in the Contract Sum and/or
Initial City Schedules and/or Acceptance Date.
(l) "Change Order" means a written document, executed by both Owner and
Contractor, setting forth a change in the Work and agreement between Owner and
Contractor as to the change in the Contract Sum and/or Initial City Schedules
and/or Acceptance Date associated with such change in the Work.
(m) "City" means any city identified in Attachment 1 of Exhibit B (SOW),
as the geographical boundaries (Defined Coverage Areas) of such city shall be
determined by Owner and provided to Contractor in accordance with Exhibit B
(SOW).
(n) "City Network" means, for any City designated in Attachment 1 of
Exhibit B (SOW), the terrestrial repeater network to be designed, constructed
and implemented at various Sites in such City in accordance with this Contract.
(o) "City Progress Schedule" has the meaning set forth in Exhibit B (SOW).
(p) "Confidential Information" means all information, of any nature and in
any form, whether written, oral or recorded or transmitted electronically or by
tape or other similar manner, regarding the business, finances, operations,
prospects, plans, or affairs of the Furnishing Party (including its Affiliates,
Subcontractors, or Consultants), and all data, processes, materials, and
software in source code and object code form, related documentation, and other
technical data that is confidential and embodies trade secrets and other
proprietary information of the Furnishing Party, which information is designated
in writing by the Furnishing Party as confidential; provided, however, that if
disclosed orally, such information must be confirmed and designated in writing
in summary form as confidential within five (5) Business Days of the time at
which oral disclosure took place. This Contract is deemed Confidential
Information of each Party. Contractor Tools and Contract Software (including
WINDS) are deemed confidential information of Contractor.
(q) "Consultant" means a person or organization retained by Owner to
provide Owner with technical advice and related services and identified by Owner
to Contractor as such in accordance with Article 6 (Access to Work).
(r) "Contract" means the written instrument herein dated the day and year
first written above, including any Amendments made pursuant to Article 28.3
(Amendments), and Change Orders made pursuant to Article 11 (Changes in Scope of
Work), embodying the agreement between Contractor and Owner and including the
Terms and Conditions, Attachments and Exhibits (and Attachments thereto),
annexed hereto and made a part of this Contract.
(s) "Contract Sum" has the meaning set forth in Article 4.1 (Contract
Sum).
Terms and Conditions
Page 3
<PAGE>
CONFIDENTIAL
(t) "Contractor Tools" means all proprietary software, methods, tools,
techniques, processes, or procedures of Contractor that Contractor may use,
modify or develop in the provision of services hereunder, including all
Intellectual Property Rights related thereto.
(u) "Contract Software" has the meaning set forth in Article 17
(Intellectual Property Rights).
(v) "Control" and its derivatives mean, with respect to an entity, the
legal, beneficial, or equitable ownership, directly or indirectly, of fifty
percent (50%) or more of the capital stock (or other ownership interest if not a
corporation) of such entity ordinarily having voting rights or the power to
direct the management policies of such entity, whether through the ownership of
voting stock, by contract, or otherwise.
(w) "Correction Plan" means a plan submitted by Contractor pursuant to
Article 25 (Default and Correction Plan) that details the means by which
Contractor shall correct a failure to perform any material duty or obligation
under this Contract.
(x) "Data and Documentation" means that data and documentation to be
supplied by Contractor pursuant to the requirements of Exhibit D (Data and
Documentation).
(y) "Default Pricing" has the meaning set forth in Exhibit C (Contract
Pricing, Payments and Milestone Achievement Criteria).
(z) "Developed Materials" means all tangible deliverables developed by
Contractor or on Contractor's behalf specifically for Owner and provided by
Contractor to Owner under this Contract that are paid for by Owner, including
network designs, system schematics, system drawings, site specifications, zoning
site reports, market databases described in Section 3 of Exhibit (B) (SOW), and
other documentation materials relating specifically to the Work, provided by
Contractor in the performance of the Work, but specifically excluding any
Contractor Tools and Contract Software.
(aa) "Dispute" has the meaning set forth in Article 22 (Dispute
Resolution).
(bb) "Effective Date of Contract" or "EDC" has the meaning set forth in
Article 3 (Effective Date of Contract).
(cc) "Excusable Delay" has the meaning set forth in Article 7.3 (Excusable
Delay).
(dd) "Exhibit" or "Exhibits" means any and all exhibits, and any schedules
or attachments thereto, to this Contract, which are attached hereto and
incorporated herein.
(ee) "Extraordinary Weather Conditions" means any rain, snow, cold, or
other weather conditions (not including those referred to in Article 7.4(a)
(ii)) that occur during any
Terms and Conditions
Page 4
<PAGE>
CONFIDENTIAL
calendar month that are extraordinary by comparison to the average of the
weather conditions that occurred during the same calendar month of the past five
(5) years as set forth in the U.S. National Oceanic and Atmospheric
Administration records for the City where the affected Work is being performed.
(ff) "Final Payment" has the meaning set forth in Article 5.4 (Final
Payment for a City Network).
(gg) "Financing Agreements" means any and all documents and agreements
executed in connection with the debt or equity financing to be obtained by Owner
from Financing Entities to provide all or a substantial portion of the funds to
finance the Project and related repeater hardware, and all security instruments,
mortgages, assignments and related documentation executed or delivered to secure
repayment of such financing.
(hh) "Financing Entity" means any financial institution, bank,
corporation, partnership or other entity (other than Contractor, its Affiliates
or competitors of Contractor or Affiliates of such competitors), providing all
or a substantial portion of the debt or equity financing to Owner to provide
funds to finance the Project and related repeater hardware, including any
trustee acting on behalf of any such entity.
(ii) "Furnishing Party" means the Party who furnishes Confidential
Information to the other Party.
(jj) "General Conditions Costs" means all time-related and indirect costs
other than direct labor and material costs, including salaries and benefits for
superintendents, insurance costs, bond costs, increased or adjusted bond costs,
any and all non-productive labor, clean-up, project management, supervision,
safety, field supervision, incidental costs, fixed costs, variable costs,
insurance, testing, start-up, warranty, small tools, big tools, miscellaneous
materials, trash, trash removal, lay-out, re-layout, engineering, waste,
coordination, estimating, remobilization and demobilization.
(kk) "Including" and its derivatives (such as "include" and "includes")
means including without limitation. This term is as defined, whether or not
capitalized in this Contract.
(ll) "Initial City Schedule" shall have the meaning set forth in Section
2.3 of Exhibit B (SOW).
(mm) "Intellectual Property" means all designs, methods, concepts,
layouts, software, inventions (whether or not patented or patentable),
processes, technical data and documentation, technical information and drawings,
and similar matter in which an Intellectual Property Right may subsist.
Terms and Conditions
Page 5
<PAGE>
CONFIDENTIAL
(nn) "Intellectual Property Rights" means any and all common law and
statutory proprietary rights, including Patent Rights, Trademark Rights, Trade
Secret Rights and Copyrights Rights (each term as defined below), existing from
time to time under the intellectual property Laws of the United States, any
state or foreign jurisdiction or international treaty regime. The term "Patent
Rights" means any and all common law and statutory rights existing from time to
time under the Laws of the United States, any state or foreign jurisdiction or
international treaty regime with respect to patents, patent applications, and
patent registrations. The term "Trademark Rights" means any and all common law
and statutory rights existing from time to time under the Laws of the United
States, any state or foreign jurisdiction or international treaty regime with
respect to trademarks, service marks, trade names and trade dress. The term
"Trade Secret Rights" means any and all common law and statutory rights existing
from time to time under the Laws of the United States, any state or foreign
jurisdiction or international treaty regime with respect to trade secrets and
data rights. The term "Copyright Rights" means any and all common law and
statutory rights existing from time to time under the Laws of the United States,
any state or foreign jurisdiction or international treaty regime with respect to
copyrights, mask work rights, moral rights and rights in visual works.
(oo) "Interim Maintenance" means the interim maintenance services
Contractor shall furnish Owner in accordance with Exhibit B (SOW).
(pp) "Interim Services Agreement" means the Interim Services Agreement
between the Parties dated February 19, 1999, and amendments thereto.
(qq) "Key Task" has the meaning set forth in Section 2.3 and Attachment 4
of Exhibit B (SOW).
(rr) "Landlord" means, with respect to a particular Site, the person or
entity that owns the real property or improvement upon which the Site is
situated and/or the person or entity that is otherwise in lawful possession of
such real property or improvement and has the authority to enter into a Site
Lease Agreement.
(ss) "Law" or "Laws" means any and all laws, including rules, regulations,
codes, injunctions, judgments, orders, ordinances, decrees, rulings, licenses,
authorizations, approvals or consents and charges thereunder, of any federal,
state, local or municipal government of any country (and all agencies thereof)
having jurisdiction over any portion of the Work or the performance of any
portion of the Work.
(tt) "Losses" means all losses, liabilities, damages, royalty payments and
claims, and all related costs and expenses (including reasonable legal fees and
disbursements and costs of investigation, expert fees, litigation, settlement,
judgment, interest, and penalties).
(uu) "Material Adverse Effect" means any material adverse change in (i)
the legality, validity, or enforceability of this Contract or (ii) the ability
of Owner or Contractor to perform this Contract.
Terms and Conditions
Page 6
<PAGE>
CONFIDENTIAL
(vv) "Milestone" means a portion of the definitive, measurable Work, which
shall be completed in accordance with this Contract including Exhibit C
(Contract Pricing, Payments and Milestone Achievement Criteria) and upon
completion of which a payment is to be made in accordance with Exhibit C.
(ww) "Milestone Achievement Criteria" has the meaning set forth in Exhibit
C (Contract Pricing, Payments and Milestone Achievement Criteria).
(xx) "Milestone Payment" means any of those payments listed as specific
milestone payments in Exhibit C (Contract Pricing, Payments and Milestone
Achievement Criteria).
(yy) "Network Management Testing" has the meaning set forth in Section 12
of Exhibit B (SOW).
(zz) "Notice of Defects" means a written notice executed by Owner and
delivered to Contractor identifying any defects in the Work setting forth in
reasonable detail a description of the defect.
(aaa) "Owner-Furnished Materials" means those documents, equipment and
other materials furnished by Owner to Contractor in connection with Contractor's
performance of the Work.
(bbb) "Owner Personnel" means Owner employees, Consultants or
representatives, or Owner's Consultants' employees.
(ccc) "Owner's Designated Representative" means Jack Wormington, Senior
Vice President of Engineering and Operations, or his successor or designee in
writing.
(ddd) "Pass-Through Expenses" has the meaning set forth in Exhibit C
(Contract Pricing, Payments and Milestone Achievement Criteria).
(eee) "Permitted Lien" means any lien, security interest, mortgage,
assignment, pledge, encumbrance or change of any kind in favor of the Financing
Entities under the Financing Agreements or any interest (except to the extent
waived or otherwise contravened in an applicable Site Lease Agreement) of a
Landlord (in its capacity as a Landlord under such Site Lease Agreement)
pursuant to applicable Law at a Site where the Work is located or pursuant to
the terms of such Site Lease Agreement itself.
(fff) "Permitted Reimburseables Expenses" has the meaning set forth in
Exhibit C (Contract Pricing, Payments and Milestone Achievement Criteria).
(ggg) "Program Management" means the program management services
Contractor shall furnish Owner in accordance with Exhibit B (SOW).
Terms and Conditions
Page 7
<PAGE>
CONFIDENTIAL
(hhh) "Project" means the design, development, implementation, and
completion of the entire Terrestrial Repeater Network System and related
equipment, facilities and services (excluding Owner-Furnished Materials) to be
provided to Owner in connection therewith, all in accordance with this Contract.
(iii) "Receiving Party" means the Party who receives Confidential
Information from the Furnishing Party.
(jjj) "Regulatory Services" has the meaning set forth in Exhibit B (SOW).
(kkk) "Repeater Acceptance Test Criteria" has the meaning set forth in
Section 2 of Exhibit E (Network Testing and Acceptance Criteria).
(lll) "Repeater Acceptance Testing" has the meaning set forth in Exhibit E
(Network Testing and Acceptance Criteria).
(mmm) "RF Engineering" means the radio frequency engineering services
Contractor shall furnish Owner in accordance with Exhibit B (SOW).
(nnn) "Site" means a terrestrial repeater site identified, acquired,
designed, constructed and tested in accordance with this Contract, which site
shall be part of the City Network of the City in which it is located.
(ooo) "Site Acquisition Services" means the site acquisition services
Contractor shall furnish Owner in accordance with Exhibit B (SOW).
(ppp) "Site Construction" means the site construction services Contractor
shall furnish Owner in accordance with Exhibit B (SOW).
(qqq) "Site Lease Agreement" means the agreement between Owner and
Landlord, whether license, lease or otherwise, whereby Owner acquires the right
to occupy, build and operate a Site on Landlord's property.
(rrr) "Standard Sites" has the meaning set forth in Exhibit C (Contract
Pricing, Payments and Milestone Achievement Criteria).
(sss) "Statement of Work" or "SOW" means the Work described in Exhibit B
to this Contract and to be provided by Contractor.
(ttt) "Subcontract" means a contract awarded by Contractor to a
Subcontractor or a contract awarded by a Subcontractor.
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(uuu) "Subcontractor" means a person, firm, corporation, or business
entity that has been awarded a Subcontract.
(vvv) "Testing" means the site testing and network testing services
Contractor shall furnish Owner in accordance with Exhibit B (SOW) and Exhibit E
(Network Testing and Acceptance Criteria), respectively.
(www) "Tier 1 City" "Tier 2 City" or "Tier 3 City" has the meaning set
forth in Attachment 1 of Exhibit B (SOW).
(xxx) "Work" means all services (including design, radio frequency,
engineering, site acquisition, zoning, architecture and engineering, program
management, construction management, construction and testing services), labor,
equipment, materials, articles, matters, acts (including tests to be performed)
and things to be furnished by Contractor and rights to be transferred by
Contractor in performance of this Contract, all as described in Exhibit A
(Network Design Criteria and Process), Exhibit B (SOW) and Exhibit E (Network
Testing and Acceptance Criteria). "Work" does not include any labor, materials,
articles, matters, acts (including tests to be performed) and things to be
furnished by Owner pursuant to this Contract, including pursuant to Attachment 2
of Exhibit B (SOW), or Contractor Tools or Contract Software.
(yyy) "Zoning" means the services Contractor shall furnish Owner with
respect to obtaining certain local zoning permits, licenses and approvals
necessary to perform the Work, all in accordance with Exhibit B (SOW).
1.2 Other Terms.
Other terms in this Contract are defined in the context in which they are
used and shall have the meanings there indicated.
1.3 Integration and Construction.
(a) The documents listed below in this Article 1.3 (Integration and
Construction), including any Exhibits, Attachments, and Schedules, as amended
from time to time in accordance with Article 28.3 (Amendments), constitute this
Contract and shall be deemed to constitute one fully integrated agreement
between the Parties. In the event of any conflict or inconsistency among the
provisions of the various documents of this Contract, such conflict or
inconsistency shall be resolved by giving a descending level of precedence to
the documents in the order set forth below:
(1) Terms and Conditions
(2) Exhibit A - Network Design Criteria and Process
(3) Exhibit B - Statement of Work (SOW)
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(4) Exhibit C - Contract Pricing, Payments and Milestone
Achievement Criteria
(5) Exhibit D - Data and Documentation
(6) Exhibit E - Network Testing and Acceptance Criteria
(b) Exhibits A, B, C, D, and E are attached to and incorporated into these
Terms and Conditions.
1.4 Headings; Number and Gender.
The Article headings are for convenience of reference only and shall not
be considered in interpreting the text of this Contract. Words in the singular
include the plural and vice versa, and words imputing the masculine gender
include the feminine and neuter genders where the context so requires.
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2. SCOPE OF WORK
2.1 General.
(a) In accordance with the requirements of this Contract, Contractor shall
furnish and perform and Owner shall purchase the Work.
(b) Without limiting the generality of the foregoing, Contractor shall
furnish the following:
(1) Program Management -- Contractor shall provide Program
Management in accordance with Exhibit B (SOW).
(2) RF Engineering -- Contractor shall provide RF Engineering in
accordance with Exhibit B (SOW).
(3) Site Acquisition Services -- Contractor shall provide Site
Acquisition Services in accordance with Exhibit B (SOW).
(4) Architecture and Engineering -- Contractor shall provide
Architecture and Engineering in accordance with Exhibit B
(SOW).
(5) Zoning Services -- Contractor shall provide Zoning Services in
accordance with Exhibit B (SOW).
(6) Site Construction -- Contractor shall provide Site
Construction in accordance with Exhibit B (SOW).
(7) Interim Maintenance -- Contractor shall provide Interim
Maintenance in accordance with Exhibit B (SOW).
(8) Regulatory Services -- Contractor shall provide Regulatory
Services in accordance with these Terms and Conditions and
Exhibit B (SOW).
(9) Network Management Testing -- Contractor shall provide Network
Management Testing in accordance with Exhibit B (SOW).
(10) Antenna Procurement -- Contractor shall procure antennas in
accordance with Exhibit B (SOW).
(11) Antenna Pointing - Contractor shall perform antenna pointing
services in accordance with Exhibit B (SOW).
(12) Testing -- Contractor shall perform site testing in accordance
with Exhibit B (SOW) and network testing in accordance with
Exhibit E (Network Testing and Acceptance Criteria).
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2.2 Assurances of Contractor and Subcontractor Performance.
(a) By separate letter agreement, the Parties shall agree on a process for
providing Owner continuing assurances of Contractor's ability to perform its
obligations under this Contract.
(b) Contractor shall obtain from its Subcontractors, and shall require its
Subcontractors to obtain from their subcontractors, such performance and/or
payment bonds as are commercially prudent taking into account the risk of
failure and financial resources of such Subcontractors.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3. EFFECTIVE DATE OF CONTRACT ("EDC"); CONDITIONS PRECEDENT
3.1 Effective Date of Contract.
This Contract shall be effective as of, and the effective date of this
Contract (the "Effective Date of Contract" or "EDC") shall be, the date first
set forth in this Contract.
3.2 Conditions Precedent.
Contractor shall have no obligation to commence performance of the Work
until, and Contractor agrees to commence Work upon, the date upon which Owner
deposits by wire transfer into the account specified in Article 5.2 (Payment)
the sum of [*****], wire transfer of which for the purposes of this Contract and
the Interim Services Agreement, as amended, shall be deemed to be Owner's
issuance and delivery of a notice to proceed with the Work. Owner shall make
such wire transfer on or before one (1) Business Day following EDC.
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4. CONTRACT SUM
4.1 Contract Sum.
In consideration of Contractor's performance of the Work in accordance
with this Contract, Owner shall pay Contractor the amounts determined in
accordance with Exhibit C (Contract Pricing, Payments and Milestone Achievement
Criteria) (collectively the "Contract Sum") in accordance with the payment
conditions and Milestones set forth therein, as may be adjusted pursuant to this
Contract. For the Work provided or to be provided under this Contract, Owner
shall not be obligated to pay Contractor any amounts in addition to the Contract
Sum, except as otherwise specifically provided in this Contract.
4.2 Changes in Contract Sum.
Except pursuant to Article 11 (Changes in Scope of Work) or Exhibit C
(Contract Pricing, Payments and Milestone Achievement Criteria), and as
otherwise expressly set forth in this Contract, the Contract Sum is not subject
to any escalation or to any adjustment or revision.
4.3 Taxes and Duties.
(a) Contractor shall be responsible for any sales, use, excise,
value-added, services, consumption and other taxes payable by Contractor on any
goods or services used or consumed by Contractor in providing the Work,
excluding taxes on Permitted Reimbursable Expenses and Pass-Through Expenses,
where such tax is imposed on Contractor's acquisition or use of such goods or
services and the amount of such tax is measured by Contractor's costs in
acquiring such goods or services.
(b) Owner shall be responsible for any sales, use, excise, value-added,
services, consumption and other tax on the provision to Owner of the Work as a
whole or any part of the Work, including on Permitted Reimbursable Expenses and
Pass-Through Expenses.
(c) Each Party shall consult and cooperate with the other to minimize the
other's tax liability to the extent legally permissible.
(d) Each Party shall cooperate with the other in the settlement of any
claim for taxes asserted by applicable taxing authorities.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
5. PAYMENT.
5.1 Invoicing.
(a) Contractor shall invoice Owner monthly for all Milestones completed in
accordance with the applicable Milestone Achievement Criteria and all other
applicable requirements of this Contract during the period covered by the
invoice (including Permitted Reimbursable Expenses and Pass-Through Expenses
incurred during the month) and any other charge permitted by this Contract. Each
invoice shall be accompanied by conditional releases of claims and waivers of
liens, in form and substance reasonably satisfactory to Owner, executed by
Contractor and all Subcontractors with respect to the Work for which payment is
sought. The invoice shall show details and supporting documentation as to
amounts invoiced as specified by Owner. Each invoice shall be accompanied by a
certification in the form of Attachment B.
(b) In the event a Party determines a credit is due Owner pursuant to this
Contract, such Party shall notify the other Party in writing. To the extent the
Parties agree on the amount of the credit, if any, due to Owner, Contractor
shall provide Owner with such credit against amounts then due and owing; if no
further payments are due to Contractor, Contractor shall pay the amount of such
credit to Owner within thirty (30) Calendar Days after such credit becomes due.
(c) Contractor shall deliver a copy of each invoice and all details and
supporting documentation to:
XM Satellite Radio Inc.
1250 23rd Street, NW
Suite 57
Washington, DC 20037
Tel: 202-969-7100
Fax: 202-969-7050
Attention: Chief Financial Officer
Copy to: Royce Kincaid
Vice President, Terrestrial Repeater Program
5.2 Payment.
(a) Subject to Article 5.8 (Withholding of Payment), Owner shall pay
Contractor within thirty (30) Calendar Days after receipt from Contractor of an
invoice in accordance with the requirements of Article 5.1. Notwithstanding the
foregoing, invoices shall be credited in full against the initial [*****] down
payment described in Article 3.2 (Conditions Precedent) until such amount has
been exhausted.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(b) Payments on account of invoices shall be made by wire transfer to the
following bank account (or to such other account as Contractor shall request by
written instruction to Owner signed by Contractor's Chief Executive Officer or
President):
Bank: Nations Bank, NA
Address: Washington, DC
Account No.: [*****]
ABA No.: [*****]
(c) No payment by Owner shall constitute an Acceptance of any Work not in
accordance with this Contract.
(d) Owner shall have no obligation to pay or be responsible in any way for
payment to a Subcontractor. Contractor shall pay each Subcontractor all
undisputed amounts in accordance with the applicable Subcontract. Promptly upon
execution of this Contract, the Parties shall develop procedures to be employed
by Contractor to assure Owner that Subcontractors will be paid on a timely
basis.
5.3 Reserved.
5.4 Final Payment for a City Network.
(a) With respect to each City Network constructed hereunder, Final Payment
(as defined below) shall be due and payable by wire transfer to the account
specified above in Article 5.2 (Payment) on or before thirty (30) Calendar Days
following the last to occur of the following: (i) the Work in respect of such
City Network has been completed; (ii) Acceptance of such City Network has
occurred; and (iii) Owner has received Contractor's invoice for Final Payment
for such City Network, including all details and supporting documentation as to
amounts invoiced as specified by Owner. "Final Payment" with respect to a City
Network means the entire unpaid balance for all amounts due for Work in respect
of such City Network.
(b) Acceptance by Contractor of Final Payment for a City Network shall
constitute a waiver of all claims for payment by Contractor in respect of such
City Network, except those claims previously made in writing and identified as
unsettled at the time of submission of the invoice for such Final Payment.
5.5 Set Off.
In the event Contractor has not paid Owner any amount due and payable to
Owner under this Contract, or if Owner is entitled to a credit under this
Contract (for example, for overcharges that have been paid by Owner), Owner
shall have the right to set off such amount against payments due to Contractor.
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5.6 Late Payment.
For any payment under this Contract that is overdue, the Party entitled to
such payment shall also be entitled to interest on such payment for each day the
payment is overdue until the day payment is made, such interest to be calculated
in accordance with Article 28.11 (Calculation of Interest), unless expressly
provided otherwise in this Contract.
5.7 Reserved.
5.8 Withholding of Payment.
(a) If Owner, in good faith, does not agree that a Milestone associated
with an invoice has been completed in accordance with the Contract or that such
invoice is otherwise inaccurate, (i) Owner shall pay the undisputed part of such
invoice in the time period required by this Contract and (ii) Owner shall have
the right to withhold the disputed portion of such invoice provided Owner gives
to Contractor written notice stating in reasonable detail the reason for
withholding such amount within twenty (20) Calendar Days after receipt by Owner
of the applicable invoice. Upon receipt of such notice, the Parties shall
initiate Dispute Resolution in accordance with Article 22 (Dispute Resolution).
(b) If the Parties' fail to resolve such disagreement within thirty (30)
Calendar Days after receipt by Owner of the disputed invoice and if the
aggregate of withheld disputed amounts exceeds Two Hundred and Fifty Thousand
Dollars ($250,000), Owner shall deposit all withheld amounts into an
interest-bearing escrow account (the escrow agent and the escrow agreement to be
agreed by the Parties no later than thirty (30) Calendar Days following EDC)
within thirty-five (35) Calendar Days after receipt by Owner of the applicable
invoice.
(c) In the event it is determined, either by arbitration or written
agreement of the Parties, that the withheld payment or any part thereof is due
and payable to Contractor, such amount shall be paid to Contractor within five
(5) Calendar Days after resolution of the dispute, together with all interest
accrued on the withheld amounts deposited in the escrow account (provided Owner
shall pay to Contractor any difference between such interest and the interest
set forth in Article 28.11 (Calculation of Interest) hereof) or, for withheld
amounts not deposited in the escrow account, the late payment charge that may
have accrued under this Contract pursuant to Article 5.6 (Late Payment), running
from the date such amount shall be determined to have been due and payable to
the date of payment. In the event it is determined, either by arbitration or
written agreement of the Parties, that the withheld payment or any part thereof
is not due and payable to Contractor, then, if Owner had deposited withheld
amounts into the escrow account, Owner shall be entitled to withdraw from such
account such withheld payment together with all interest accrued thereon
(provided Contractor shall pay to Owner any difference between such interest and
the interest set forth in Article 28.11 (Calculation of Interest) hereof),
running from the date such amount was deposited into the escrow account to the
date of payment.
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5.9 Contractor's Right to Suspend the Work.
In the event Owner fails to pay Contractor any undisputed amounts due in
accordance with this Contract with respect to a City, or fails to place into
escrow disputed amounts to the extent required by Article 5.8(b) above with
respect to a City, Contractor, after providing Owner with five (5) Business
Days' prior written notice and opportunity to cure, may suspend performance of
the Work in that City until Owner pays Contractor such undisputed amounts due or
places into escrow disputed amounts to the extent required by Article 5.8
(Withholding of Payment); provided further, where (i) Contractor is permitted
pursuant to this Article 5.9 (Contractor's Right to Suspend Work) to suspend the
Work in at least one Tier 1 City or at least five (5) of the remaining Cities
(Tier 2 or Tier 3 Cities) or (ii) the amount of disputed payments withheld by
Owner exceeds Three Million Dollars ($3,000,000), Contractor may suspend all the
Work hereunder. In the event of a suspension under this Article 5.9
(Contractor's Right to Suspend the Work), the Parties shall work together to
minimize the impact of such suspension on the Contract Sum, Initial City
Schedules, Acceptance Date and Contractor's performance hereunder and Contractor
shall be entitled to an equitable adjustment in the Key Tasks set forth in the
Initial City Schedules, the Acceptance Date and the Contract Sum, such pricing
adjustments to be determined in accordance with Article 11.3 (Pricing of
Changes).
5.10 Access to Records.
(a) Contractor shall maintain accurate records, including, bills, books,
papers, time reporting documents, written policies and procedures, daily reports
and diaries and daily logs, insofar as they relate to this Contract, and all
other Project documentation in accordance with generally accepted accounting
principles uniformly and consistently applied in a format that will permit
audit. All such records with respect to a City Network shall be retained by
Contractor for a period of three (3) years from the date of Final Payment for
such City Network.
(b) Owner and its authorized representatives shall have access to such
records for inspection, audit, examination and copying (at Owner's expense) upon
reasonable prior written notice to Contractor and at reasonable times during
normal business hours for the following purposes: (i) to audit charges hereunder
that are not fixed charges under Exhibit C (Contract Pricing, Payments and
Milestone Achievement Criteria) (for example, unit charges, Permitted
Reimbursable Expenses, Pass-Through Expenses and time and material charges) and
(ii) with respect to any dispute or claim filed under the Contract. If requested
by Owner, Contractor shall provide adequate work space on Contractor's premises
for Owner's authorized representatives to review and copy such records and shall
provide such records in a timely manner. Contractor shall use commercially
reasonable efforts to require any Subcontractor to maintain records as stated
above for Contractor and to permit Contractor to have access to such records for
inspection and audit at reasonable times during normal business hours and
Contractor shall inspect and audit such records of Subcontractor upon request of
Owner and as Contractor determines appropriate. Owner's right to inspect, audit
and copy shall expire upon the first anniversary of (i) the date of Acceptance
of the last City Network to be accepted or (ii) termination of this Contract,
whichever is earlier.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(c) In the event an audit, inspection or examination in accordance with
this Contract discloses net overcharges (of any nature) (the amount by which
overcharges exceed undercharges) by Contractor to Owner, Contractor shall be
liable to Owner for such overcharges, plus interest calculated in accordance
with Article 28.11 (Calculation of Interest). The costs of such audit,
inspection or examination shall be shared by the Parties as follows: in the
event such net overcharges are less than or equal to [*****] of the aggregate of
the audited, inspected or examined invoices, Owner shall pay such costs; in the
event such net overcharges are greater than [*****] and less than or equal to
[*****] of the aggregate of such invoices, Contractor and Owner shall equally
share such costs; in the event such net overcharges are in excess of [*****] of
the aggregate of such invoices or the net overcharges are equal to or in excess
[*****], Contractor shall pay such costs. Any payments required hereunder as a
result of any such audit, inspection or examination of Contractor's invoices
and/or records shall be made within a reasonable amount of time (not to exceed
thirty (30) Calendar Days from presentation of the findings of the auditor,
inspector or examiner).
(d) Any information obtained by audit, inspection or examination hereunder
is subject to Article 19 (Confidential Information).
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6. ACCESS TO WORK
6.1 Access to Work.
Contractor shall provide Owner Personnel access to all Work (including
work-in-progress, documentation, and testing) at the Site on a non-interference
basis during business hours.
6.2 Data and Documentation.
(a) Subject to Article 6.1 (Access to Work), Owner Personnel will at all
times have access to (i) Data and Documentation; (ii)Work-in-progress, technical
and schedule data and documentation relevant to the Work; and (iii) drawings,
specifications and other design documents relevant to the Work. To facilitate
Owner's rights hereunder, Contractor will allow Owner Personnel access to all
indices related to the materials set forth in this paragraph (a).
(b) Where the materials described in paragraph (a) are necessary for
evaluation of designs, performance considerations, assessment of test plans and
test results, or for any other purpose connected with the design, qualification,
testing, Acceptance, or operation of the Work, or any part thereof, Contractor
will, subject to Article 19 (Confidential Information), make available to Owner
Personnel copies of such documentation on the reasonable request of Owner
Personnel at Owner's expense.
(c) Any data provided by a Party to the other Party in electronic form
shall be embodied in, or be in a form compatible with, commercially available
software.
6.3 Electronic Access.
Subject to the license granted in Article 17(c), during the term of this
Contract, Owner shall be provided electronic access to Contractor's workflow
management system as deployed on the Project (such system known as "WINDS") in
accordance with Exhibit B (SOW) and Exhibit C (Contract Pricing, Payments and
Milestone Achievement Criteria).
6.4 Meetings.
(a) Contractor shall hold work status meetings at locations to be mutually
agreed to by the Parties in accordance with Exhibit B (SOW).
(b) Owner Personnel shall be entitled, at Owner's expense, to participate
in the meetings (including in person, or through teleconference, video
conference or internet) of Contractor and of Contractor with any
Subcontractor(s) where such meetings (or portions of such meetings) are related
to the Work and shall have the right to participate in and make recommendations,
but not to control, give directions or assign actions, in all such meetings.
Contractor shall advise Owner of the date and time of scheduled meetings in
accordance with Section 2.6 of Exhibit B (SOW).
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(c) In the event a meeting is convened at the facilities of Contractor or
a Subcontractor relating to the Work, Contractor shall make appropriate
arrangements to ensure the entry of Owner Personnel to the meeting place.
(d) Notwithstanding the foregoing, Owner and Contractor acknowledge and
agree that a large number of impromptu, unscheduled, informal and otherwise
casual meetings will be held during the normal course of performance of this
Contract and that, in all instances of meetings relating to this Contract,
notice to Owner of all such meetings may not be practicable. Accordingly,
Contractor is not required to provide notice to Owner of such impromptu,
unscheduled, informal and otherwise casual meetings.
6.5 Financing Entities.
Each Financing Entity shall have access to the Work in the same manner and
to the same extent as Owner Personnel under this Article 6 (Access to Work).
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
7. TIME FOR PERFORMANCE
7.1 Initial City Schedule and Acceptance Date.
(a) For each City, Contractor shall deliver to Owner on or before
forty-five (45) Calendar Days following EDC an Initial City Schedule in
accordance with Exhibit B (SOW). Each Initial City Schedule shall set forth
Contractor's schedule for achieving Key Tasks so as to achieve Acceptance of the
applicable City Network on or before the Acceptance Date.
(b) Contractor shall achieve Acceptance of each City Network on or before
the Acceptance Date and Contractor shall perform the Work so as to achieve each
Key Task set forth in each Initial City Schedule in accordance with the schedule
set forth therein.
(c) For each City, Contractor shall deliver to Owner on a monthly basis a
City Progress Schedule showing the progress of the Work against the Initial City
Schedule as part of the monthly status report required under Exhibit B (SOW).
(d) In the event Contractor fails to complete any Key Task in accordance
with the Initial City Schedule, the rights of the Parties shall be as set forth
in Article 25 (Default and Correction Plan).
7.2 Delivery Incentives and Liquidated Damages.
(a) In the event Contractor achieves the Agreed Performance Threshold for
all Tier 1 Cities on or before [*****] Calendar Days prior to the Acceptance
Date, Owner shall pay Contractor within thirty (30) Calendar Days of such event
[*****]. In the event Contractor achieves the Agreed Performance Threshold for
all Cities on or before [*****] Calendar Days prior to the Acceptance Date,
Owner shall pay Contractor within thirty (30) Calendar Days of such event
[*****].
(b) The Parties acknowledge and agree that failure to achieve the Agreed
Performance Threshold of all City Networks on or before the Acceptance Date,
will cause substantial financial loss or damage being sustained by Owner. The
Parties further acknowledge and agree that the following liquidated damages are
believed to represent a genuine estimate of the loss that would be suffered by
Owner by reason of any such delay (which losses are difficult or impossible to
calculate with reasonable certainty).
(c) In the event Contractor fails to achieve the Agreed Performance
Threshold on or before the later of (i) the Acceptance Date as such date may be
adjusted in accordance with the Contract, or (ii) [*****] if Owner's first
satellite is not successfully launched on or before
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
April 15, 2001,((i) and (ii) together, the "Liquidated Damages Date"),
Contractor shall pay Owner, as liquidated damages and not as a penalty, the
following amount for each Calendar Day after the Liquidated Damages Date
Contractor fails to achieve the Agreed Performance Threshold:
(1) [*****] for each Calendar Day, starting on the first Calendar
Day following the Liquidated Damages Date and continuing
through the thirtieth (30th) Calendar Day following the
Liquidated Damages Date;
(2) [*****] per Calendar Day, starting on the thirty-first (31st)
Calendar Day following the Liquidated Damages Date and
continuing through the sixtieth (60th) Calendar Day following
the Liquidated Damages Date; and
(3) [*****] per Calendar Day, starting on the sixty-first (61st)
Calendar Day following the Liquidated Damages Date and
continuing through the ninetieth (90th) Calendar Day following
the Liquidated Damages Date.
(d) The total amount of liquidated damages for failure to achieve the
Agreed Performance Threshold on or before the Liquidated Damages Date shall not
exceed [*****].
(e) Owner may deduct any liquidated damages from any amounts due
Contractor, or Owner may require Contractor to pay any liquidated damages that
exceed amounts due Contractor, within thirty (30) Calendar Days after such
request. Until any liquidated damages are paid to Owner, Owner shall also be
entitled to interest on such payment for each day the payment is overdue until
the day payment is made, such interest to be calculated in accordance with
Article 28.11 (Calculation of Interest).
7.3 Suspension of Work by Owner.
Owner, in its sole discretion, may suspend performance of the Work, in
whole or in part, upon written notice to Contractor, and Contractor shall
suspend performance of the Work to the extent specified in such notice within
twenty-four (24) hours thereof. If, within two (2) months of Owner's notice to
suspend the Work, Owner fails to notify the Contractor to resume performance of
the Work suspended, Contractor may, at any time thereafter, terminate the
Contract, but only to the extent the Work was suspended, upon ten (10) Calendar
Days written notice to Owner. In the event of a suspension under this Article
7.3 (Suspension of Work by Owner ), the Parties shall work together to minimize
the impact of such suspension on the Contract Sum, Initial City Schedules,
Acceptance Date and Contractor's performance hereunder and Contractor shall be
entitled to an equitable adjustment in the Key Tasks set forth in the Initial
City Schedules, the Acceptance Date and the Contract Sum, such pricing
adjustments to be determined in accordance with Article 11.3 (Pricing of
Changes).
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7.4 Excusable Delay Defined.
(a) With respect to Contractor's performance of its obligations under this
Contract, an "Excusable Delay" shall be any delay in the performance of the
Work, in whole or in part, caused by an event that is beyond the reasonable
control of Contractor, its Subcontractors or their respective Affiliates,
including (i) war (whether declared or undeclared), outbreak of national
hostilities, invasion or sabotage; (ii) fire, earthquake, flood, hurricane,
tornado, cyclone, monsoon, epidemic, explosion, or quarantine restriction; (iii)
strike or work slow-down (other than by the employees of Contractor or any
Subcontractor at any Site) not reasonably within Contractor's control; (iv)
freight embargoes; (v) acts of God; (vi) Extraordinary Weather Conditions; (vii)
governmental action, including changes in Law, zoning moratorium (de jure and de
facto), and changes in zoning requirements (but excluding difficulties in
obtaining zoning not due to zoning moratorium (de jure or de facto ) or changes
in zoning requirements) that have a negative impact on performance of the Work;
or (viii) failure by Owner to timely meet its responsibilities under this
Contract, including those referred to in Article 24 (Owner's Responsibilities),
where such Owner failure inhibits, delays, or otherwise adversely affects
Contractor's ability to perform the Work in accordance with the Initial City
Schedule and/or Acceptance Date; provided, however, that no delay shall be an
Excusable Delay unless such delay could not have been either (x) avoided by
Contractor, its Subcontractors or their respective Affiliates through the
exercise of reasonable foresight or reasonable precautions or (y) circumvented
by Contractor, its Subcontractors or their respective Affiliates through the use
of reasonable efforts to establish work-around plans alternate sources, or other
means. Contractor shall use best efforts to include in its weekly report
immediately following the delay a detailed description of the cause of the event
constituting an Excusable Delay and the portion(s) of the Work known to be
affected by such event constituting an Excusable Delay. Upon Owner's written
request, Contractor shall provide Owner a Correction Plan. Contractor shall also
provide Owner prompt written notice when the event constituting an Excusable
Delay has ended.
(b) In the event Owner disputes any Excusable Delay asserted by
Contractor, Owner shall notify Contractor in writing within ten (10) Business
Days from the date of receipt of the Weekly Status Report identifying such
Excusable Delay and, if the Parties have not resolved the dispute within ten
(10) Business Days of Contractor's receipt of written notice from Owner, the
dispute shall be resolved pursuant to Article 22 (Dispute Resolution).
7.5 Contract Adjustments.
(a) In the event of an Excusable Delay under Article 7.3 (Excusable Delay
Defined), there shall be an equitable adjustment to the affected Initial City
Schedules and the Acceptance Date; Contractor acknowledges and agrees the
occurrence of an Excusable Delay shall not entitle Contractor to an increase in
the Contract Sum unless (i) the Excusable Delay is caused directly by Owner's
failure to meet its responsibilities under this Contract, including those
detailed in Article 23 (Owner's Responsibilities), in which event there shall be
an equitable adjustment to the Contract Sum, the pricing for such adjustment to
be determined in accordance with Article 11.3 (Pricing of Changes) or (ii) the
Excusable Delay is due to a zoning moratorium
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(de jure or de facto) or a change in the regulatory regime at the U.S. Federal
Communications Commission, or state or local jurisdictions that results in
treating the Terrestrial Repeater Network System materially different from PCS,
cellular or other local wireless distribution systems, the effect of which is to
create a materially more cumbersome, time-consuming and expensive process per
Site, in which event there shall be an equitable adjustment to the Contract Sum
to address the changed circumstances the Parties did not foresee, the pricing
for such adjustment to be determined in accordance with Article 11.3 (Pricing of
Changes).
(b) In the event the U.S. Federal Communications Commission preempts state
and local jurisdiction over permits, approvals and licenses and the result of
such preemption is to create a materially less cumbersome, time-consuming and
expensive process per Site, there shall be an equitable decrease in the Contract
Sum to take into account the effect of such improved efficiencies.
(c) On or before the tenth (10th) Business Day after the end of each
calendar month in which Contractor asserts an event constituting an Excusable
Delay, Contractor shall use commercially reasonable efforts to provide to Owner
a claim for contract adjustments for Excusable Delay, detailing the delays over
the prior calendar month for which Contractor claims a contract adjustment
pursuant to this Article 7.5 (Contract Adjustments). Notwithstanding anything to
the contrary herein, failure to make such a claim in writing to Owner within
sixty (60) Calendar Days after the occurrence of an Excusable Delay shall
constitute a waiver of such claim. Any adjustment made pursuant to this Article
7.5 (Contract Adjustments) shall be set forth in an Amendment to this Contract
in accordance with Article 28.3 (Amendments).
7.6 No Claims for Weather Conditions Other than Extraordinary Weather
Conditions.
Contractor (i) represents and warrants to Owner that the Acceptance Date
contains allowances for delays caused by adverse weather conditions under normal
seasonal conditions and (ii) covenants and agrees that Contractor shall make no
claim for an increase in the Acceptance Date as a result of rain, snow, cold, or
other weather conditions (not including those referred to in Article 7.4(a)
(ii)), unless such conditions are Extraordinary Weather Conditions.
7.7 No Claims for Prevention of Early Completion.
Contractor waives the right to assert any claim against Owner in the event
Contractor is unable to complete a Key Task before the date set forth in the
applicable Initial City Schedule, regardless of the reason for Contractor's
failure, including the acts or omissions of Owner; provided, however, in the
event of an Excusable Delay caused directly by Owner's failure to meet its
responsibilities under this Contract, including those detailed in Article 24
(Owner's Responsibilities), Contractor shall be entitled to an equitable
adjustment pursuant to Article 7.5 (Contract Adjustments) and further provided
that in the event of a suspension of Work in accordance with Article 5.9
(Contractor's Right to Suspend the Work) or Article 7.3 (Suspension of Work by
Owner), Owner shall reimburse Contractor for costs incurred as a result of such
suspension as set forth in such Articles.
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8. ACCEPTANCE
8.1 Repeater Acceptance Testing (City Network Testing of Repeaters Only)
(a) After Contractor has completed a City Network, Contractor shall
conduct Repeater Acceptance Testing against the Repeater Acceptance Test
Criteria set forth in Exhibit E (Network Testing and Acceptance Criteria) and in
accordance with the Repeater Test Plan and Procedures attached thereto.
(b) On a City Network-by-City Network basis, Owner shall review the
Repeater Acceptance Test Report prepared and delivered by Contractor in
accordance with Section 4 of Exhibit E, and the certification prepared and
delivered by Contractor in accordance with Section 5 of Exhibit E. Upon Owner's
request, Contractor will reasonably support Owner in such review (e.g., answer
questions, provide supporting information).
(c) Owner shall provide Contractor written notification of its acceptance
or rejection of the City Network within fourteen (14) Calendar Days after
receipt of Contractor's certification required by Section 5 of Exhibit E
(Network Testing and Acceptance Criteria). Owner shall accept a City Network in
the event that the Repeater Acceptance Test Report establishes that the City
Network meets the Repeater Acceptance Test Criteria as set forth in Exhibit E
(Network Testing and Acceptance Criteria). In the event Owner provides
Contractor notice of acceptance, the accepted Work shall be deemed accepted as
of the date of Contractor's certification ("Acceptance"). In the event Owner
rejects the Work or any part thereof, Owner shall provide Contractor with a
Notice of Defects. Where Owner fails to provide Contractor written acceptance or
Notice of Defects within the said fourteen (14) Calendar-Day Period, the
certified Work shall be deemed accepted as of the date of Contractor's
certification. If Contractor disputes the contents of a Notice of Defects,
Contractor shall notify Owner in writing of the basis for its dispute within
fourteen (14) Calendar Days of receipt of Owner's Notice of Defects. In the
event Contractor does not dispute such Notice of Defects, the Parties shall
proceed in accordance with paragraphs 1, 2 and 3 below:
(1) In the event the Repeater Acceptance Testing indicates Contractor
did not implement the Build-To City Network Design, in any material
way, as set forth in such Design (irrespective of the reason for
such failure), then Contractor, at its cost, shall perform all
additional RF Engineering and other services (except Site
Construction at additional Sites if any are required) required to
implement such Design and, at Owner's cost in accordance with the
pricing set forth in Exhibit C (Contract Pricing, Payments and
Milestone Achievement Criteria), Contractor shall perform all Site
Construction and provide all equipment (except repeaters, which
shall be provided by Owner at Owner's expense) at any additional
Sites as required to implement the Build-To City Network Design.
(2) In the event Contractor has implemented the Build-To City Network
Design in accordance with such Design, but the Repeater Acceptance
Testing nevertheless indicates the City Network does not meet the
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Repeater Acceptance Test Criteria set forth in Exhibit E (Network
Testing and Acceptance Criteria), the Parties shall analyze the
cause of the discrepancies between the Build-To City Network Design
and the Repeater Acceptance Testing results. If the discrepancy is
due to Contractor's failure to design the City Network in accordance
with the performance standards set forth in Article 10.1(a) and/or
to implement the Build-To City Network Design in accordance with the
performance standards set forth in Article 10.1(a), then Contractor,
at its cost, shall perform all additional RF Engineering and other
services required (except Site Construction at additional Sites) for
the City Network to meet the Repeater Acceptance Test Criteria, and,
at Owner's cost in accordance with the pricing set forth in Exhibit
C (Contract Pricing, Payments and Milestone Achievement Criteria),
Contractor shall perform Site Construction and provide all equipment
(except repeaters which shall be provided by Owner at Owner's
expense) required for the City Network to meet the Repeater
Acceptance Test Criteria.
(3) If the discrepancy is due to any other cause, then Contractor, at
Owner's cost in accordance with the pricing set forth in Exhibit C
(Contract Pricing, Payments and Milestone Achievement Criteria),
shall perform the RF Engineering and other services and provide the
equipment necessary for the City Network to meet the Repeater
Acceptance Test Criteria.
(4) Upon completion of the work set forth in paragraphs (1), (2) and (3)
above, Contractor shall repeat Repeater Acceptance Testing in
accordance with this Article 8.1 and Exhibit E, to the extent
necessary to demonstrate compliance with the Repeater Acceptance
Test Criteria.
(d) Owner shall determine, in its reasonable discretion, the time at which
the work required by paragraphs (b)(1) - (b)(4) above shall be performed
promptly or otherwise. The schedule and cost impact of postponing correction of
such deficiencies for a material period of time after completion of Repeater
Acceptance Testing shall be mutually agreed by the Parties; it is the Parties'
expectation that correction of such deficiencies promptly after completion of
Repeater Acceptance Testing shall impact neither the pricing set forth in
Exhibit C (Contract Pricing, Payments and Milestone Achievement Criteria) nor
Contractor's performance to schedule.
(e) Owner shall provide Contractor with written notice within thirty (30)
Calendar Days after receipt of the Repeater Acceptance Test Report required by
Exhibit E (Network Testing and Acceptance Criteria), identifying that portion of
the work required by paragraphs (b)(1) - (b)(4) above that Owner desires
Contractor to commence promptly, as well as, that portion of the Work Owner does
not desire Contractor to commence promptly. For portions of the Work that Owner
does not request Contractor to commence promptly, such portions of the work
shall be deemed completed and fully functioning for purposes of Contractor's
reperformance of Repeater Acceptance Testing and meeting the Repeater Acceptance
Test Criteria under paragraph (b)(4) above.
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8.2 City Network Testing of Repeaters and One Satellite
Upon Owner's request, Contractor shall test each City Network with the
first of Owner's satellites against live test criteria (the "Live Testing").
Such Live Testing shall not be within the scope of this Contract and shall be
the subject of later agreement by the Parties. Such later agreement shall
include the following:
(a) The Live Test Criteria shall be developed for the integrated repeater
and one -satellite, for at least the same level of performance established in
the Repeater Acceptance Test Criteria (appropriately adjusted to reflect
improved City Network performance reasonably expected as a result of adding
additional sites pursuant to Article 8.1 (Repeater Acceptance Testing) and
satellite coverage). The Live Testing shall be conducted in accordance with a
Live Test Plan proposed by Contractor for Owner's review and approval prior to
the first scheduled Live Testing. Contractor shall incorporate Owner's
reasonable comments into the Live Test Plan prior to commencing Live Testing.
(b) Contractor shall deliver to Owner a report setting forth in detail the
results of Live Testing, including all test data. If the results of the Live
Testing indicate the City Network fails to meet the Live Test Criteria, and if
such deficiency is the result of Contractor's failure to design in accordance
with the applicable standards set forth in Article 10.1(a), then Contractor, at
its cost, shall perform all additional RF Engineering and, at the Parties'
shared costs, Contractor shall perform all other services (except Site
Construction ) required to meet the Live Test Criteria, and, at Owner's cost in
accordance with the pricing set forth in the Exhibit C (Contract Pricing,
Payments and Milestone Achievement Criteria), Contractor shall perform all Site
Construction and provide all equipment and antennas required to meet the Live
Test Criteria (repeaters to be provided by Owner at Owner's expense).
(c) It is understood by the Parties that Contractor will apply best
engineering practices within the limitations of Contractor's satellite line of
sight tool and data input (imperfect USGS maps and absence of building,
vegetation and other morphological data).
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9. TITLE AND RISK OF LOSS
9.1 Transfer of Title.
Subject to Article 17 (Intellectual Property Rights), transfer of title,
free and clear of all liens and encumbrances of any kind (except for Permitted
Liens), of each item of Work shall pass to Owner upon Contractor's receipt of
Owner's payment for such item, it being understood by the Parties that Owner
shall retain title to all Owner-Furnished Materials.
9.2 Transfer of Risk of Loss
(a) Subject to paragraph (b) below, risk of loss or damage to each item of
the Work shall pass to Owner (i) for items to be incorporated in a Site, upon
Acceptance of the City Network in which such Site is located and (ii) for all
other items, upon delivery of such item to Owner in accordance with this
Contract.
(b) Risk of loss or damage to each item of Owner-Furnished Materials shall
pass to Contractor upon delivery to Contractor and shall pass from Contractor to
Owner upon Acceptance of the City Network in which such item of Owner-Furnished
Materials is installed.
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10. PERFORMANCE WARRANTIES
10.1 Warranties.
(a) Workmanship.
Contractor represents and warrants it will perform the engineering, design
and construction portions of the Work in accordance with the wireless industry's
best practices for engineering, design and construction appropriate for projects
of similar scope and complexity and other portions of the Work, and all other
portions of the Work in a skillful and workmanlike manner in accordance with
generally accepted standards and practices for the wireless industry, all
portions of the Work to be performed with sufficient number of properly trained
and educated personnel. With respect to any portion of the Work in any City
Network, such warranty shall commence upon payment of the Milestone related to
such Work and shall run until the first anniversary of the date of Acceptance of
such City Network. Owner shall provide Contractor with written notice of any
alleged or claimed breach of the foregoing warranty within thirty (30) Calendar
Days after discovery thereof. Contractor's sole obligation with respect to the
foregoing warranty shall be: (i) with respect to Site Construction, to correct
such non-conforming services; and (ii) with respect to all other services to be
provided under this Contract (e.g., Program Management, RF Engineering, Site
Acquisition Services, Architecture and Engineering, Zoning Services, Interim
Maintenance, Regulatory Services, and Testing), to correct such non-conforming
services, it being understood that Contractor's obligation in this regard runs
to correcting such services only, and not to the provision of materials or
equipment that may be determined to be required in respect of such City Network
as a result of the correction of such services.
(b) Materials.
Contractor represents and warrants the materials and equipment provided as
part of the Work and each part thereof will be free from material defects in
material and workmanship under normal use and service and provided such defect
is not caused by Owner's failure to use the applicable portion of Work in
accordance with manufacturer's instructions made known to Owner in writing. With
respect to antennas such warranty shall run for three (3) years from the date of
shipment, and with respect to each other item of material and equipment, such
warranty shall be no less than industry standard for such material or equipment.
Contractor further represents and warrants the materials and equipment furnished
by or on behalf of Contractor hereunder will be of good quality, of recent
manufacture and new unless otherwise required or permitted by this Contract.
Owner shall provide Contractor with written notice of any alleged or claimed
breach of the foregoing warranties within thirty (30) Calendar Days after
discovery thereof. Contractor's sole obligation with respect to the foregoing
warranties shall be to repair or replace the non-conforming materials and
equipment.
(c) Title.
Subject to Article 17 (Intellectual Property Rights), by delivery of each
portion of the Work, Contractor represents and warrants (i) upon title to such
portion of the Work passing to
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Owner in accordance with Article 9 (Title and Risk of Loss), Owner shall have
title to such portion of the Work free and clear of any and all liens and
encumbrances of any kind (except Permitted Liens) and (ii) Contractor has all
requisite authority and has obtained all authorizations required by Law or under
any agreement from any and all third parties necessary for Contractor to grant
Owner the rights conveyed in this Contract. Contractor's sole obligation under
the foregoing warranty shall be as set forth in Article 27.2 (Discharge of
Liens).
(d) Subcontractors' and Manufacturers' Warranties.
(1) Contractor represents and warrants that the Subcontractors',
manufacturers' or other warranties with respect to the
antennas procured by Contractor for delivery to Owner shall be
assignable to Owner. Furthermore, with respect to
Subcontractors', manufacturers or other warranties on all
materials and equipment (other than with respect to the
antennas) and services procured by Contractor for delivery to
Owner, Contractor represents and warrants it shall use
commercially reasonable efforts to make such warranties
assignable to Owner or to make Owner the intended third-party
beneficiary thereof.
(2) With respect to warranties that are assignable, Contractor
shall assign all such warranties to Owner on demand and in no
event later than Acceptance of the City Network in which the
relevant materials, equipment and services are incorporated or
to which they are related, whichever occurs earlier. With
respect to warranties that are not assignable or for which
Owner is the intended third-party beneficiary, Contractor
shall enforce such warranty on behalf of Owner prior to the
first anniversary of the Acceptance of the City Network to
which the warranted material, equipment or services attaches;
thereafter, upon Owner's request, Contractor shall provide
such enforcement on a Task-Order Pricing basis set forth in
Exhibit C (Contract Pricing, Payments and Milestone
Achievement Criteria).
(3) If Owner seeks to enforce a claim based upon a manufacturer's
warranty and such manufacturer fails to honor its warranty
based, in whole or in part, on a claim of defective
installation, and such claim fails due to defective
installation, Owner shall be entitled to enforce the terms of
such warranty against Contractor.
(e) Intellectual Property.
Contractor represents and warrants that, with respect to Intellectual
Property developed by Contractor and used in performance of the Work: (i) it is
either the owner of, or authorized to use, license, and incorporate, such
Intellectual Property utilized or incorporated in the Work; (ii) Contractor will
not embed or otherwise incorporate into the Work any Intellectual Property or
work product for which Contractor would require a license or sublicense; (iii)
Owner will not be required to pay any license fees or royalties apart from those
included in the Contract Sum for
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the use of such Intellectual Property; and (iv) such Intellectual Property will
not infringe any Intellectual Property Right of a third party. Contractor
represents and warrants that to its knowledge the foregoing (i) - (iv) are true
and correct with respect to Intellectual Property developed by Subcontractors
and used in performance of the Work. Contractor will assign and pass through to
Owner all warranties and maintenance obligations of third parties with respect
to the Intellectual Property utilized or incorporated in the Work.
(f) Code.
Contractor represents and warrants: (i) it shall use commercially
reasonable efforts to ensure no viruses or similar items are coded or introduced
into the Work; (ii) it shall not introduce into the Work any code that would
have the effect of disabling or otherwise shutting down all or any portion of
the Work; and (iii) it shall not develop, or seek to gain access to the Work
through any special programming devices or methods, including trapdoors or
backdoors, to bypass any Owner security measures protecting the Work.
(g) Year 2000 Compliance.
Contractor represents and warrants that it has (i) undertaken an
assessment of all significant computer hardware, software, networks, systems and
equipment used by Contractor directly to perform the Work ("Business Systems")
that could be adversely affected by failure to accurately adapt, accommodate,
process or respond to the date 9/9/99, periods spanning the twentieth and
twenty-first centuries, and dates within the Year 2000 and thereafter ("Year
2000 Ready"), (ii) developed a plan and a timeline for rendering all Business
Systems material to the Work to be Year 2000 Ready (the "Year 2000 Plan") before
any failure would have a material adverse effect on the Work, and (iii) to date,
implemented such plan in accordance with such timetable in all material
respects. Contractor represents and warrants that (i) it has and will continue
to request all Material Subcontractors to provide to Contractor assessments of
the Year 2000 Readiness of all material computer hardware, software, networks,
systems and equipment of such suppliers used in providing products or services
to Contractor businesses ("Supplier Systems"), (ii) it has received such
assessments from all Material Subcontractors and (iii) based on such assessments
to date and after reasonable inquiry, nothing has come to its attention to cause
it to believe that all material Supplier Systems will not be Year 2000 Ready in
all material respects. The Year 2000 Plan and each such Material Subcontractor's
response, have been previously provided to Owner. Contractor's sole obligation
under the foregoing warranty shall be to use its commercially reasonable efforts
to correct any non-conformity therewith.
(h) Compliance with Applicable Law.
Contractor represents and warrants the Work will conform to all applicable
Federal, State, and municipal Laws, including safety, health and environmental
Laws.
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(i) Replacement Parts.
Contractor represents and warrants each replacement part supplied by
Contractor in the performance of its warranty obligations hereunder shall be
free from material defects under normal use and service and conform to the
requirements of this Contract as if it were an original part. With respect to
replacement parts for antennas, all warranties hereunder applicable to such
replacement part supplied under warranty shall begin anew from the date said
replacement part is installed and is ready to begin service; with respect to all
other replacement parts, Contractor shall provide such parts on
industry-standard terms.
10.2 Duty to Correct.
(a) Contractor shall cure any breach of warranty after receipt of Notice
of Defect thereof from Owner, provided that payment has been made in respect
thereof, and regardless of prior reviews, inspections, approvals or acceptances
and regardless of whether Contractor disputes Owner's assertion of a breach of
warranty.
(b) Contractor shall fulfill the foregoing obligations at its own expense,
including, with respect to Site Construction, all costs arising from charges for
de-installation, removal, installation, repair, packaging, shipping, insurance,
taxes and other matters associated with the corrective measure.
(c) If Contractor fails to cure any breach of warranty after two (2)
attempts at correction, such attempts not to exceed thirty (30) Calendar Days,
after receipt of a Notice of Defect from Owner, Owner may, by separate contract
or otherwise, make the necessary cure and Contractor shall pay to Owner the
reasonable costs of such cure.
(d) If, after corrective measures have been taken, Contractor continues to
dispute Owner's assertion of a breach of warranty, Owner and Contractor shall
enter into dispute resolution pursuant to Article 22 (Dispute Resolution). If it
is determined by written agreement of the Parties or pursuant to Article 22
(Dispute Resolution) that a breach of warranty did not exist, Owner shall be
liable to Contractor for the incremental costs incurred by Contractor as a
result of any cure measures performed by Contractor, such costs to be reimbursed
in accordance with the Default Pricing for Contractor services set forth in
Exhibit C (Contract Pricing, Payments and Milestone Achievement Criteria).
(e) For the avoidance of doubt, if correction of any breach of warranty
causes a delay in the Acceptance of any City Network, the provisions of Article
7.2 (Liquidated Damages) shall apply.
10.3 Disclaimers of Warranty.
(a) EXCEPT AS OTHERWISE SET FORTH IN ARTICLE 10.1(e), CONTRACTOR TOOLS AND
CONTRACT SOFTWARE (INCLUDING WINDS), TO
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THE EXTENT PROVIDED TO OWNER HEREUNDER, ARE LICENSED "AS IS" WITH NO WARRANTY
WHATSOEVER.
(b) NOTWITHSTANDING ANYTHING TO THE CONTRARY, CONTRACTOR DOES NOT
GUARANTEE OR WARRANT, EITHER EXPRESSLY OR IMPLIEDLY, THE MATERIALS IN OR
WORKMANSHIP OF MATERIALS, SUPPLIES AND EQUIPMENT MANUFACTURED BY THIRD PARTIES
AND FURNISHED AND INSTALLED BY CONTRACTOR IN THE PERFORMANCE OF THE WORK WHERE
THE SUPPLIER OR MANUFACTURER OF SUCH MATERIALS, SUPPLIES AND EQUIPMENT ARE
CHOSEN, SPECIFIED OR REQUIRED BY OWNER.
(c) THE FOREGOING WARRANTIES ARE IN LIEU OF, AND CONTRACTOR EXPRESSLY
DISCLAIMS, ALL OTHER WARRANTIES AND/OR CONDITIONS, EXPRESS OR IMPLIED, STATUTORY
OR OTHERWISE, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, IMPLIED
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTY ARISING OUT OF
THE COURSE OF DEALING, CUSTOM OR USAGE OF TRADE. THE ABOVE WARRANTIES ARE THE
ONLY WARRANTIES MADE BY CONTRACTOR AND WILL NOT BE ENLARGED OR DIMINISHED
WITHOUT THE PARTIES' WRITTEN CONSENT.
(d) TO THE EXTENT REMEDIES ARE SET FORTH IN SECTION 10.1 FOR BREACH OF
WARRANTY SET FORTH THEREIN, SUCH REMEDIES ARE OWNER'S SOLE AND EXCLUSIVE
REMEDIES FOR A BREACH OF SUCH WARRANTIES.
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11. CHANGES IN SCOPE OF WORK
11.1 Changes Requested by Owner.
(a) Subject to paragraphs (b), (c), and (d) below, Owner shall be entitled
to direct, during the performance of this Contract, any change within the
general scope of this Contract, including any change that will add, delete, or
change the Work, affect the design or construction of any Site or the time for
performance of the Work set forth in the Initial City Schedules and/or
Acceptance Date; provided, however, (i) this Article 11 (Changes in Scope of
Work) shall not be used by Owner to terminate this Contract in part for
convenience; (ii) Owner shall be entitled only to direct additions or changes to
the Work for which Contractor has, or will have within a reasonable period of
time using commercially reasonable efforts, the resources to perform such
addition or change; (iii) the additions or changes to the Work involve services
Contractor provides as part of its ordinary business; and (iv) the additions or
changes to the Work will not materially adversely affect Contractor's
performance under the Initial City Schedules.
(b) Any change directed by Owner as described in paragraph (a) above shall
be submitted in writing to Contractor. Contractor shall respond to such directed
change in writing to Owner within fourteen (14) Calendar Days after receipt of
such directed change and shall include in such response the details of the
impact of such change in the Work on the Contract Sum and/or Initial City
Schedules and/or Acceptance Date. In the event Contractor, using commercially
reasonable efforts, cannot prepare such details within such period, Contractor
shall so advise Owner and shall submit, for Owner's approval, a request for an
extension of such period that in no event shall exceed sixteen (16) Calendar
Days, such request to set forth the reasons that the details of the impact of
such change could not be documented within such fourteen (14) Calendar Days
using commercially reasonable efforts. Upon Owner's approval, Contractor shall
be granted such extension.
(c) If Owner and Contractor agree upon the change in the Contract Sum
and/or the Initial City Schedule and/or Acceptance Date caused by the change in
the Work, Contractor shall proceed with the performance of this Contract as
changed immediately upon the execution by both Parties of a Change Order
reflecting such agreement.
(d) If the Parties cannot agree on a change to the Contract Sum and/or
Initial City Schedule and/or Acceptance Date, as occasioned by the additions or
changes in the Work directed by Owner pursuant to paragraph (a) above, Owner may
issue a Change Directive for such additions or changes. Contractor shall proceed
with the Work in accordance with the Change Directive and Owner may dispute the
reasonableness of Contractor's determination with respect to the appropriate
change to the Contract Sum and/or Initial City Schedule and/or Acceptance Date
under Article 22 (Dispute Resolution). Pending resolution of such dispute, Owner
shall pay Contractor in accordance with Article 11.3(b). If it is determined by
written agreement of the Parties or pursuant to Article 22 (Dispute Resolution)
that Contractor is entitled to an amount other than the amount paid by Owner,
Owner shall pay to Contractor the amounts of the shortfall or Contractor shall
refund to Owner the amount of the excess, as the case may be, with interest on
such amount running from the date of initial payment by Owner to the date of
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additional payment or refund, as the case may be, at the interest rate set forth
in Article 28.11 (Calculation of Interest).
(e) Any determination of a change to the Contract Sum pursuant to this
Article 11.1 (Changes Requested by Owner) shall be made in accordance with
Article 11.3 (Pricing of Changes).
11.2 Changes Requested by Contractor.
(a) Subject to paragraphs (b) and (c) below, Contractor may request,
during the performance of this Contract, any change within the general scope of
this Contract, including any change that will add or delete Work, cause a
revision to the Initial City Schedules or Acceptance Date or affect any other
requirement of this Contract.
(b) Any changes as described in paragraph (a) above requested by
Contractor shall be submitted in writing to Owner at least thirty (30) Calendar
Days prior to the proposed date of the change, or such notice as is reasonable
under the circumstances, that is, the notice for a complex and costly change
shall be significantly greater than that for a simple change that does not
impact the Contract Sum. If such Contractor-requested change causes an increase
or decrease or other impact on the Work, Contract Sum, Initial City Schedules or
Acceptance Date or other terms of this Contract, Contractor shall submit, with
such request, a written proposal identifying such change and the impact thereof
on the Contract Sum, Initial City Schedules or Acceptance Date or other terms of
this Contract.
(c) Owner may accept or reject such request in Owner's sole discretion.
Owner shall notify Contractor in writing, within fourteen (14) Calendar Days
after receipt of the requested change proposal, or within such period as is
reasonable under the circumstances; that is, the response to a notice that would
require significant analysis due to adverse changes in Contract Sum, Initial
City Schedules or Acceptance Date may be longer than that for a minor change
that does not adversely impact Contract Sum, Initial City Schedules or
Acceptance Date, whether or not Owner agrees with and accepts such change and
the impact thereof. If Owner agrees with and accepts Contractor's requested
change and such impact thereof, Contractor shall proceed with the performance of
this Contract upon the execution by both Parties of a written Change Order
reflecting such changes. If Owner does not agree to the requested change,
Contractor shall continue performance in accordance with this Contract without
regard to such requested change.
(d) Any determination of a change to the Contract Sum pursuant to this
Article 11.2 (Changes Requested by Contractor) shall be made in accordance with
Article 11.3 (Pricing of Changes).
11.3 Pricing of Changes.
(a) When calculating the change in the Contract Sum caused by changes in
the Work pursuant to this Article 11 (Changes in Scope of Work), the pricing set
forth in Exhibit C (Contract Pricing, Payments and Milestone Achievement
Criteria) shall apply to increases,
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decreases and other changes in the Work, as applicable. Where the pricing in
Exhibit C does not apply to a specific change, (i) if the change in the Work
alters the Work in a manner that results in the provision of additional services
or materials, the increase in the Contract Sum shall be equal to either (a) a
lump sum agreed to by the Parties, or (b) in the absence of agreement by the
Parties, the Default Pricing set forth in Exhibit C (Contract Pricing, Payments
and Milestone Achievement Criteria) for Contractor services, and (ii) if the
change in the Work alters the Work in a manner that results in the provision of
fewer services or materials, the decrease in the Contract Sum shall be equal to
either (a) a lump sum agreed to by the Parties or (b) in the event the Parties
cannot agree on such lump sum, a percentage reduction, as reasonably agreed by
the Parties, in the Milestone Payments to which the Work relates in an amount
reflecting the reduction of services or materials necessary to complete the
Milestones. In determining any increase or decrease in the Contract Sum under
this Article 11.3 (Pricing of Changes), the increase or decrease to the Contract
Sum shall be further adjusted to take into account the effect, if any, of the
increase, decrease or other change in the Work on the efficiencies in
performance by Contractor (and its Subcontractors), including the effect on
changes in the Initial City Schedules, the incurrence of wind-down expenses
(including those described in Article 26.1(d)) and the incurrence of
mobilization expenses.
(b) In the event the Parties cannot agree on a change to the Contract Sum
as contemplated by Article 11.1(d), then pending resolution of such dispute,
Owner shall pay Contractor in accordance with the specific prices set forth in
Exhibit C (Contract Pricing, Payments and Milestone Achievement Criteria) or, if
such specific pricing is not applicable, in accordance with the Default Pricing
for Contractor services set forth in Exhibit C.
(c) Any adjustment made pursuant to this Article 11 (Changes in Scope of
Work) shall be set forth in an Amendment to this Contract in accordance with
Article 28.3 (Amendments).
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12. PERMITS AND LICENSES; COMPLIANCE WITH LAWS
12.1 Permits, Licenses, and Approvals.
(a) Except as otherwise provided in Article 12.2(d), Contractor shall
obtain all approvals, permits, and licenses as may be required for the
performance of the Work by any Law, including all required zoning approvals,
permits and licenses and as described in Exhibit B (SOW). Owner shall cooperate
with Contractor in Contractor's efforts to obtain any such approvals, permits,
or licenses.
(b) Contractor shall cooperate with Owner in Owner's efforts to obtain the
FCC permits, licenses and approvals required for the Terrestrial Repeater
Network System to receive or transmit radio frequencies in the United States.
12.2 Compliance with Laws.
(a) Each Party shall perform its obligations under this Contract in
accordance with all applicable Laws.
(b) Without limiting the generality of Article 12.2(a), Contractor shall,
at its expense, perform the Work in accordance with all Laws and the conditions
of Laws applicable to its performance of the Work, including the Federal
Communications Commission's regulations implementing the National Environmental
Policy Act, 47 C.F.R. 1.1301-1.319. The Parties acknowledge that Contractor will
not be responsible for compliance with Canadian/Mexican border frequency
coordination and related matters.
(c) Without limiting the generality of Article 12.2(a), in its performance
of this Contract, Contractor will not, directly or indirectly, make, offer, or
agree to make or offer any loan, gift, donation, or other payment, whether in
cash or in kind, for the benefit, or at the direction, of any candidate,
committee, political party, government or its subdivision, or any individual
elected, appointed, or otherwise designated as an employee or officer thereof,
for the purpose of influencing any act or decision of such entity or individual
or inducing such entity or individual to do or omit to do anything, in order to
obtain or retain business or other benefits.
(d) Without limiting the generality of Article 12.2(a), Owner shall be
responsible for obtaining all permits, licenses and approvals required by the
Federal Communications Commission for the Terrestrial Repeater Network System to
receive or transmit radio frequency signals in the United States. In the event
Owner is unable to obtain any or all of the necessary FCC permits, licenses or
approvals, or is unable to obtain such permits, licenses or approvals in the
time period desired by Owner, Owner shall have the right, as it in its sole
discretion determines, to require Contractor to (i) suspend all or part of the
Work in accordance with Article 7.3 (Suspension of Work By Owner), and/or (ii)
slow the pace or otherwise modify the schedule for performance of the Work in
accordance with Article 11.1 (Changes Requested by Owner). Owner shall comply
with all applicable U.S. export Laws.
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(e) Contractor, if requested by Owner, shall review with Owner any
application Contractor makes to any governmental or quasi-governmental
department, agency, or entity for any approval, permit, license, or agreement,
as may be required for the performance of the Work, prior to submission of such
application. Contractor shall provide Owner a minimum of three (3) Business Days
to review such application prior to submission to such governmental or
quasi-governmental entity, and Contractor shall in good faith consider any
comments and proposed revisions made by Owner for incorporation into such
application. Owner shall reasonably cooperate with Contractor in Contractor's
efforts to procure all such approvals, permits, licenses, and agreements.
(f) Neither Party shall be responsible in any way for the consequences,
direct or indirect, of any violation of any law by the other Party, the other
Party's Subcontractors or the respective Affiliates or Associates of such other
Party.
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13. SUBCONTRACTS
13.1 Subcontracts.
(a) All portions of the Work to be performed by Subcontractors shall be
performed under Subcontracts or by other written agreements (e.g., purchase
order) with Contractor. Unless otherwise stated in this Contract, Contractor, as
soon as practicable after such information is determined, shall furnish Owner
with notice of the names of persons or entities from whom Contractor intends to
award Subcontracts for those portions of the work pertaining to the supply of
antennas and/or prime contracting of Site Construction (the "Material
Subcontracts") and Site Acquisition Services for one hundred (100) or more
Sites, and Contractor will consult with Owner concerning such selection.
(b) Owner's consultation with Contractor concerning any Subcontractor
shall not relieve Contractor from any obligations or responsibilities under this
Contract.
(c) Contractor shall not retain a Subcontractor to perform RF Engineering,
provided, however, Contractor may contract with any independent RF engineer to
perform RF engineering services under this Contract, and Contractor may contract
with one or more entities for the purpose of conducting drive tests.
13.2 Replacement of Material Subcontractors.
In the event Contractor desires to replace a Material Subcontractor or a
subcontractor providing Site Acquisition Services for one hundred (100) or more
Sites, Contractor shall provide Owner with reasonable prior written notice
thereof and will consult with Owner concerning the selected replacement.
13.3 No Privity of Contract.
Nothing in this Contract shall be construed as creating any contractual
relationship between Owner and any Subcontractor. Contractor is fully
responsible to Owner for the acts or omissions of Subcontractors and all persons
used by Contractor or a Subcontractor in connection with performance of the
Work. Any failure by a Subcontractor to meet its obligations to Contractor shall
not constitute a basis for Excusable Delay, except as expressly permitted in
Article 7.3 (Excusable Delay), and shall not relieve Contractor from meeting any
of its obligations under this Contract.
13.4 Subcontractor Relations.
(a) Contractor shall include in each of the Material Subcontracts and
shall use commercially reasonable efforts to include in all other Subcontracts,
that any such Subcontract include provisions substantially similar to Article
5.10 (Access to Records), Article 6.1 (Access to Work), Article 6.2 (Data and
Documentation), Article 6.4 (Meetings), Article 10.1(e)
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(Intellectual Property), Article 19 (Confidential Information), Article 22
(Dispute Resolution), and Article 27 (Mechanics' Liens and Claims).
(b) Each Subcontract shall provide that, for changes to the Work performed
by a Subcontractor, the increase to the subcontract sum shall not exceed a
commercially reasonable price for substantially similar work.
(c) Contractor shall not disclose any Confidential Information of Owner to
any Subcontractor or potential Subcontractor unless and until Subcontractor has
agreed in writing to assume the obligations described in Article 19
(Confidential Information).
13.5 Assignment of Subcontracts Upon Termination.
Contractor shall include in each of the Material Subcontracts, and shall
use commercially reasonable efforts to include in all other Subcontracts, a
provision (i) permitting the assignment of such Subcontract to Owner or its
designee without additional payment and (ii) requiring Subcontractor to perform
the Work for Owner or its designee upon such assignment.
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14. PERSONNEL AND KEY PERSONNEL
14.1 Personnel Qualifications.
Contractor shall assign properly qualified and experienced personnel to
the Project.
14.2 Key Personnel Positions.
Key personnel ("Key Personnel") shall be the personnel filling the
positions identified in Attachment A (Key Personnel). Contractor shall use
commercially reasonable efforts to retain Key Personnel on the Project for the
duration of the Project.
14.3 Assignment of Key Personnel.
(a) Contractor will assign individuals from within Contractor's
organization to the Key Personnel positions to carry out the Work.
(b) Key Personnel will be familiar with programs similar to Owner's
program; Contractor shall make individuals who shall replace Key Personnel fully
cognizant of the Project prior to such replacement.
(c) Before assigning an individual to any Key Personnel positions, whether
as an initial assignment or a subsequent assignment, Contractor shall notify
Owner of the proposed assignment, shall introduce the individual to appropriate
Owner representatives and, upon request, provide such representatives with the
opportunity to interview (either in person or by phone) the individual and shall
provide Owner with the individual's resume. If Owner in good faith objects to
the qualifications of the proposed individual within ten (10) Business Days
after being afforded the opportunity to interview the proposed individual,
Contractor shall discuss such objections with Owner and resolve such concerns on
a mutually agreeable basis or, if unable to do so, select another candidate in
accordance with the procedures set forth in this Article 14.3 (Assignment if Key
Personnel). Failure on the part of Owner to express its objections within ten
(10) Business Days of such notice shall be deemed acceptance of the assignment
of such individual. The Key Personnel that have been approved as of EDC are
listed in Attachment A (Key Personnel) hereto. Should the individuals filling
the positions of Key Personnel leave such positions for whatever reason,
Contractor shall follow the procedures set forth in this Article 14.3
(Assignment of Key Personnel) to select replacement personnel.
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15. CONTRACTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
(a) Contractor represents and warrants:
(i) it is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Delaware;
(ii) it has all requisite power and authority to own and operate
its material properties and assets and to carry on its
respective business as now conducted in all material respects;
(iii) it is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so
qualify would have a Material Adverse Effect;
(iv) it is, or at the time of performance of the Work will be,
fully licensed and authorized to perform the Work in each
jurisdiction in which the Work is to be performed;
(v) it has all requisite corporate power and authority to enter
into this Contract and to carry out the transactions
contemplated by this Contract;
(vi) the execution, delivery, and performance of this Contract and
the consummation of the transactions contemplated by this
Contract have been duly authorized by all requisite corporate
action of Contractor and do not conflict with any other
agreement or obligation to which it is a party or which binds
its assets;
(vii) this Contract is a valid and binding obligation of Contractor,
enforceable in accordance with its terms, except Contractor
makes no representation or warranty as to the enforceability
of remedies due to applicable bankruptcy, insolvency,
moratorium, reorganization, or similar laws relating to or
affecting the enforcement of creditor's rights or by reason of
general principles of equity; and
(viii) in the event Contractor becomes a party to any legal,
administrative, arbitral, investigatory or other proceeding or
controversy pending or, to the best of its knowledge,
threatened, which reasonably would be expected to have a
Material Adverse Effect, Contractor will notify Owner as soon
as practicable.
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(b) Contractor represents:
(i) Contractor is not a party to any legal, administrative,
arbitral, investigatory or other proceeding or controversy
pending or, to the best of its knowledge, threatened, which
reasonably would be expected to have a Material Adverse
Effect; and
(ii) as of the Effective Date, except as otherwise disclosed to
Owner in writing by Contractor prior to EDC, Contractor is not
a party to or bound by any letter of intent, memorandum of
understanding, contract, agreement, instrument, arrangement or
understanding, written or oral, which involves the acquisition
of the business of Contractor, or a substantial portion of the
assets or shares of capital stock of Contractor.
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16. OWNER'S REPRESENTATIONS AND WARRANTIES
(a) Owner represents and warrants:
(i) it is duly organized, validly existing and in good standing
under the Laws of the State of Delaware;
(ii) it has all requisite power and authority to own and operate
its material properties and assets and to carry on its
respective business as now conducted in all material respects;
and
(iii) it is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so
qualify would have a Material Adverse Effect;
(iv) it has all requisite corporate power and authority to enter
into this Contract and to carry out the transactions
contemplated by this Contract;
(v) the execution, delivery, and performance of this Contract and
the consummation of the transactions contemplated by this
Contract have been duly authorized by the requisite corporate
action of Owner and do not conflict with any other agreement
or obligation to which it is a party or which binds its
assets;
(vi) this Contract is a valid and binding obligation of Owner,
enforceable in accordance with its terms, except Owner makes
no representation or warranty as to the enforceability of
remedies due to applicable bankruptcy, insolvency, moratorium,
reorganization, or similar laws relating to or affecting the
enforcement of creditor's rights or by reason of general
principles of equity; and
(vii) in the event Owner becomes a party to any legal,
administrative, arbitral, investigatory or other proceeding or
controversy pending, or to the best of its knowledge
threatened, which reasonably would be expected to have a
Material Adverse Effect, Owner will notify Contractor as soon
as practicable.
(b) Owner represents:
(i) as of the Effective Date, except as otherwise set forth in the
filing of the Registration Statement on Form S-1 by XM
Satellite Radio Inc. with the U.S. Securities and Exchange
Commission on July 23, 1999, Registration No. 333-38619, Owner
is not a party to any legal, administrative, arbitral,
investigatory or other
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proceeding or controversy pending or, to the best of its
knowledge, threatened, which reasonably would be expected to
have a Material Adverse Effect.
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17. INTELLECTUAL PROPERTY RIGHTS
(a) Except as otherwise provided in this Article 17, all Developed
Materials provided by Contractor under this Contract, together with all
Intellectual Property Rights in and to such Developed Materials, shall be deemed
to be works made for hire as defined in 17 U.S.C. Section 101 of the United
States Copyright Act of 1976, as amended. Owner shall be deemed the author of
such Developed Materials and shall own all right, title and interest in and too
all Intellectual Property Rights in the Developed Materials, with the right to
use, adapt and change said Developed Materials and to prepare derivative works
therefrom. To the extent any Developed Materials are deemed to not be works made
for hire, except as otherwise provided in paragraphs (b) and (c) below, this
Contract shall constitute an irrevocable, fully paid-up, perpetual, worldwide
assignment by Contractor to Owner of Contractor's rights in the ownership of,
and all Intellectual Property Rights in, such Developed Materials, and Owner
shall have the right to obtain and hold in its own name all Copyright Rights and
similar protections that may be available in such works. Contractor agrees to
give Owner or its designee, at Owner's expense, all assistance reasonably
required to perfect such rights. Except as otherwise provided in paragraph (b)
below, in the event Contractor utilizes Subcontractors in performing Work for
Owner, Contractor shall use commercially reasonable efforts to obtain for Owner,
ownership of, and all Intellectual Property Rights in, the Developed Materials
developed or produced by any Subcontractor.
(b) The Parties acknowledge that various Subcontractors preparing site
specific drawings may not normally convey full ownership of their work (e.g.,
architectural & engineering drawings, environmental reports, title reports and
title surveys, land surveys, etc.) (collectively "Site Specific Drawings") in
the normal course of business. With respect to these items, Contractor shall
convey to Owner all rights that are provided by the Subcontractor in connection
with its products or services, including Site Specific Drawings. At a minimum,
however, Contractor shall convey to Owner a fully paid-up, perpetual,
non-terminable royalty-free license to use all Site Specific Drawings prepared
by Subcontractors for the Project. Contractor will not retain or obtain in the
future any Intellectual Property Rights with respect to the Site Specific
Drawings developed under this Contract. Subject to Article 20.3 (Indemnification
Procedures), Owner agrees to indemnify Contractor and the A&E Subcontractors
from any Losses arising out of use of any Site-Specific Drawings beyond the
scope of their intended purpose.
(c) Contractor will own all Intellectual Property Rights in and to any
software developed, refined or modified by Contractor in the course of, or to
aid in any way its performance under, this Contract ("Contract Software"), and
in all Contractor Tools, regardless of whether Owner has paid for such
development, refinement or modification, and except with respect to the license
set forth in this paragraph (c) regarding WINDS, Owner shall have no rights to
use such Contract Software or Contractor Tools. In the event Owner wishes to use
such Contract Software (other than WINDS) or Contractor Tools, Owner and
Contractor shall in good faith negotiate a license therefor. Owner understands
and agrees that any such Contract Software or Contractor Tools will be provided
"as is" with no warranty of any kind, and Contractor shall have no obligation to
support or maintain such software or tools. With respect to WINDS, and subject
to the terms and conditions of this Contract and Attachment C (Terms and
Conditions of License), Contractor
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hereby grants to Owner a fully paid up, non-exclusive, non-transferable,
irrevocable restricted right and license to use the WINDS software at Owner's
facility solely for Owner's internal business purposes (i) until the first City
Network to achieve Acceptance, to access Project data accessible through the
WINDS software using an internet browser and (ii) upon occurrence of the first
City Network to achieve Acceptance, to use a single copy of the WINDS software
for all purposes for which it was intended, including to access, add, delete and
edit Project data and other data associated with the Terrestrial Repeater
Network System on such single copy, as such system may evolve over time.
(d) Owner shall own all Patent Rights arising out of or relating to any
invention developed under this Contract that relate to technology incorporated
into infrastructure equipment that is not the core business of Contractor but is
essential to the business of Owner ("Owner Patent Rights"). Contractor will own
all other Patent Rights arising out of or relating to this Contract. Owner
hereby grants to Contractor a perpetual, worldwide, non-exclusive, assignable
license to make, have made, use, sell, offer to sell, or import technology,
apparatus, methods or services that are covered by such Owner Patent Rights with
the right to sublicense any of the foregoing rights. Notwithstanding anything to
the contrary herein, (i) it shall be a violation of the foregoing license to
exercise any of the foregoing rights (including assignment and sublicensing) for
the benefit of any direct competitor of Owner, and (ii) in the event of any such
violation, Owner may revoke the license granted to Contractor herein. Owner
agrees it will not license, transfer or assign Owner Patent Rights to a direct
competitor of Contractor.
(1) Contractor shall promptly notify owner, in writing, of any and
all inventions subject to Owner Patent Rights.
(2) Owner has the primary option for taking all action with
respect to filing and obtaining patents and other suitable
forms of protection in the United States and in any foreign
country in which Owner desires to perfect such right, at
Owner's sole expense from and after EDC. If Owner does not
exercise the above option within six (6) months of the first
public use of the subject matter to be patented, then
Contractor has the right to file and obtain patents and other
suitable forms of protection in the United States or any
foreign country at its sole expense. Further, if either Party
has exercised its right with respect to Owner Patent Rights,
then the other Party shall cooperate fully with the Party that
exercised such rights, such cooperation to include the
preparation, filing and prosecution of all patent applications
filed pursuant to this paragraph, and which shall include
execution by the other Party and its employees of any and all
such papers and instruments as are necessary or helpful to the
preparation, filing and prosecution of all such patent
applications. Regardless of which Party files for a patent
application or other suitable form of protection pursuant to
this paragraph, Owner shall own the patent application and
patent or other protection.
(3) If any Owner Patent Right is infringed by a third party, the
Party first having knowledge of such infringement shall
promptly notify the other in
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writing, which notice shall set forth the facts of such
infringement in reasonable detail. Owner shall have the
primary right, but not the obligation, to institute,
prosecute, and control any action or proceeding with respect
to such infringement, through counsel of its own choice, and
Contractor shall have the right, at its own expense, to be
represented in such action by counsel of its own choice. If
Owner fails to bring such action or proceeding within a period
of one hundred twenty (120) Calendar Days after receiving
written notice from Contractor or otherwise having knowledge
of such infringement, Contractor shall have the right to bring
and control any such action by counsel of its own choice, and
Owner shall have the right, at its own expense, to be
represented in any such action or proceeding. In any event,
the second Party agrees to be joined as a party plaintiff and
to give the first Party reasonable assistance and authority to
file and prosecute such suit. The Party bringing such suit
shall be responsible for all expenses of prosecuting such suit
(except to the extent the other Party elects to be represented
by counsel of its own choosing). In the event of any damages
or other monetary awards covered therein in favor of Owner
and/or Contractor, the Party bringing suit will be entitled to
recover its expenses first and any remaining portion of such
award shall then be paid fifty percent (50%) to Owner and
fifty percent (50%) to Contractor. No settlement or consent
judgment or other voluntary final disposition of a suit under
this Article may be entered into without the joint consent of
Owner and Contractor (which consent shall not be withheld
unreasonably).
(4) Each Party agrees to pay to the other Party, commencing in the
first full fiscal quarter after EDC, and continuing quarterly
thereafter, a royalty of fifty percent (50%) of all net
revenues, if any, derived from the manufacture, use or sale of
products covered by the subject of the patent or, from the
licensing or sublicensing of the Owner Patent or patent
license as the case may be. Such royalties shall be paid on or
before the last day of the first month following the
applicable fiscal quarter. Notwithstanding anything to the
contrary herein, Contractor shall not be obligated to pay
royalties with respect to any services it provides in the
ordinary course of its business, even if such services are
provided using products covered by the subject of the Owner
Patent.
(5) Each Party agrees to keep full, true, and accurate books of
account containing all particulars that may be necessary for
the purpose of showing the amount of royalties payable to the
other pursuant to paragraph (d)(4) of Article 17 (Intellectual
Property Rights). Each Party shall keep these books of account
at the usual place where its books are kept. Each Party shall
retain such books and the supporting data for at least three
(3) years following the end of the fiscal year to which they
pertain, and shall make available the supporting data for
inspection by the other Party or an independent certified
public accountant retained by such
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other Party for the purpose of substantiating the amount of
the first Party's royalty payments, or, in the case of
Contractor, compliance with the patent license granted herein.
The inspecting Party shall pay for the services of the
independent certified public accountant unless the independent
certified public accountant determines that the other Party
has understated the royalties due the inspecting Party, in
which case the other Party shall pay the entire amount charged
by the accountant for the accountant's services. The
non-inspecting Party agrees to pay the balance of such
royalties plus interest within ten (10) Calendar Days after
written notice of the understatement, such interest computed
in accordance with Article 28.11 (Calculation of Interest)
from the day on which said royalties were due and owing until
the date paid.
(e) Except as provided in this Article 17, Owner may use all Developed
Materials provided by Contractor hereunder to complete the Project, for
additions to the Project, or for any other purpose. Notwithstanding anything
herein to the contrary, Contractor will have no responsibility or liability to
Owner with respect to any modification to the Developed Materials made by Owner
or any other contractor retained by Owner.
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18. INTELLECTUAL PROPERTY INFRINGEMENT INDEMNIFICATION
18.1 Contractor Intellectual Property Indemnification.
(a) Subject to paragraph (a) of Article 18.2 (Owner's Intellectual
Property Indemnification), Contractor shall indemnify, defend, and hold harmless
Owner from any and all Losses arising from, in connection with, or based on any
allegations made by third parties (including Subcontractors of Contractor) that
Owner's possession or use of the Work, or any part thereof, infringes any
third-party U.S., Canadian or Mexican Intellectual Property Right.
(b) If the use of the Work or any part thereof is enjoined, Contractor
shall, or, if in Contractor's reasonable opinion the Work or any part thereof is
likely to be enjoined, Contractor may, in either case at its expense, either
procure for Owner the right to use the Work or infringing part thereof, as the
case may be, or substitute an equivalent product reasonably acceptable to Owner,
or modify the Work or infringing part thereof to render them non-infringing
without materially affecting their utility or functionality. If Contractor
determines that none of these alternatives is reasonably available or feasible,
Contractor shall meet with Owner to address the matter and reach an equitable
solution reasonably acceptable to Owner.
(c) Contractor's obligations under this Article 18.1 (Contractor
Intellectual Property Indemnification) shall be subject to Article 20.3
(Indemnification Procedures).
(d) The foregoing sets forth Owner's sole remedy and Contractor's sole and
entire obligations with respect to any claims of infringement or
misappropriation of Intellectual Property Rights arising out of or related to
the Work.
18.2 Owner Intellectual Property Indemnification.
(a) Owner shall indemnify, defend, and hold harmless Contractor from any
and all Losses arising from, in connection with, or based on any allegations
made by third parties that the Work or any part thereof infringes any
third-party U.S., Canadian or Mexican Intellectual Property Right to the extent
such infringement is based on (i) any Intellectual Property provided by Owner
(or by others, other than Contractor or its Subcontractors, acting on behalf of
Owner); or (ii) any modification by Owner (or any entity, other than Contractor
or its Subcontractors, acting on behalf of Owner), of the Work or any part
thereof not intended or reasonably foreseeable by Contractor; or (iii) any
written requests, specifications or instructions provided by Owner to the extent
the infringement arises from compliance with such written requests, instructions
or specifications.
(b) Owner's obligations under this Article 18.2 (Owner Intellectual
Property Indemnification) shall be subject to Article 20.3 (Indemnification
Procedures).
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(c) The foregoing sets forth Contractor's sole remedy and Owner's sole and
entire obligation with respect to any claims of infringement or misappropriation
of Intellectual Property Rights arising out of or related to the Work.
19. CONFIDENTIAL INFORMATION
19.1 Confidentiality Obligations.
(a) Any Confidential Information shall be maintained in strict confidence
by the Receiving Party. Except as provided in this Article 19 (Confidential
Information), the Receiving Party shall not use, or disclose in any manner to
any third party, Confidential Information of the Furnishing Party without the
prior express written consent of the Furnishing Party. The obligation of
confidentiality shall not be limited in time except to the extent the Receiving
Party can establish one of the exceptions set forth in Article 19.2 (Exceptions)
below by clear and convincing evidence.
(b) Access to and use of the Furnishing Party's Confidential Information
shall be restricted to those employees and persons within the Receiving Party's
organization (including its Consultants, attorneys, Subcontractors,
shareholders, and representatives) with a need to use such Confidential
Information for the purpose of performing this Contract, the Project or any
transaction contemplated hereby or, in the case of Owner, obtaining debt or
equity financing. The Receiving Party's Consultants or Subcontractors and the
Financing Entities may be included within the meaning of "persons within the
Receiving Party's organization," provided that such persons have executed a
non-disclosure or confidentiality agreement no less stringent than this Article
19 (Confidential Information). In addition, all information provided is subject
to the provisions of paragraph (c) below.
(c) Each Party shall use the other's Confidential Information solely for
the purpose of performing this Contract, the Project or any transaction
contemplated hereby or, in the case of Owner, obtaining debt or equity
financing.
(d) Except for Contract Software (including WINDS and Contractor Tools),
Data and Documentation and Developed Materials shall be deemed Confidential
Information furnished by Owner to Contractor and Contractor shall be subject to
the obligations of this Article 19 (Confidential Information) with respect
thereto.
(e) Notwithstanding the foregoing, nothing in this Contract shall permit a
Party or any of their respective Associates or Affiliates to disclose any
Confidential Information of the other Party to any entity that competes with the
other Party in the provision of products or services, whether or not, in the
case of Owner, the same is acting as a contractor or subcontractor for Owner,
or, in the case of Contractor, the same is a customer or client of Contractor.
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19.2 Exceptions.
The obligations set forth in this Article 19.1 (Confidentiality
Obligations) shall not apply to information that is:
(a) Already known to or otherwise in the possession of the Receiving Party
at the time of receipt from the Furnishing Party and that was not so known or
received in violation of any confidentiality obligations;
(b) Publicly available or otherwise in the public domain prior to
disclosure by the Receiving Party or becomes publicly available or otherwise in
the public domain after receipt by the Receiving Party without breach of this
Contract;
(c) Rightfully obtained by the Receiving Party from any third party
without restriction and without breach of any confidentiality obligation by such
third party;
(d) Developed by the Receiving Party independent of any disclosure
hereunder, as evidenced by written records; or
(e) Disclosed pursuant to the order of a court or administrative body of
competent jurisdiction or a government agency or required to be released
pursuant to Law, or as the Receiving Party may reasonably determine advisable or
necessary under the Securities Act of 1933, as amended, the Securities Act of
1934, as amended, NASDAQ, NYSE or any other national securities exchange,
provided the Receiving Party shall notify the Furnishing Party prior to such
disclosure and shall cooperate with the Furnishing Party in the event the
Furnishing Party elects to contest legally, request confidential treatment, or
otherwise avoid such disclosure.
19.3 No License.
Except as expressly provided in this Contract, nothing in this Contract
shall be construed as granting the Receiving Party, whether by implication,
estoppel, or otherwise, any license or any right to use any Confidential
Information received from the Furnishing Party, or use any Intellectual Property
Right now or hereafter owned or controlled by the Furnishing Party.
19.4 Return of Confidential Information.
All Confidential Information disclosed pursuant to this Contract is
considered loaned for use solely in connection with this Contract. All
Confidential Information in tangible form of expression that has been disclosed
to or thereafter created, whether by copy or reproduction, by the Receiving
Party shall be and remain the property of the Furnishing Party. All such
Confidential Information and any and all copies and reproductions thereof shall,
within thirty (30) Calendar Days of written request by the Furnishing Party, be
either promptly returned to the Furnishing Party or destroyed at the Furnishing
Party's direction. In the event of such requested destruction, the Receiving
Party shall provide to the Furnishing Party written certification of compliance
therewith within thirty (30) Calendar Days of such written request.
Notwithstanding
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the foregoing, in the event this Contract is terminated pursuant to Article 26
(Termination), Owner shall return to Contractor, or destroy at Contractor's
direction, all Confidential Information not paid for by Owner.
19.5 Inconsistent Legends.
This Article 19 (Confidential Information) shall control in lieu of and
notwithstanding any proprietary or restrictive legend or statements inconsistent
with this Article that may be printed on or associated with any particular
information disclosed pursuant to this Contract.
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20. INDEMNIFICATION
20.1 Contractor's Indemnification.
(a) Subject to the indemnification procedures set forth in Article 20.3
(Indemnification Procedures), Contractor shall indemnify, defend, and hold
harmless Owner and its Affiliates and their respective Associates from any and
all Losses caused by claims made by third parties (including Consultants and
agents of Owner, Contractor, or any Subcontractor but not any employee, officer,
or director of Owner) for injury to person (including death) or loss or damage
to tangible property arising out of any error, omission or negligent act of
Contractor or its Subcontractors.
(b) Subject to the indemnification procedures set forth in Article 20.3
(Indemnification Procedures), Contractor shall indemnify, defend, and hold
harmless Owner as set forth in Article 18.1 (Contractor Intellectual Property
Indemnification) and Article 27.2 (Discharge of Liens).
20.2 Owner's Indemnification.
(a) Subject to the indemnification procedures set forth in Article 20.3
(Indemnification Procedures), Owner shall indemnify, defend, and hold harmless
Contractor and its Affiliates and their respective Associates from any and all
Losses caused by claims made by third parties (including consultants and agents
of Owner, any subcontractor of Owner, but not any employee, officer, or director
of Contractor) for injury to person (including death) or loss or damage to
tangible property arising out of any error, omission or negligent act of Owner.
(b) Subject to the indemnification procedures set forth in Article 20.3
(Indemnification Procedures), Owner shall indemnify Contractor as set forth in
Article 18.2 (Owner Intellectual Property Indemnification).
20.3 Indemnification Procedures.
(a) Promptly after receipt by the indemnified Party of notice of the
commencement or threatened commencement of any civil, criminal, administrative,
or investigative action or proceeding involving a claim in respect of which the
indemnified Party will seek indemnification pursuant to this Article 20
(Indemnification), the indemnified Party shall notify the indemnifying Party of
such claim in writing. Failure to so notify the indemnifying Party shall not
relieve the indemnifying Party of its obligations under this Contract except to
the extent it can demonstrate it was prejudiced by such failure. Within fifteen
(15) Calendar Days following receipt of written notice from the indemnified
Party relating to any claim, but no later than ten (10) Calendar Days before the
date on which any response to a complaint or summons is due, the indemnifying
Party shall notify the indemnified Party in writing if the indemnifying Party
elects to assume control of the defense or settlement of that claim (a "Notice
of Election").
(b) If the indemnifying Party delivers a Notice of Election relating to
any claim within the required notice period, so long as it is actively defending
such claim, the indemnifying Party
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shall be entitled to have sole control over the defense and settlement of such
claim; provided that (i) the indemnified Party shall be entitled to participate
in the defense of such claim and to employ counsel at its own expense to assist
in the handling of such claim; (ii) where the indemnified Party is so
represented, the indemnifying Party shall keep the indemnified Party 's counsel
informed of each step in the handling of any such claim; (iii) the indemnified
Party shall provide, at the indemnifying Party's request and expense, such
assistance and information as is available to the indemnified Party for the
defense and settlement of such claim; and (iv) the indemnifying Party shall
obtain the prior written approval of the indemnified Party before entering into
any settlement of such claim or ceasing to defend against such claim where such
settlement or cessation of defense would prejudice any rights of the indemnified
Party or result in the indemnified Party making any payment. After the
indemnifying Party has delivered a Notice of Election relating to any claim in
accordance with the preceding paragraph, the indemnifying Party shall not be
liable to the indemnified Party for any legal expenses incurred by the
indemnified Party in connection with the defense of that claim. In addition, the
indemnifying Party shall not be required to indemnify the indemnified Party for
any amount paid or payable by the indemnified Party in the settlement of any
claim for which the indemnifying Party has delivered a timely Notice of Election
if such amount was agreed to without the prior written consent of the
indemnifying Party.
(c) If the indemnifying Party does not deliver a Notice of Election
relating to any claim within the required notice period or fails actively to
defend such claim, the indemnified Party shall have the right to defend and/or
settle the claim in such manner as it may deem appropriate, at the reasonable
cost and expense of the indemnifying Party. Provided that the indemnified Party
acts in good faith, it may settle such claim on any terms it reasonably
considers appropriate under the circumstances without in any way affecting its
right to be indemnified hereunder. The indemnifying Party shall promptly
reimburse the indemnified Party for all such costs and expenses.
20.4 Waiver of Subrogation.
If a Party insures against any loss or damage it may suffer in respect of
which it is required to indemnify the other Party, its Affiliates and their
respective Associates pursuant to this Article 20 (Indemnification), it shall be
a condition that the insuring Party arrange for the insurer to waive its right
of subrogation against such other Party and such other Party's Affiliates and
their respective Associates. Each Party shall be entitled to require proof from
time to time that the other Party has complied with its obligations under this
Article 20.4 (Waiver of Subrogation). In the event a Party does not comply with
such obligations, the indemnities referred to in Articles 20.1 (Contractor's
Indemnification) and 20.2 (Owner's Indemnification) shall extend to any claim
that may be made by an insurer pursuant to an alleged right of subrogation.
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21. INSURANCE
21.1 General.
(a) Contractor shall purchase and maintain, as primary insurance, from a
company or companies qualified to do business in each state in which the Work
shall be performed and carrying at least an A-/VIII rating by Best's Insurance
Guide published by the Alfred M. Best Co., Inc., Oldwick New Jersey 08858, such
insurance as shall protect it from claims set forth below that may arise out of
or result from Contractor's operations under the Contract, whether such
operations be by itself or by any Subcontractor or by anyone directly or
indirectly employed by any of them, or by anyone for whose acts any of them may
be liable:
(1) claims under workers' or workmen's compensation, disability
benefit and other similar employee benefit acts;
(2) claims for damages because of bodily injury, occupational
sickness or disease, or death of its employees;
(3) claims for damages because of bodily injury, sickness or
disease, or death of any persons other than its employees;
(4) claims for damages insured by usual personal injury liability
coverage;
(5) claims for damages, other than to the Work itself, because of
injury to or destruction of tangible property, including loss
of use resulting therefrom;
(6) claims for damages because of bodily injury or death of any
person or property damage arising out of the ownership,
maintenance or use of any motor vehicle;
(7) claims for bodily injury or property damage arising out of
completed operations; and
(8) claims for damages due to professional errors or omissions.
(b) Compliance by Contractor with the foregoing insurance requirements
shall not limit Contractor's liability or relieve it of liability under this
Contract or any Law.
21.2 Specific Insurance Requirements.
The insurance required by this Article 21 (Insurance) shall be written for
not less than any limits of liability specified in this Contract, or required by
Law, whichever is greater. Before commencement of the Work and until the last
Final Payment made hereunder (except that product liability coverage shall
continue in force until two years after the date of the last Final Payment made
hereunder), Contractor shall procure, deposit, and maintain for Owner's benefit,
insurance satisfactory to Owner, as set forth in this Article 21.2 (Specific
Insurance Requirements).
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(a) Worker's Compensation as required by the Worker's Compensation Laws of
the states in which the Work is performed and Employer's Liability Insurance in
an amount not less than $100,000/$500,000/$500,000.
(b) Commercial General Liability Insurance covering Bodily Injury,
Personal Injury and Property Damage,
(1) Minimum Limits: Such insurance shall be written for a combined
single limit not less than the following:
General aggregate per project $ 2,000,000
Products-Completed Operations Aggregate $ 2,000,000
Personal & Advertising Injury $ 2,000,000
Each occurrence $ 1,000,000
(2) This insurance shall be written on an occurrence basis and on
a coverage form at least equal to that provided under
ISO CG 00 01, latest available edition, without restricting
endorsements that reduce coverage.
(c) Automobile Liability Insurance covering Bodily Injury and Property
Damage as follows:
(1) Minimum Limits: The Combined Single Limit for Bodily Injury
and Property Damage shall be not less than $1,000,000 per
occurrence.
(2) This insurance shall be written on a coverage form at least
equal to that provided under ISO CA 00 01, latest available
edition, without restricting endorsements that reduce coverage
and shall cover all owned and hired vehicles of Contractor and
non-ownership protection for all employees of Contractor
engaged in the performance of this Contract.
(d) Professional Liability Insurance, caused by any of Contractor's
Subcontractors, as follows:
(1) Minimum Limits: Such insurance shall be written for a single
limit not less than $10,000,000 per claim and $10,000,000 in
the annual aggregate.
(2) This insurance shall be written on a claims made basis.
(3) This insurance shall contain prior acts coverage sufficient to
cover all services rendered by Contractor. Contractor will,
during the term of this Contract and for four (4) years from
the date Acceptance of all Cities has been achieved, provide
Owner with notice of any claim against Contractor that may
affect such Professional Liability Insurance coverage.
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(4) This insurance shall have a maximum deductible in an amount
per claim reasonably acceptable to Owner. A $25,000 per claim
deductible is acceptable to Owner. The deductible shall be
paid by Contractor.
(5) This insurance shall remain in effect for four (4) years
following the date Acceptance of all Cities has been achieved.
(e) Excess Liability Insurance, written on an occurrence basis, in the
amount of not less than a combined single limit for Bodily Injury, Personal
Injury and Property Damage of $25,000,000 per occurrence/$25,000,000 in the
aggregate following the form and amounts of the primary insurance described in
paragraphs (b) and (c) of this Article 21.2 (Specific Insurance Requirements).
(f) With respect to the Project, Contractor shall purchase and maintain,
in a company or companies lawfully authorized to do business in the
jurisdictions in which the Project is located, a builder's risk or installation
floater property coverage tailored to the Work as follows:
(1) Minimum Limits: Such insurance shall be written for not less
than $6,000,000 per occurrence in general coverage and
$300,000 per site/ $500,000 per conveyance (for transit)
property coverage, on a replacement cost basis.
(2) This insurance shall be on an All Risk/Special Form basis and
shall include insurance against the perils of fire (with
extended coverage), vandalism, malicious mischief, theft,
collapse (however caused), earthquake, water damage, flood,
electrical injury, mechanical injury/breakdown, false work,
testing, startup and transmission, and damages resulting from
workmanship or defective materials and shall be deemed the
primary insurance as to covered risks. Earthquake, flood,
windstorm, lightning and workmanship or defective materials
may have sublimits reasonably acceptable to Owner.
(3) This insurance shall also cover Work in transit and Work
stored off-site.
(4) This insurance shall have a maximum deductible amount of
$5,000 per occurrence. Coverages with sublimits may have a
higher deductible, reasonably acceptable to Owner. Contractor
shall be responsible for any insured or uninsured loss or
damage to the Work falling under such deductible, whether or
not due to the fault of Contractor or its Subcontractors.
(5) All losses shall be adjusted with and made payable to
Contractor, Subcontractors and Owner as trustee.
(6) This insurance shall be maintained until the Date Acceptance
of all Cities has been achieved.
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(g) Contractor and its Subcontractors shall each be responsible for
insuring (i) their own tools, equipment and appliances and (ii) property or
equipment to be incorporated into the Work stored at any location on the same
all-risk basis Contractor is required to insure property on any Site.
(h) All insurance maintained by Contractor shall provide:
(1) A Certificate signed by the insurance broker stating the
limits of liability and expiration date shall be filed in
triplicate with Owner before operations are begun. Such
certificates not only shall name the types of policies
provided, but also shall refer specifically to this Contract
and Article. Contractor will provide copies of the policies
upon request by Owner. If the initial insurance expires prior
to completion of the Work, renewal certificates shall be
furnished by the date of expiration.
(2) Owner, its Affiliates and Associates shall be included in the
Commercial General Liability and Excess Liability policies as
"additional insureds" with the understanding that the
liability to pay premiums shall be the sole obligation of
Contractor and not that of any other insured.
(3) Each Landlord, its Affiliates and Associates shall be included
in these policies as "additional insureds" to the extent
required by Owner's Site Acquisition Agreement with such
Landlord. Contractor shall carry the minimum insurance
required by each Landlord pursuant to the applicable Site
Acquisition Agreement.
(4) Except in the case of Worker's Compensation Insurance,
proceeds for first party losses, if any, shall be adjusted by
and payable to the party purchasing the insurance, except
property insurance purchased by Contractor for the benefit of
Contractor, Subcontractors and Owner, which shall be adjusted
with and payable to Contractor, Subcontractors and Owner, as
their interest may appear.
(5) The interests of Owner, Landlords, their Affiliates and
Associates, shall not be invalidated by any action or inaction
of Owner, Landlords, their Affiliates or Associates,
Contractor or any other person and such insurance shall insure
Owner, Landlords, their Affiliates and Associates regardless
of any breach or violation by Owner, Landlords, their
Affiliates or Associates, Contractor or any other person of
any warranties, declarations or conditions contained in such
policies.
(6) The insurer thereunder waives all rights of subrogation
against Owner, Landlords, their Affiliates and Associates, as
well as any rights of setoff and counterclaim and any other
right to deduction whether by attachment or otherwise.
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(7) Such insurance shall be primary without any right of
contribution of any other insurance carried by or on behalf of
Owner, Landlords, their Affiliates and Associates.
(i) Contractor shall require each of its Subcontractors to procure and
maintain, until the completion of that Subcontractor's work, adequate insurance.
21.3 Certificates of Insurance.
Certificates in the "ACCORD" form of Certificate of Insurance shall be
provided to Owner on or before EDC plus ten (10) Business Days; provided,
however, the words "endeavor to" must be deleted from the cancellation section
of the form. These Certificates, as well as insurance policies required by this
Article 21 (Insurance), shall contain a provision that coverage shall not be
canceled or allowed to expire until at least ninety (90) Calendar Days' prior
written notice has been given to Owner; provided, however, ten (10) Calendar
Days notice is permitted if the insurance is cancelled for non-payment reasons.
Such Certificates shall also indicate that the Commercial General Liability and
Excess Liability insurance policies have been endorsed to name Owner, its
Affiliates and Associates (and Landlords, their Affiliates and Associates, as
required by this Article 21 (Insurance)) as additional insureds. If any of the
foregoing insurance coverages are required to remain in force after the date
Acceptance of all Cities has been achieved, an additional certificate evidencing
continuing of such coverage shall be submitted to Owner prior to the date
Acceptance of all Cities has been achieved.
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22. DISPUTE RESOLUTION
Any dispute, claim, or controversy between the Parties arising out of or
relating to this Contract ("Dispute"), including any Dispute with respect to the
interpretation, performance, termination, or breach of this Contract or any
provision thereof shall be resolved as provided in this Article 22 (Dispute
Resolution).
22.1 Informal Dispute Resolution.
Prior to the initiation of formal dispute resolution procedures, the
Parties shall first attempt to resolve their Dispute informally, in a timely and
cost-effective manner, as follows:
(a) If, during the course of the Work, a Party believes it has a Dispute
with the other Party, the disputing Party shall give written notice thereof,
which notice will describe the Dispute and may recommend corrective action to be
taken by the other Party. Contractor's Project Manager shall promptly consult
with Owner's Project Manager in an effort to reach an agreement to resolve the
Dispute.
(b) In the event agreement cannot be reached within five (5) Calendar Days
of receipt of written notice, either Party may request the Dispute be escalated,
and the respective positions of the Parties shall be forwarded to an executive
level higher than that under paragraph (a) above for resolution of the Dispute.
(c) In the event agreement cannot be reached under paragraphs (a) or (b)
above within a total of ten (10) Calendar Days after receipt of the written
notice described in paragraph (a) above, either Party may request the Dispute be
escalated, and the respective positions of the Parties shall be forwarded to the
Chief Executive Officer (CEO) of each Party, and such executives shall meet
during such time to resolve the Dispute.
(d) In the event agreement cannot be reached under paragraphs (a), (b) or
(c) above within a total of twenty (20) Calendar Days after receipt of the
written notice described in paragraph (a) above, either Party may proceed with
arbitration in accordance with Article 22.2 (Arbitration).
22.2 Arbitration.
(a) Subject to the provisions of Article 22.1(Informal Dispute Resolution)
and Article 22.3 (Litigation), any Dispute shall be resolved by mandatory and
binding arbitration in accordance with the then-effective Center for Public
Resources Rules for Nonadministered Arbitration of Business Disputes, as may be
amended from time to time (the "CPR Rules"), which are incorporated herein by
reference. Notwithstanding the foregoing, to the extent any provision of this
Article 22.2 (Arbitration) modifies, adds to, or is inconsistent with any
provision of the CPR Rules, the provisions of this Article shall control.
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(b) The arbitration shall be conducted by a three-arbitrator tribunal (the
"Tribunal"). Within thirty (30) Calendar Days after the commencement of the
arbitration, each Party shall appoint one arbitrator, and those two arbitrators
shall together appoint the third arbitrator as provided in CPR Rule 5.2. Each
arbitrator appointed by the Parties shall be knowledgeable and experienced in
contracting for technical systems and shall have senior management and/or
legal/judicial experience.
(c) Unless otherwise limited by the Tribunal or the agreement of the
Parties, the Parties shall be permitted to take discovery, if and as needed, by
deposition upon oral examination, requests for production of documents and
things, and requests for entry upon land for inspection and other purposes, as
those discovery methods are described and defined in the Federal Rules of Civil
Procedure; provided, however, that any limitations in the Federal Rules on the
number, timing, or sequence of such discovery requests shall not apply. The
scope of permissible discovery shall generally be as described in Federal Rule
of Civil Procedure Rule 26(b)(1), but the Parties shall use their best efforts
to focus and limit their discovery in accordance with the nature of the dispute
and the need for expedited resolution. The Tribunal may expand or limit the
scope of permissible discovery, establish the time period within which discovery
responses must be served, and expand or limit the type and number of discovery
methods and requests as it shall determine is appropriate in the circumstances,
taking into account the needs of the Parties and the desirability of making
discovery expeditious and cost-effective. The Tribunal may issue orders to
protect the confidentiality of proprietary information, trade secrets, and other
similar information disclosed in discovery and may order that discovery not be
had or that discovery may be had only on specific terms and conditions.
(d) Time is of the essence in the initiation and completion of the
arbitration. The arbitral hearing shall be commenced and conducted
expeditiously. Unless the Tribunal orders otherwise, the Dispute should be
submitted to the Tribunal for decision within two (2) months after the
commencement of the arbitration, and the final award shall be rendered within
one (1) month thereafter. The Parties and the Tribunal shall use their best
efforts to comply with this schedule, and the Tribunal may impose any remedy it
deems just for any Party's effort to unnecessarily delay, complicate or hinder
the proceedings.
(e) The arbitration shall be held in Washington, D.C., USA.
(f) Any arbitration proceeding held pursuant to this Article shall be
governed by the United States Arbitration Act, 9 U.S.C. ss.ss. 1 et seq., and
judgment upon the award rendered by the Tribunal may be entered in any court
having jurisdiction thereof.
(g) The Tribunal's award may grant any remedy or relief that the Tribunal
deems just and equitable and within the scope of this Contract, including
specific performance or other equitable relief. Notwithstanding the foregoing,
the Tribunal shall have no power or authority to amend or disregard any
provision of this Article 22.2 (Arbitration) or any other provision of the
Contract; in particular, but without limiting the generality of the foregoing,
the Tribunal shall not have the power or authority to exclude the right of a
Party to terminate this Contract when a
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Party would otherwise have such right. The Tribunal also shall have no power or
authority to award punitive or exemplary damages to any Party.
(h) The non-prevailing Party, as determined by the Tribunal, shall pay the
costs of the arbitration and the prevailing Party's fees and expenses incurred
with respect to the arbitration, including reasonable attorneys' fees as
determined by the Tribunal. In the event of an arbitration involving multiple
claims with different Parties prevailing on each claim, the Tribunal shall
apportion the expenses and fees between or among the Parties in such manner as
it deems reasonable, taking into account the circumstances of the case, the
nature of the claims, and the result of the arbitration.
(i) At any time more than ten (10) Calendar Days before the commencement
of the hearing, any Party defending against any claim may serve upon the adverse
Party an offer to allow an award to be entered against the defending Party on
any claim for the money or property or to the effect specified in the offer. If
within ten (10) Calendar Days after the service of the offer, the adverse Party
serves written notice that it accepts the offer, either Party may file the offer
and acceptance with the Tribunal, which will thereupon promptly enter an award
on the claim as provided in the offer. An offer not accepted shall be deemed
withdrawn and shall not be admissible into evidence except with respect to a
determination of fees and expenses. If the award finally made on the claim is
not equal to or more favorable than the offer, then for the purpose of
apportioning expenses and fees pursuant to this Article 22.2 (Arbitration), the
Party making the offer shall be deemed the Prevailing Party with respect to such
claim.
(j) If at the time any Dispute arises, the Center for Public Resources no
longer provides rules or services with respect to the arbitration of business
disputes, then the Parties hereto agree that the arbitration shall be conducted
before the American Arbitration Association ("AAA"). Such arbitration shall be
conducted pursuant to the AAA's Commercial Arbitration Rules then effective,
provided, however, that in the event of any inconsistency with the AAA rules and
this Article, the provisions of this Article shall control.
22.3 Litigation.
(a) Notwithstanding the provisions of Article 22.1 (Informal Dispute
Resolution) and Article 22.2 (Arbitration) above, if the Dispute requires that
immediate equitable relief or relief in aid of arbitration be obtained, either
Party shall have the right to bring suit at any time to obtain preliminary or
temporary injunctive relief, including specific performance, but requests for
permanent injunctive relief shall be arbitrated pursuant to Article 22.2
(Arbitration).
(1) Any such suit shall be brought in a court of competent
jurisdiction in the State of Virginia, provided, however, that
the exclusive venue for any action brought in a Virginia state
court shall be the Circuit Court for Fairfax County, and the
Parties hereby waive any objection to that venue. The Parties
hereby irrevocably consent to personal jurisdiction in the
state and federal courts in the State of Virginia concerning
any Dispute between the Parties. If, for any reason, the state
and federal courts of Virginia do
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not have or refuse to exercise jurisdiction over the Dispute,
then litigation as permitted herein may be brought in any
court of competent jurisdiction in the United States of
America, or if there is no such court, in any other nation.
(2) In the event a Party files a lawsuit pursuant to this Article
22.3 (Litigation), the Prevailing Party is entitled to an
award of its costs and fees, including reasonable attorney's
fees, incurred with respect to the lawsuit. The defendant in
such litigation shall be regarded as the Prevailing Party if
either the court denies the equitable relief sought on the
merits or the court otherwise decides that equitable relief is
not warranted or the matter should be resolved by arbitration.
(b) In the event an entity or person not subject to the provisions of this
Article 22 (Dispute Resolution) commences any litigation or proceeding against
any Party hereto in which the other Party hereto is an indispensable party, the
Party against which the litigation or proceeding is brought may join or attempt
to join the other Party in such litigation or proceeding notwithstanding the
provisions of Article 22.2 (Arbitration). For the purposes of this provision,
the other Party is an indispensable party in the lawsuit or proceeding if (i) in
its absence complete relief could not be accorded among those already a party to
the lawsuit or proceeding; (ii) its absence may as a practical matter impair or
impede its ability to protect its interests relating to the subject of the
lawsuit or proceeding; or (iii) its absence may leave the Party against which
the litigation or proceeding is brought subject to a substantial risk of
incurring double, multiple, or otherwise inconsistent obligations by reason of
the interest of the other Party relating to the subject of the lawsuit or
proceeding.
(c) Nothing in this Contract precludes a Party prevailing on any claim,
whether in arbitration or litigation, from initiating litigation in any
appropriate forum to enter or enforce a judgment based on the Tribunal's or
court's award on that claim.
22.4 Continued Performance.
Pending final resolution of any Dispute, each Party shall, unless directed
otherwise by the other Party in writing, fulfill all its obligations under this
Contract, including the obligation to take all steps necessary during the
pendency of the Dispute to ensure the Work will be performed within the time
stipulated or within such extended time as may be allowed under this Contract,
provided Owner shall continue to make payments of undisputed sums therefore in
accordance with this Contract (including the dispute resolution provisions
hereof), and further provided that, if Owner fails to make such undisputed
payments or the amount of disputed payments withheld by Owner exceeds Three
Million Dollars ($3,000,000), Contractor may stop Work as permitted by Article
5.9 (Contractor's Right to Suspend the Work).
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23. OWNER'S RESPONSIBILITIES
Owner shall discharge, at no cost to Contractor or its Subcontractors,
those responsibilities set forth in Attachment 2 (Owner's Responsibilities) of
Exhibit B (SOW).
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24. LIMITATION OF LIABILITY
(a) SUBJECT TO (c) BELOW, IN NO EVENT SHALL A PARTY BE LIABLE IN CONTRACT,
WARRANTY, STRICT LIABILITY, TORT OR OTHERWISE FOR LOST PROFITS, LOST REVENUES OR
ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR EXEMPLARY DAMAGES OF ANY
NATURE, WHETHER OR NOT FORESEEABLE, ARISING OUT OF, RESULTING FROM, OR IN ANY
WAY CONNECTED TO THE PERFORMANCE OR BREACH OF THIS CONTRACT AT ANY TIME OR FROM
ANY CAUSE WHATSOEVER.
(b) SUBJECT TO (c) BELOW, THE TOTAL CUMULATIVE LIABILITY OF EITHER PARTY
AND ITS RESPECTIVE AFFILIATES AND THEIR ASSOCIATES FOR ALL CLAIMS, LOSSES,
DAMAGES AND EXPENSES RESULTING IN ANY WAY FROM THE PERFORMANCE OF THE WORK OR
THIS CONTRACT SHALL NOT BE GREATER THAN THE CONTRACT SUM.
(c) THE LIMITATIONS SET FORTH IN (a) and (b) ABOVE SHALL NOT APPLY WITH
RESPECT TO (i) DAMAGES OR LOSSES OCCASIONED BY WILLFUL MISCONDUCT OR GROSS
NEGLIGENCE OF A PARTY OR (ii) CLAIMS THAT ARE THE SUBJECT OF INDEMNIFICATION
PURSUANT TO ARTICLE 20 (INDEMNIFICATION) OR (iii) DAMAGES OR LOSSES OCCASIONED
BY BREACH OF CONFIDENTIALITY OBLIGATIONS HEREUNDER, OR (iv) DAMAGES OR LOSSES
OCCASIONED BY WRONGFUL TERMINATION.
(d) Except with respect to liquidated damages for delay, each Party shall
have a duty to mitigate damages for which the other Party is responsible.
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25. DEFAULT AND CORRECTION PLAN
25.1 Material Breach.
(a) Subject to Article 25.2_(Failure to Achieve Key Task), in the event
Contractor commits a material breach of this Contract, Owner shall be entitled
to deliver to Contractor a written demand that it correct such breach.
Contractor shall acknowledge receipt of Owner's notice within one Business Day.
In the event Owner does not receive such acknowledgement within three (3)
Business Days of the date of the original notice, Owner shall send a second
notice within five (5) Business Days of the transmittal of the first notice.
Within ten (10) Business Days of the date of Owner's first notice, or such
longer time as Owner in its sole discretion may establish (such establishment
may be after Contractor's reasonable request for an extension of such date),
Contractor shall submit to Owner, for Owner's review, comment and approval, a
Correction Plan; provided, however, no Correction Plan shall ever result in a
change to a Key Task in an Initial City Schedule or the Acceptance Date (as may
be extended pursuant to this Contract) unless the Parties so agree in accordance
with Article 28.3 (Amendments). In the event Owner does not approve the
Correction Plan, Contractor shall, within five (5) Business Days after receipt
of Owner's written comments, incorporate all of Owner's reasonable comments into
the Correction Plan and resubmit the Correction Plan to Owner for review and
approval. Owner shall promptly approve such Correction Plan provided Contractor
has incorporated therein Owner's reasonable comments. Upon Owner's approval of
the Correction Plan, the default shall be deemed cured upon Contractor's
compliance with all the terms of such Correction Plan. With respect to the
breach for which Owner approved a Correction Plan, Owner shall not deliver to
Contractor a Notice of Default so long as Contractor performs in accordance with
the terms of such Plan.
(b) Unless Contractor has otherwise cured the breach in question, Owner
may terminate this Contract to the extent permitted by paragraph (f) of Article
26.2 (Termination for Contractor Default) if Contractor (i) fails to submit a
Correction Plan to Owner within the period provided in paragraph (a) above; or
(ii) fails to complete the Owner-approved Correction Plan within thirty (30)
Calendar Days of Owner's approval of the Correction Plan or the period otherwise
set forth in such Correction Plan.
25.2 Failure to Achieve Key Task.
(a) In the event Contractor fails to complete any Key Task in accordance
with the schedule set forth in any Initial City Schedule, and Contractor
reasonably determines it can recover from such failure within thirty (30)
Calendar Days thereof so that every Key Task set forth in the Initial City
Schedule to be completed after such thirty (30) Calendar-Day Period can be
completed in accordance with the Initial City Schedule, Contractor need not
submit a Correction Plan to Owner. In the event Contractor fails to complete any
Key Task in accordance with the schedule set forth in any Initial City Schedule,
and Contractor reasonably determines it cannot recover from such failure within
thirty (30) Calendar Days thereof so that every Key Task set forth in the
Initial City Schedule to be completed after such thirty (30) Calendar-Day Period
can be completed in accordance with the Initial City Schedule, Contractor shall
submit to Owner a Correction Plan, including a revised schedule reasonably
demonstrating that it can achieve
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Acceptance of the affected City Network by the Acceptance Date. If Contractor
submits a Correction Plan reasonably demonstrating that it can achieve
Acceptance of the affected City Network by the Acceptance Date, Owner shall
approve such Correction Plan in writing. Upon Owner's approval of the Correction
Plan, the default shall be deemed cured upon Contractor's compliance with all
the terms of the Correction Plan. With respect to the breach for which Owner
approved a Correction Plan, Owner shall not deliver to Contractor a Notice of
Default so long as Contractor performs in accordance with the terms of such
Plan.
(b) If, within thirty (30) Calendar Days of failing to achieve a Key Task
in accordance with an Initial City Schedule, Contractor fails to either recover
from its failure to achieve a Key Task so that every Key Task that is set forth
in the Initial City Schedule to be completed after such thirty (30) Calendar-Day
period can be completed in accordance with the Initial City Schedule, or
Contractor fails to submit a Correction Plan reasonably demonstrating it can
achieve Acceptance of the affected City Network in accordance with the
Acceptance Date (as may be extended pursuant to this Contract), and Contractor
fails to recover from either such failure within thirty (30) Calendar Days
notice thereof, Owner may terminate the Contract to the extent permitted by
paragraph (f) of Article 26.2 (Termination for Contractor Default).
(c) If Contractor fails to perform the work set forth in the
Owner-approved Correction Plan, in accordance with the revised schedule set
forth therein, and Contractor fails to cure such failure within thirty (30)
Calendar Days of notice thereof, Owner may terminate the Contract to the extent
permitted by paragraph (f) of Article 26.2 (Termination for Contractor Default).
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26. TERMINATION
26.1 Termination for Owner's Convenience.
(a) Owner may, upon written notice to Contractor, at any time, terminate
the Work, in whole or in part, in accordance with the terms set forth below, and
Contractor shall immediately cease the Work in the manner and to the extent
specified below, provided Owner is not in default under this Contract, and
further provided Owner does not award to another Contractor all or a portion of
the Work terminated under this Article 26.1 (Termination for Owner's
Convenience) within one (1) year after such termination.
(b) In the event of partial termination of the Work in accordance with
this Article 26.1 (Termination for Owner's Convenience), Owner's notice of
termination will specify the portion of the Work terminated and the remaining
provisions of this Article 26.1 (Termination for Owner's Convenience) shall
apply to such terminated portion. All other portions of the Work shall continue
unaffected.
(c) Upon receipt of a notice of termination, as provided in paragraph (a)
above, Contractor shall take the following actions:
(1) stop Work under this Contract on the date and to the extent
specified in the notice of termination, except those services
that are reasonably necessary to be provided in connection
with a termination of this Contract;
(2) place no further orders or Subcontracts for materials,
services, or facilities to the extent they relate to the
performance of the Work terminated;
(3) terminate Subcontracts to the extent they relate to the
performance of the Work terminated;
(4) settle all outstanding liabilities and all claims arising out
of any termination of Subcontracts for materials, services, or
facilities provided Owner pays amounts due under paragraph (d)
below;
(5) take such action as may be reasonably necessary, or as Owner
may direct, for the protection and preservation of the
property related to this Contract that is in the possession of
Contractor or any Subcontractor and in which Owner has or may
acquire an interest:
(6) complete wind-down activities in all Cities within thirty (30)
Calendar Days of the effective date of termination; and
(7) complete all wind-down activities at Contractor's headquarters
within sixty (60) Calendar Days after the effective date of
termination.
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(d) In the event of termination under this Article 26.1 (Termination for
Owner's Convenience), Contractor shall be entitled to payment of the following
amounts: (i) (A) all unpaid amounts hereunder for Milestones completed in
accordance with this Contract through the effective date of termination, (B) all
unpaid for Work-in-progress on any Milestone that has not been completed as of
the effective date of termination, with the payment equal to a percentage of the
applicable Milestone Payment that is equal to the percentage of Work, as
determined by the Parties, actually completed on the applicable Milestone, and
(C) ten percent (10%) of those Milestones completed for the following
Disciplines: Program Management, Construction Management, RF Engineering,
Zoning, and Architecture and Engineering; and (D) any and all reasonable
wind-down expenses incurred by Contractor as a result of early termination,
including costs associated with removing Contractor's employees from markets,
including early lease (e.g., office space, housing, equipment, etc.) termination
fees, other costs associated with terminating Subcontractor and other supplier
agreements, the costs of transportation back to the employee's home location,
employment related costs related to the termination of any employee specifically
hired by Contractor to support the Project who is terminated by Contractor
solely due to the termination of this Contract and Contractor's efforts in
performing the foregoing wind-down activities, such efforts to be charged in
accordance with the Default Pricing for Contractor services set forth in Exhibit
C (Contract Pricing, Payments and Milestone Achievement Criteria) and (iii)
interest on any payment not made when required to be made hereunder. In no event
shall the amounts payable pursuant to this Article 26.1 (Termination for Owner's
Convenience) exceed the Contract Sum less amounts paid prior to termination.
(e) Contractor shall submit an invoice to Owner for amounts due under this
Article 26.1 (Termination for Owner's Convenience) on a monthly basis, provided
Contractor shall use best efforts to invoice for all amounts due under this
Article 26.1 within sixty (60) Calendar Days after the effective date of
termination. No invoices shall be submitted later than one hundred eighty (180)
Calendar Days after the effective date of termination. The amounts payable by
Owner under this Article 26.1 (Termination for Owner's Convenience) shall be
verified at Owner's request and expense by a nationally recognized firm of
certified public accountants appointed by Owner and reasonably acceptable to
Contractor. In the event Owner does not notify Contractor in writing that it
disputes the amount specified in Contractor's invoice within thirty (30)
Calendar Days after receipt thereof, Owner shall be deemed to have accepted such
invoice. Contractor shall be entitled to payment by Owner of undisputed amounts
in such invoice within fifteen (15) Business Days after Owner's receipt of the
invoice. Disputed amounts shall be subject to Article 5.8 (Withholding of
Payments). Payment of such amount by any Financing Entity on behalf of Owner
shall relieve Owner from its obligation to make such payment.
(f) Payment of the amount payable by Owner to Contractor pursuant to
paragraph (d) above shall constitute a total discharge of Owner's liabilities to
Contractor for termination pursuant to this Article 26.1 (Termination for
Owner's Convenience).
(g) Upon payment in full of all amounts outstanding under this Contract,
Owner may require Contractor immediately to transfer to Owner in the manner and
to the extent directed by
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Owner, title to and possession of any items comprising all or any part of the
Work terminated (including all Work-in-progress, parts and materials, and all
inventories, Subcontracts and associated warranties). Contractor shall, upon
direction of Owner and at Owner's expense, use commercially reasonable efforts
to protect and preserve property in the possession of Contractor or its
Subcontractors in which Owner has an interest and shall facilitate access to and
possession by Owner of items comprising all or part of the Work terminated, such
expenses to be reimbursed at the Default Pricing set forth in Exhibit C
(Contract Pricing, Payments and Milestone Achievement Criteria). In the event
Owner neither takes possession nor directs Contractor to protect and preserve
the Work, Owner shall be responsible for costs reasonably incurred by Contractor
in storing the Work. Upon Owner's request, Contractor shall make a reasonable,
good-faith effort to sell such items and to remit any sales proceeds to Owner,
less a deduction for costs of disposition reasonably incurred by Contractor for
such efforts provided the selling price shall be subject to Owner's prior
written approval.
26.2 Termination For Contractor's Default.
(a) Owner may terminate this Contract, subject to paragraph (f) below,
upon service of written notice of default to Contractor at any time after the
occurrence of any of the following:
(1) failure to achieve Acceptance for all Cities on or before the
Acceptance Date, as such date may be adjusted in accordance
with the Contract; or
(2) as provided in Article 25 (Default and Correction Plan); or
(3) except as otherwise provided in Article 25.2 (Failure to
Achieve Key Task), Contractor commits a material breach of any
of its duties or obligations hereunder and
(A) except as provided in (B) below, Contractor fails to
cure such breach within thirty (30) Calendar Days of
notice thereof; or
(B) with respect to a breach that cannot with due diligence
be cured within thirty (30) Calendar Days notice
thereof, Contractor fails to proceed promptly and
diligently to correct the breach (in which case
Contractor shall notify Owner, in writing, within ten
(10) Calendar Days of receipt of notice of breach
describing in reasonable detail the reason such breach
cannot be cured in such thirty (30) Calendar-Day period
and setting forth a Correction Plan to cure such breach)
or fails to cure the breach within sixty (60) Calendar
Days of notice of breach or as otherwise agreed in such
plan; or
(C) the breach is not subject to cure with due diligence
within sixty (60) Calendar Days notice of the breach; or
(4) Contractor commences a voluntary proceeding concerning itself
under any applicable bankruptcy, insolvency, reorganization,
adjustment of debt,
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relief of debtors, or similar law ("Insolvency Law"); or any
involuntary proceeding commences against Contractor under an
Insolvency Law and the petition has not been dismissed within
ninety (90) Calendar Days after commencement of the
proceeding; or a receiver or custodian is appointed for or
takes charge of all or a substantial portion of the property
of Contractor and such custodian or receiver has not been
dismissed or discharged within sixty (60) Calendar Days; or
Contractor has taken action toward the winding-up,
dissolution, or liquidation of Contractor or its business; or
Contractor has been adjudicated insolvent or bankrupt or an
order for relief or any other order approving a case or
proceeding under any Insolvency Law has been entered; or
Contractor has made a general assignment for the benefit of
creditors or becomes unable to pay its debts generally as they
become due. Should Contractor become a debtor in any
bankruptcy proceeding, Contractor shall move to assume or
reject this Contract within forty-five (45) Calendar Days
after the entry of any order for relief; or
(5) Contractor has purported to assign or transfer this Contract
in violation of the provisions of Article 28.1 (Assignment)
and Contractor fails to cure such unauthorized purported
assignment or transfer within thirty (30) Calendar Days after
receiving written notice from Owner of the unauthorized
purported assignment or transfer.
(b) In the event Owner terminates this Contract pursuant to paragraph (a),
(i) Owner shall be entitled to have the Work completed by another party or
parties and Contractor shall be liable to Owner for damages resulting from such
termination, including any reasonable re-procurement costs and costs of "cover"
incurred in connection therewith in excess of the Contract Sum, such damages to
be actually incurred and invoiced to Contractor in reasonable detail, and for
all liquidated damages then due pursuant to Article 7.2 (Liquidated Damages),
the aggregate of all the foregoing damages not to exceed Twenty-Five Million
Dollars($25,000,000) and (ii) Owner shall be liable to Contractor for (A) unpaid
amounts invoiced hereunder for Milestones completed in accordance with this
Contract through the effective date of termination, (B) all unpaid for
Work-in-progress on any Milestone that has not been completed as of the
effective date of termination, with the payment equal to a percentage of the
applicable Milestone Payment that is equal to that percentage of Work, as
determined by the Parties, actually completed on the applicable Milestone, and
(C) interest on any payment not made when required to be made hereunder. Nothing
contained in this Contract shall be construed so as to obligate Owner to
exercise such right to terminate for Contractor's benefit.
(c) Each Party shall submit an invoice to the other Party for amounts due
under this Article 26.2 (Termination for Contractor's Default) within sixty (60)
Calendar Days after the termination date, which invoice shall state the amounts
due from such other Party. Each such invoice shall be deemed accepted by the
Party receiving such invoice, unless written notice disputing such invoice is
provided to the Party furnishing the invoice within fifteen (15) Business Days
after receipt of such invoice. The amounts payable by a Party under this Article
26.2 (Termination for Contractor's Default) shall be verified at such Party's
request and expense by a
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nationally recognized firm of certified public accountants appointed by such
Party and reasonably acceptable to the other Party. Each Party's right to
verification shall be without prejudice to the rights of either Party under
Article 22 (Dispute Resolution). In the event a Party does not notify the other
Party in writing that it disputes the amount specified in an invoice within
fifteen (15) Business Days after receipt thereof, such Party shall be deemed to
have accepted such invoice. Each Party shall be entitled to payment of all
undisputed amounts within thirty (30) Business Days after the other Party's
receipt of such invoice. Disputed amounts, including those disputed by
Contractor, shall be deposited into an escrow account and paid therefrom in
accordance with the provisions of Article 5.8 (Withholding of Payments). Each
Party shall also be entitled to interest on such amounts for each day the
payment is overdue until the day payment is made, such interest to be calculated
in accordance with Article 28.11 (Calculation of Interest).
(d) Owner may require Contractor to transfer to Owner in the manner and to
the extent directed by Owner, title to and possession of any items comprising
all or any part of the Work terminated (including all Work-in-progress, parts
and materials, and all inventories, Subcontracts and warranties). Contractor
shall, upon direction of Owner and at Owner's expense, protect and preserve
property in the possession of Contractor or its Subcontractors in which Owner
has an interest and shall facilitate access to and possession by Owner of items
comprising all or part of the Work terminated, such expenses to be reimbursed at
the Default Pricing set forth in Exhibit C (Contract Pricing, Payments and
Milestone Achievement Criteria). In the event Owner neither takes possession nor
directs Contractor to protect the Work, Owner shall be responsible for costs
reasonably incurred by Contractor in restoring the Work. Upon Owner's request,
Contractor shall make a reasonable good-faith effort to sell such items and to
remit any sales proceeds to Owner, less a deduction for costs of disposition
reasonably incurred by Contractor for such efforts, provided the selling price
shall be subject to Owner's prior written approval.
(e) If, after termination of this Contract under the provisions of
paragraph (a) above, it is determined by dispute resolution, pursuant to Article
22 (Dispute Resolution), or admitted in writing by Owner, that Contractor was
not in default under the provisions of paragraph (a), or that any delay giving
rise to the default was excusable under the provisions of Article 7.3 (Excusable
Delay), such termination shall be considered a Termination for Convenience by
Owner and the provisions of Article 26.1 (Termination for Owner's Convenience)
shall apply.
(f) Owner may terminate the Contract pursuant to paragraphs (a)(1),
(a)(2), and (a)(3) of this Article 26.2 (Termination for Contractor's Default)
only with respect to those Cities in which the default under such paragraphs
pertain; provided, however, Owner may terminate the Contract in whole under any
such paragraphs if it is entitled to terminate the Contract pursuant to such
paragraphs in at least one Tier 1 City or five of the remaining Cities (Tier 2
and Tier 3 Cities).
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26.3 Termination for Owner's Default.
(a) Contractor may terminate this Contract, subject to paragraph (h)
below, upon service of written notice of default to Owner at any time after the
occurrence of any of the following events of default:
(1) Owner fails to pay undisputed amounts due hereunder and fails
to cure such nonpayment within thirty (30) Calendar Days of
written notice thereof; or
(2) Owner commences a voluntary proceeding concerning itself under
any applicable bankruptcy, insolvency, reorganization,
adjustment of debt, relief of debtors, or similar law
("Insolvency Law"); or any involuntary proceeding commences
against Owner under an Insolvency Law and the petition has not
been dismissed within ninety (90) Calendar Days after
commencement of the proceeding; or a receiver or custodian is
appointed for or takes charge of all or a substantial portion
of the property of Owner and such custodian or receiver has
not been dismissed or discharged within sixty (60) Calendar
Days; or Owner has taken action toward the winding-up,
dissolution, or liquidation of Owner or its business; or Owner
has been adjudicated insolvent or bankrupt or an order for
relief or any other order approving a case or proceeding under
any Insolvency Law has been entered; or Owner has made a
general assignment for the benefit of creditors or becomes
unable to pay its debts generally as they become due. Should
Owner become a debtor in any bankruptcy proceeding, Owner
shall move to assume or reject this Contract within forty-five
(45) Calendar Days after the entry of any order for relief; or
(3) Owner has purported to assign or transfer this Contract in
violation of the provisions of Article 28.1 (Assignment) and
Owner fails to cure such purported unauthorized assignment or
transfer within thirty (30) Calendar Days after receiving
written notice.
(b) Upon the occurrence of an event of default under paragraph (a) above,
Contractor shall take the following actions:
(1) stop Work immediately under this Contract and all obligations
of Contractor shall terminate hereunder, except those services
that are reasonably necessary to be provided in connection
with a termination of this Contract;
(2) place no further orders or Subcontracts for materials,
services, or facilities to the extent they relate to the
performance of the Work;
(3) terminate orders and Subcontracts to the extent they relate to
the performance of the Work;
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(4) settle all outstanding liabilities and all claims arising out
of such termination of orders and Subcontracts for materials,
services, or facilities provided Owner pays amounts due under
paragraph (c) below; and
(5) take such action as may be reasonably necessary, for the
protection and preservation of the property related to this
Contract that is in the possession of Contractor or any
Subcontractor and in which Owner has or may acquire an
interest.
(c) In the event Contractor terminates this Contract as provided in
paragraph (a) above, Contractor shall be entitled to payment of the amounts
specified in paragraph (d) of Article 26.1 (Termination for Owner's Convenience)
plus five percent (5%) of the difference between One Hundred Million Dollars
($100,000,000) and the sum of all Milestone Payments for Milestones paid or
required to be paid hereunder plus amounts required to be paid hereunder in
respect of Work-in-progress.
(d) In the event Contractor terminates this Contract as provided in
paragraph (a) above, the invoicing and payment provisions (including escrow for
disputed amounts) of Article 26.1(e) shall apply.
(e) Payment of the amount payable by Owner to Contractor pursuant to
paragraph (c) above shall constitute a total discharge of Owner's liabilities to
Contractor for termination pursuant to this Article 26.3 (Termination for
Owner's Default).
(f) Upon payment in full of all amounts outstanding under this Contract,
Owner may require Contractor immediately to transfer to Owner in the manner and
to the extent directed by Owner, title to and possession of any items comprising
all or any part of the Work terminated (including all Work-in-progress, parts
and materials, and all inventories, Subcontracts and warranties), and Contractor
shall, upon direction of Owner, protect and preserve property at Owner's expense
in the possession of Contractor or its Subcontractors in which Owner has an
interest and shall facilitate access to and possession by Owner of items
comprising all or part of the Work terminated. In the event Owner neither takes
possession nor directs Contractor to protect the Work, Owner shall be
responsible for costs reasonably incurred by Contractor in storing the Work.
Upon Owner's request and at Owner's expense, Contractor shall make a reasonable,
good-faith effort to sell such items and to remit any sales proceeds to Owner
less a deduction for costs of disposition reasonably incurred by Contractor for
such efforts.
(g) Except as expressly stated in this Article 26.3 (Termination for
Owner's Default), Contractor shall not have the right to terminate or suspend
this Contract.
(h) Contractor may terminate the Contract pursuant to paragraph (a)(1)
only with respect to those Cities in which the default under such paragraph
pertains; provided, however, Contractor may terminate the Contract in whole
under paragraph (a)(1) if it is entitled to
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terminate the Contract pursuant thereto in at least one Tier 1 City or five of
the remaining Cities (Tier 2 or Tier 3 Cities).
26.4 Termination/Expiration Assistance.
(a) Commencing upon notice of termination and continuing through the
effective date of termination of this Contract, Contractor shall provide to
Owner, or at Owner's request to Owner's designee, the reasonable
termination/expiration assistance requested by Owner to allow the Work to
continue without interruption or adverse effect and to facilitate the orderly
transfer of the Work to Owner or its designee; provided, however, that Owner has
paid all outstanding invoices. Such assistance shall include the following:
(1) to the extent Contractor has not already done so pursuant to
paragraph (d) of Article 10.1 (Warranties), Contractor shall
assign, to the extent assignable, to Owner all
Subcontractors', manufacturers' or other warranties on all
materials or equipment furnished by Contractor; and
(2) upon Owner's request, Contractor shall assign to Owner or its
designee the Material Subcontracts, as well as any and all
Subcontracts requested by Owner provided that such
Subcontracts are assignable except in the case of termination
pursuant to Article 26.1 (Termination for Owner's
Convenience).
(b) Owner shall pay Contractor for termination/expiration assistance in
accordance with the pricing set forth in Exhibit C (Contract Pricing, Payments
and Milestone Achievement Criteria), provided, however, that in the event
Contractor terminates the Contract due to Owner's failure to pay undisputed
amounts or failure to pay amounts into escrow to the extent required under this
Contract, Contractor shall be entitled to payment in advance for
termination/expiration assistance.
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27. MECHANICS' LIENS AND CLAIMS
27.1 Waiver of Liens.
To the extent permitted by Law and conditioned upon Owner's payment in
full for the Work being released, Contractor hereby expressly waives and
releases and hereby agrees to cause all Subcontractors, suppliers, laborers or
anyone else acting or claiming through it to waive and release their right to
file or claim any lien against all or any part of the Work, or any fee,
leasehold or other property interest upon which any portion of the Work is
located. Contractor agrees to use commercially reasonable efforts to include
this requirement in all Subcontracts and supply contracts and to execute any
additional documents to evidence this waiver and release as may be required by
Owner.
27.2 Discharge of Liens.
If, at any time, any notices of lien are filed for services or labor
performed by, or materials or equipment furnished or delivered to, Contractor
for the Work, Contractor, within ten (10) Calendar Days after the date of the
filing of such notice of lien shall discharge and remove such lien or claim of
lien or post a bond reasonably satisfactory to Owner for such lien or claim of
lien and shall indemnify, defend and hold harmless Owner for all Losses arising
from such lien or claim of lien, together with interest on the same from the
date any such cost was paid by Owner until reimbursed by Contractor at the rate
of interest on such payment for each day the payment is overdue until the day
payment is made, such interest to be calculated in accordance with Article 28.11
(Calculation of Interest), except if the lien is the result of Owner's
nonpayment of an amount when due hereunder over which no good-faith Dispute
exists between Owner and Contractor. The obligations of Contractor under this
Article 27.2 (Discharge of Liens) shall survive the expiration or termination of
this Contract.
27.3 Subordination of Liens.
To the fullest extent permitted by Law and, with respect to
Subcontractors, to the fullest extent permitted by the relevant Subcontracts,
all Contractor's, laborer's, mechanic's, and materialmen's judgments and other
similar liens that Contractor or its Subcontractors or any vendor or supplier
may have or acquire hereunder as to the Work, or any fee, license, leasehold or
other legal interest upon which any portion of the Work is located, shall be
subordinate to any liens securing payment of sums now or hereafter borrowed by
Owner for the Work and or the fee, license, leasehold or other legal interest
therein. At the request of Owner, Contractor shall execute such additional
documents as may be requested from time to time by Owner to give effect to the
provisions hereof.
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28. GENERAL
28.1 Assignment.
(a) Contractor shall not, without the prior written approval of Owner and
except on such terms and conditions as shall be reasonably acceptable to Owner,
assign, mortgage, charge, or encumber this Contract or any part thereof, any of
its rights, duties, or obligations hereunder, or the Work to any person or
entity, provided that: (i) nothing in this Article shall be construed as
limiting Contractor's right to enter into Subcontracts in respect of the Work
and (ii) Contractor shall have the right to assign or transfer this Contract or
all of its rights, duties, or obligations hereunder to: (x) any Affiliate of
Contractor, or (y) any corporation in connection with the sale, transfer or
assignment of all or substantially all of Contractor's assets or capital stock,
whether by way of merger, consolidation or otherwise, subject to the following
conditions: (A) in the case of a transfer to an Affiliate, the net worth of such
Affiliate is not less than the net worth of Contractor immediately prior to such
transfer and, in the reasonable discretion of Owner, such Affiliate has the
experience, resources, and personnel required to perform the Work in accordance
with the Contract; (B) in the case of a transfer or assignment contemplated in
clause (y), immediately after giving effect to such transaction or series of
related transactions, the net worth of Contractor (or in the event Contractor is
not the continuing person, the net worth of the person or entity formed by such
consolidation or into which Contractor is merged or to which its properties are
transferred substantially as an entirety) shall be no less than the net worth of
Contractor immediately before such transaction or series of related
transactions, and in the case of the sale of all or substantially all of the
assets of Contractor, the assignee or transferee, in the reasonable discretion
of Owner, has the experience, resources and personnel required to perform the
Work in accordance with the Contract; and (C) the assignee, transferee or
successor to Contractor has expressly assumed all the obligations of Contractor
and all terms and conditions applicable to Contractor under this Contract
pursuant to an assumption agreement (between Contractor and assignee or
transferee) in form and substance reasonably satisfactory to Owner.
(b) Owner shall not, without the prior written approval of Contractor,
assign, transfer, mortgage, charge, or encumber this Contract, any part thereof,
or any of Owner's rights, duties or obligations hereunder, provided that
Contractor hereby agrees that Owner may make any assignment or transfer of this
Contract to (i) any or all Financing Entities in connection with obtaining
financing for the payment of Contractor's invoices and any and all other fees,
charges or expenses payable under this Contract under any Financing Agreement,
(ii) as part of any collateral pool in favor of other senior lenders providing
financing to Owner in connection with completion of the Terrestrial Repeater
Network System facility and related equipment and (iii) any Affiliate of Owner
provided that in the case of a transfer to an Affiliate, the Affiliate has
sufficient financial resources to fulfill its obligations under this Contract.
Owner hereby agrees that, prior to entering into any contract or agreement to
sell or transfer this Contract, the acquirer shall agree to assume this Contract
and all of Owner's rights, duties and obligations hereunder pursuant to an
assumption agreement (between Owner and assignee or transferee) in form and
substance reasonably satisfactory to Contractor.
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(c) The assigning Party shall reimburse the other Party for all reasonable
expenses incurred by the other Party (and invoiced in reasonable detail) in
obtaining advice from its external financial and legal advisors relating to the
assigning Party's proposed assignment or transfer.
(d) This Contract shall be binding on the Parties and their successors and
permitted assigns. Except as otherwise expressly agreed in writing, assignment
of this Contract shall not relieve the assigning Party of any of its obligations
nor confer upon the assigning Party any rights except as provided in this
Contract.
28.2 Entire Agreement.
This Contract contains the entire agreement between the Parties regarding
the Work hereunder and supersedes all communications, negotiations, and other
agreements either written or oral, relating to the Work and made prior to EDC,
unless the same are expressly incorporated by reference into this Contract.
Without limiting the generality of the foregoing, this Contract supersedes the
Interim Services Agreement, and the rights, liabilities and obligations of the
Parties with respect to the work performed under such Interim Services Agreement
shall be governed by this Contract and the invoices for charges under the
Interim Services Agreement are null and void and work performed thereunder shall
be invoiced in accordance with this Contract.
28.3 Amendments.
This Contract, including any and all its Attachments, Exhibits and
Schedules, may not be modified except by written instrument of subsequent date
signed by a duly authorized representative of Contractor and a Senior Vice
President or higher of Owner.
28.4 Waiver of Breach of Contract.
A waiver of any provision or any breach of a provision of this Contract
shall not be binding upon either Party unless the waiver is in writing, signed
by a duly authorized representative of the Party, as applicable, and such waiver
shall not affect the rights of the Party not in breach with respect to any other
or future breach. No course of conduct by a Party shall constitute a waiver of
any provision or any breach of a provision of this Contract unless a written
waiver is executed in accordance with the provisions of this Article 28.4
(Waiver of Breach of Contract).
28.5 Remedies Cumulative.
Subject to Article 24 (Limitations of Liability), all remedies provided
for in this Contract shall be cumulative and in addition to and not in lieu of
any other remedies available to either Party at law, in equity and/or otherwise.
28.6 Severability.
In the event any one or more of the provisions of this Contract shall for
any reason be held to be invalid or unenforceable, the remaining provisions of
this Contract shall be
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CONFIDENTIAL
unimpaired and the invalid or unenforceable provision shall be replaced by a
mutually acceptable provision, which, being valid and enforceable, comes closest
to the intention of the Parties underlying the invalid or unenforceable
provision.
28.7 Applicable Law.
Except as provided in Article 22 (Dispute Resolution), this Contract and
performance under it shall be governed by, construed and enforced in accordance
with the Laws in force in the State of New York, without regard to conflict of
laws provisions thereof
28.8 Notices.
(a) All notices, requests, demands, and determinations under this
Contract, including any required under Article 28.1 (Assignment) (other than
routine operational communications) shall be in writing and shall be deemed duly
given (i) if delivered by hand, when delivered, (ii) if delivered by express
courier, two (2) Business Days after being given to an express courier with a
reliable system for tracking delivery, or (iii) if delivered by facsimile, when
sent by facsimile (confirmed by the specific individual to whom the facsimile is
transmitted) with a copy sent by another means specified in this Article 28.8
(Notices), and addressed as follows:
If to Owner: XM Satellite Radio Inc.
1250 23rd Street, NW
Suite 57
Washington, DC 20037
Tel. No.: 202-969-7100
Fax No.: 202-969-7050
Attention: General Counsel
Copy to: John R. Wormington
Senior Vice President, Engineering and Operations
Royce Kincaid
Vice President, Terrestrial Repeater Program
If to Contractor: LCC International, Inc.
7925 Jones Branch Drive
McLean, Virginia 22102
Tel. No.: 703-873-2910
Fax No.: 703-873-2900
Attention: Chief Executive Officer
Copy to: General Counsel
Chief Operating Officer
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(b) A Party may from time to time change its address or designee for
notification purposes by giving the other Party prior written notice of the new
address or designee and the date upon which it will be effective.
28.9 Relationship of the Parties.
(a) Contractor, in performing the Work hereunder, is acting as an
independent Contractor, and Contractor has the sole right and obligation to
supervise, manage, contract, direct, procure, perform, or cause to be performed,
all Work to be performed by Contractor under this Contract.
(b) None of the provisions of this Contract or of any of its Attachments,
Exhibits or Schedules shall be construed to mean that either Party is appointed
or is in any way authorized to act as an agent of the other Party or that there
exists a joint venture, partnership, agency or formal business organization of
any kind between the Parties.
28.10 Media Releases.
All media releases, public announcements, and public disclosures by either
Party relating to this Contract or the subject matter of this Contract,
including promotional or marketing material (both internal and external), but
not including announcements intended solely for internal distribution or to meet
legal or regulatory requirements beyond the reasonable control of the disclosing
Party, shall be coordinated with and approved by the other Party prior to
release.
28.11 Calculation of Interest.
Except as otherwise specified in this Contract, any interest due to either
Party under this Contract shall be calculated at an annual rate equal to ten
percent (10%).
28.12 Survival.
Any provision of this Contract that contemplates performance or observance
subsequent to any termination or expiration of this Contract shall survive any
termination or expiration of this Contract and continue in full force and
effect.
28.13 No Third-Party Beneficiaries.
This Contract is entered into solely between, and may be enforced only by,
Owner and Contractor and their permitted assigns, and this Contract shall not be
deemed to create any rights in third parties, including suppliers and owners of
a Party, or to create any obligations of a Party to any such third parties.
28.14 Consents and Approvals.
Except where expressly provided as being in the sole discretion of a
Party, where agreement, approval, acceptance, consent, or similar action by
either Party is required under this Contract, such action shall not be
unreasonably delayed or withheld. An approval or consent
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given by a Party under this Contract shall not relieve the other Party from
responsibility for complying with the requirements of this Contract, nor shall
it be construed as a waiver of any rights under this Contract, except as set
forth in a writing (including e-mail).
28.15 Lender Requirements.
(a) The Parties recognize Owner may obtain financing for the amounts due
in respect of this Contract, the Project and related repeater hardware through
external sources. Contractor shall provide to any Financing Entity any project
information or certification that such Financing Entity reasonably requires
(subject to confidentiality agreements governing such project information).
(b) Contractor agrees to work cooperatively with Owner in connection with
Owner's efforts to obtain financing for the Project and related repeater
hardware.
(c) Contractor agrees to execute such documents as may be reasonably
required by any Financing Entity, including such invoice certifications,
documents, instruments, contracts, agreements and amendments to this Contract
that may be required in connection with Owner's assignment of this Contract to
such Financing Entity under terms that are customary in the secured financing of
projects of this nature, provided Contractor's rights and obligations with
respect to the Contract Sum, time of performance, economic terms and/or other
terms under this Contract are not adversely affected by any such amendment to
this Contract or, in the event of such adverse effect, the Parties execute a
Change Order resolving such adverse effect, provided, however, Contractor shall
provide a performance and payment bond reasonably required by a Financing Entity
at no cost to Owner.
28.16 No Solicitation.
During the period of performance of the Work and for one (1) year
following the date on which all City Networks shall have achieved Acceptance,
neither Party shall, directly or indirectly, solicit for employment, employ or
engage for consulting services any employee or consultant of the other Party,
including any person who was employed or engaged by the other Party during the
six-month period immediately preceding such hiring or solicitation.
28.17 Time of the Essence.
Time is of the essence in this Contract, including with respect to the
resolution of any Disputes between the Parties under Article 26 (Termination).
28.18 Covenant of Good Faith.
Each Party agrees that, in respective dealings with the other Party under
or in connection with this Contract, it shall act in good faith.
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28.19 Counterparts.
This Contract may be executed in two (2) or more counterparts, which taken
together constitute one single contract between the Parties.
IN WITNESS WHEREOF, this Contract has been executed on behalf of Owner by
persons authorized to act on Owner's behalf, and has also been executed on
behalf of Contractor by persons authorized to act on Contractor's behalf.
LCC INTERNATIONAL, INC. XM SATELLITE RADIO INC.
By: __________________________________ By: __________________________________
(Signature) (Signature)
Name: ________________________________ Name: ________________________________
(Print) (Print)
Title: _______________________________ Title: _______________________________
Date: ________________________________ Date: ________________________________
Terms and Conditions
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<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT A
APPROVED AS OF EDC
KEY PERSONNEL
Position Individual
General Manager [*****]
Director of RF Engineering Manager [*****]
Regional Managers
1. Eastern Region [*****]
2. Western Region [*****]
Terms and Conditions - Attachment A
Page A-1
<PAGE>
CONFIDENTIAL
ATTACHMENT B
FORM OF CERTIFICATION ACCOMPANYING INVOICES
XM Satellite Radio Inc.
1250 23rd Street, N.W., Suite 57
Washington, D.C. 20037
Attention: Chief Financial Officer
RE: Terms and Conditions of the Contract for Engineering and
Construction of Terrestrial Repeater Network System dated as of
August 18, 1999 between XM Satellite Radio Inc. ("Owner") and LCC
International, Inc. ("Contractor") (as amended, supplemented or
modified from time to time, the "XM Network Purchase Contract")
Ladies and Gentlemen:
This Certificate is delivered to you pursuant to Article 5 (Payment) of the
Terms and Conditions of the XM Network Purchase Contract. Each capitalized term
used herein and not otherwise defined shall have the meaning assigned thereto in
the Terms and Conditions of the XM Network Purchase Contract.
We hereby certify, after due inquiry, that, as of the date hereof:
1. To the extent payment to us has been or will be made as specified in
this and the immediately preceding Contractor Certificates, there are and will
be no mechanics' or materialmen's liens except Permitted Liens on the Work.
2. a. The amount contained in the invoice delivered to you concurrently
herewith in accordance with the terms of Article 5 (Payment) of the Terms and
Conditions of the XM Network Purchase Contract represents monies owed to us in
respect of the Milestones set forth in such invoice.
b. The amount referred to in paragraph (a) above was computed in
accordance with the terms of the XM Network Purchase Contract.
c. The Milestones for which payment is requested in such invoice have been
completed in accordance with the XM Network Purchase Contract.
Very truly yours,
LCC INTERNATIONAL, INC.
By: __________________________
Title: __________________________
Terms and Conditions - Attachment B
Page B-1
<PAGE>
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ATTACHMENT C
TERMS AND CONDITIONS FOR LICENSE GRANT IN ARTICLE 17(c)
The license granted in Article 17(c) of the Contract is subject to the following
terms and conditions:
1. DEFINITIONS.
As used herein, the term "WINDS Software" shall mean the following:
Contractor's proprietary WINDS Software in machine-readable, object code form
only and the user manuals related thereto.
2. LICENSE TERMS AND RESTRICTIONS.
Owner agrees to the following terms and restriction on its use of the
WINDS Software:
2.1 The WINDS Software shall be used: (i) solely at the Owner's facility
in connection with the Project, and (ii) on no more than one computer by
one user at a time. Owner agrees to operate the software only as
prescribed in the user manuals.
2.2 In no event shall Owner delete, remove, erase, obliterate or otherwise
deface any form of marking appearing on or contained in the WINDS Software
or any part thereof which is a notice relating to either ownership of the
WINDS Software or to the intellectual property rights of Contractor
subsisting in or relating to the WINDS Software.
2.3 Owner agrees that it shall not: (i) reverse engineer, disassemble,
decompile, interrogate or decode the WINDS Software or any data files
created by or associated with the WINDS Software; (ii) derive source code,
methodologies or proprietary algorithms from the WINDS Software; (iii)
copy or modify the WINDS Software or otherwise create any derivative work
from the WINDS Software; (iv) assert the invalidity or contest the
ownership by Contractor of the WINDS Software, either as a complete or
partial defense to any claim made by Contractor or any third party, or (v)
take any action which may prejudice the validity of Contractor's rights,
title and interest in and to the WINDS Software.
2.4 Owner agrees and acknowledges that: (i) the WINDS Software is an
unpublished, licensed work and contains trade secrets of Contractor; (ii)
Contractor derives independent economic benefits from its ownership and
use of the WINDS Software; (iii) Contractor maintains the WINDS Software
in confidence and uses reasonable precautions to protect the WINDS
Software from unauthorized disclosure and/or use, and (iv) all property in
the WINDS Software and the media upon which it is embodied and all
intellectual property rights (including copyrights) subsisting in or
relating to the WINDS Software are the exclusive property of Contractor
and Owner's right to use the WINDS Software is limited to and arises only
out of the licenses granted pursuant to this license and is subject to the
superior rights of Contractor.
Terms and Conditions - Attachment C
Page C-1
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2.5 Owner agrees that it shall not, at any time during or after the term
of this license, sell, assign, lease, sublease, license, sublicense or
otherwise transfer the WINDS Software.
2.6 Owner agrees that it shall not reexport, directly or indirectly, all
or any portion of the WINDS Software or any other technical data that it
may receive hereunder.
3. PROPRIETARY RIGHTS/WORKS.
3.1 Proprietary Rights. The license granted pursuant to Section 18(g) of
the Contract does not constitute a transfer or sale of Contractor's
ownership rights in or to the WINDS Software. All right, title and
interest in and to the WINDS Software (including any copies or subsequent
versions thereof) shall remain the exclusive property of Contractor,
subject to the rights expressly granted to Owner hereunder. Except as
specifically set forth herein, Contractor shall be the sole owner of any
and all inventions, discoveries, improvements, updates and enhancements
relating to the WINDS Software (whether in written or unwritten form)
which are made, developed, conceived of or reduced to practice by
Contractor. Contractor shall retain the exclusive right to reproduce,
publish, patent, copyright, sell, license and otherwise make use of: (i)
the WINDS Software; and (ii) any and all inventions, discoveries,
improvements, updates and enhancements relating to the WINDS Software
which are made, developed, conceived of or first reduced to practice by
Contractor. Nothing herein shall be construed as conveying to Owner any
right or interest in or to any of Contractor's trademarks.
3.2 Assistance. Owner agrees to notify Contractor immediately of any
infringement, unauthorized possession or misuse of the WINDS Software.
Contractor, in the exercise of its sole discretion and at its expense, may
institute lawsuits or other actions to prevent or terminate any such
infringement, unauthorized possession or misuse. Upon Contractor's request
and at Contractor's expense, Owner shall render all reasonable assistance
in the prosecution and/or settlement of any such lawsuit or action. Any
recovery in any such lawsuit or other action shall belong solely to
Contractor.
4. WARRANTY DISCLAIMER.
THE WINDS SOFTWARE ARE PROVIDED "AS IS" WITH NO WARRANTY OF ANY KIND.
CONTRACTOR EXPRESSLY DISCLAIMS, ALL WARRANTIES AND/OR CONDITIONS, EXPRESS OR
IMPLIED, STATUTORY OR OTHERWISE, INCLUDING BUT NOT LIMITED TO ANY IMPLIED
WARRANTY OF MERCHANTABILITY, ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE, ANY IMPLIED WARRANTY OF NON-INFRINGEMENT AND ANY IMPLIED WARRANTY
ARISING OUT OF THE COURSE OF DEALING, CUSTOM OR USAGE OF TRADE.
5. LIMITATION OF LIABILITY.
IN NO EVENT WILL CONTRACTOR BE LIABLE TO OWNER OR ANY OTHER PERSON FOR
LOSS OF PROFITS, BUSINESS, USE OR DATA OR SPECIAL, EXEMPLARY, INDIRECT,
INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES
Terms and Conditions - Attachment C
Page C-2
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OF ANY KIND OR FOR ANY REASON, INCLUDING, WITHOUT LIMITATION, THE BREACH OF
THESE TERMS AND CONDITIONS OR ANY TERMINATION OF THIS LICENSE, WHETHER SUCH
LIABILITY IS ASSERTED ON THE BASIS OF CONTRACT, TORT (INCLUDING NEGLIGENCE AND
STRICT LIABILITY) OR OTHERWISE, EVEN IF CONTRACTOR HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. THE ESSENTIAL PURPOSE OF THIS PROVISION IS TO LIMIT
THE POTENTIAL LIABILITY OF CONTRACTOR ARISING OUT OF THIS LICENSE. IN NO EVENT
SHALL CONTRACTOR'S LIABILITY TO OWNER HEREUNDER EXCEED, IN THE AGGREGATE, ONE
HUNDRED DOLLARS ($100.00).
6. INDEMNIFICATION.
Owner hereby agrees to indemnify Contractor and to hold Contractor
harmless from and against any and all liabilities, damages, costs and expenses
(including reasonable attorneys' fees) incurred by Contractor as a result of any
modification to the WINDS Software made by Owner or any unauthorized use of the
WINDS Software by Owner.
7. NON-DISCLOSURE.
The Winds Software is Contractor's "Confidential Information" and shall be
treated as such in accordance with the Contract.
8. TERM AND TERMINATION.
8.1 Term. This license shall commence on the EDC and shall continue in
full force and effect unless sooner terminated as provided herein.
8.2 Right to Termination. This license may be terminated:
8.2.1 By Owner or Contractor, immediately upon written notice of
termination, in the event of a material breach of this license by the other
party, if such breach continues uncured for a period of thirty (30) days after
written notice of such breach; or
8.2.2 By an executed written agreement between Owner and Contractor.
8.3 Return of WINDS Software. Immediately following any termination or
expiration of this license, Owner shall: (i) return the WINDS Software and all
materials relating thereto (including all copies thereof) and (ii) certify in
writing to Contractor that all such data, materials and copies have been
returned to Contractor.
8.4 Survival. The following sections of this license shall survive
expiration or termination of this license: 2.5, 2.6, 3.1, 4, 5, 6, 7 and 8.
Terms and Conditions - Attachment C
Page C-3
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Terms and Conditions - Attachment C
Page C-4
<PAGE>
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CONTRACT
--------
FOR
---
ENGINEERING AND CONSTRUCTION
----------------------------
OF
--
TERRESTRIAL REPEATER NETWORK SYSTEM
-----------------------------------
By and Between
--------------
XM Satellite Radio Inc.
-----------------------
and
---
LCC International, Inc.
-----------------------
EXHIBIT A - NETWORK DESIGN CRITERIA AND PROCESS
CONFIDENTIALITY NOTICE
----------------------
This attached Exhibit A - City Network Design Process - and the information
contained herein is confidential to the Parties and shall not be published or
disclosed to any third party without the express written consent of a duly
authorized representative of each Party.
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
CONTRACT
--------
FOR
---
ENGINEERING AND CONSTRUCTION
----------------------------
OF
--
TERRESTRIAL REPEATER NETWORK SYSTEM
-----------------------------------
EXHIBIT A - NETWORK DESIGN CRITERIA AND PROCESS
-----------------------------------------------
A. OVERVIEW AND DEFINITIONS
It is understood by the Parties that the objective of the network design process
is to design the Terrestrial Repeater Network System to supplement the coverage
of Owner's satellites such that the combination of satellite and terrestrial
signal sources provides, for each City, acceptable signal levels over the
Defined Coverage Area (as defined in Section 3.2 of Exhibit B) of such City at
the lowest practical coverage-to-cost ratio within the schedule provided for the
Work. During the network design process, the Preliminary City Network Design,
Revised City Network Design and the Build-To City Network Design (as such terms
are defined in Exhibit B (SOW)) shall be subject to Owner's review and approval.
Defined Coverage Area.
----------------------
The Defined Coverage Area for each City is as set forth in Section 3.2 of
Exhibit B (SOW).
Design Criteria.
----------------
Contractor will design the Terrestrial Repeater Network System with the
objective of achieving the Repeater Test Criteria set forth in Exhibit E
(Network Testing and Repeater Acceptance Criteria), provided that the [*****]
Signal Reliability set forth therein shall be [*****] for purposes of the design
process (the "Design Criteria").
Exception Reports.
------------------
In the event Contractor encounters a situation in which a significant site cost
or other problem becomes apparent, Contractor shall prepare an exception report
detailing the problem and shall set forth such exception report in the Weekly
Status Report required by Exhibit B (SOW).
B. CITY NETWORK DESIGN PROCESS
Contractor shall design the City Network for each City in accordance with the
"Measurement Based RF Design Procedures" to be developed by Contractor
substantially in conformance to Attachment 1 hereto. Contractor shall submit a
revision of Attachment 1 hereto to Owner for Owner's review and approval by EDC
plus thirty (30) Calendar Days. Contractor shall incorporate Owner's reasonable
comments. The Owner-approved version of Attachment 1 shall be incorporated into
an Amendment to the Contract in accordance with Article 28.3 of the Terms and
Conditions of the Contract.
<PAGE>
CONFIDENTIAL
ATTACHMENT 1
------------
MEASUREMENT BASED RF DESIGN PROCEDURES
--------------------------------------
<PAGE>
CONFIDENTIAL
ATTACHMENT 1
MEASUREMENT BASED RF DESIGN PROCESS AND PROCEDURES
<PAGE>
CONFIDENTIAL
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
1.0 INTRODUCTION......................................................... 3
1.1. Coverage Reliability Specification.................................. 3
1.1.a Primary Traffic Routes in the Central Business District (CBD).. 3
1.1.b Primary Traffic Routes outside the Central Business District... 3
1.1.c Secondary Traffic Routes anywhere in the market................ 3
1.2. Design Philosophy................................................... 4
2.0 DESIGN PROCESS....................................................... 4
2.1. Preliminary Coverage Design Process................................. 4
2.2. Revised Coverage Design (In Market)................................. 5
2.3. Transmit to Receive Isolation....................................... 5
2.4. Simulcast Analysis and Test......................................... 6
2.5. RF Exposure Compliance Plan......................................... 7
3. APPENDIX A - ANET COVERAGE ANALYSIS TOOL.............................. 9
4. APPENDIX B - MEASUREMENT BASED PROCESS................................ 11
5. APPENDIX C - TRANSMIT-TO-RECEIVE ISOLATION ANALYSIS AND TEST.......... 25
6. APPENDIX D - SIMULCAST DESIGN AND TEST................................ 30
7. APPENDIX E - RF EXPOSURE ANALYSIS AND TEST............................ 34
</TABLE>
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
1.0 Introduction
Under a license granted by the Federal Communications Commission, XM Satellite
Radio (XMSR) will launch two geo-synchronous satellites for the purpose of
delivering Digital Audio Broadcast Service (DARS) to all areas within the
Continental USA. To overcome signal blockage from terrain, foliage and man-made
structures, a network of terrestrial repeaters will be designed and built in a
total of 70 markets throughout the USA. The turnkey contractor for the 70
repeater networks will be LCC International (LCCI).
Because the DARS service will be a subscription service competing with
commercial AM and FM broadcasters in each market, the coverage reliability
provided by the combined satellite coverage and repeater coverage must be
extraordinarily high. To this end, XMSR has defined a coverage reliability
design goal of [*****] on primary and secondary traffic routes within each of
the 70 markets. Due to the fact that repeater networks will be designed and
constructed prior to launch and activation of the satellites, a somewhat lower
initial coverage reliability guarantee is specified in the turnkey services
contract between XMSR and LCCI. This document describes the design and test
processes by which LCCI will meet the contractual coverage reliability
guarantee--and approach the [*****] coverage reliability goal to the maximum
practical extent.
1.1 Coverage Reliability Specification
The coverage reliability for certain areas and highways within the markets is
specified in Exhibit E of the Contract. These requirements are summarized
below.
a) Primary Traffic Routes in the Central Business District (CBD):
Coverage reliability of [*****] over any single primary route, and no signal
outage greater than [*****] on any single primary route.
b) Primary Traffic Routes outside the Central Business District:
Coverage reliability of [*****] over any single primary route, and no signal
outage greater than [*****] on any primary route.
c) Secondary Traffic Routes anywhere in the market:
Coverage reliability of [*****] over the aggregate of all secondary routes, and
no signal outage greater than [*****] on any secondary route.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
1.2 Design Philosophy
Due to the high coverage reliability goal, RF design based on modeling tools
alone will not provide the degree of confidence required to meet the coverage
goals. Therefore, a [*****] is required to fully characterize the design and
assure that the coverage requirements are met.
The measurement process requires the installation of [*****] on each potential
repeater site and the use of a [*****] to collect and store signal strength data
on traffic routes around that site. The signal strength data will be processed
and analyzed to determine the coverage that will be provided by that site. The
site-by-site coverage so determined will indicate the degree of coverage
required from adjacent sites (should the site be a part of a cluster of sites).
This is the measurements based design process that is described herein.
2.0 Design Process
The design process is defined in two stages, Preliminary Coverage Design and
Revised Coverage Design. Included in the design process are non-coverage items
such as [*****].
2.1 Preliminary Coverage Design Process
The preliminary design process involves certain definitions, analyses and
approvals. The final result of the preliminary design process is the basis of
the field design activity that becomes the revised design.
The preliminary design analysis is done utilizing the [*****]. The [*****],
when optimized through a measurement integration process, provides a means to
estimate coverage from candidate sites, to obtain a site count estimate and to
select anchor sites for the commencement of the revised design activity. The
[*****] coverage analysis process is described in Appendix A.
The following steps define the preliminary design process (responsible party
shown in parentheses):
. [*****]
. [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
. [*****]
. [*****]
. [*****]
. [*****]
2.2 Revised Coverage Design (In Market)
The Revised Design begins with the [*****] that are issued at the end of the
preliminary design process. Although [*****] will be used extensively to
predict coverage from candidate sites, the actual basis of the revised design
will be a measurements process. This basis of the measurement process is
described in Appendix B.
The following steps define the Revised Design process:
. [*****]
. [*****]
. [*****]
. [*****]
. [*****]
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2.3 Transmit to Receive Isolation
One of the technical considerations of site design is the potential for transmit
to receive interference due to the proximity of the transmit frequency to the
receive frequency. Although the transmitter will [*****] analysis and testing
performed by LCC indicates that certain site configurations could result in
insufficient isolation margin. Details of the isolation parameters and the
Isolation Calculator Tool are provided in Appendix C.
The following steps define the Isolation Analysis and Test Process:
. [*****]
. [*****]
. [*****]
. [*****]
. [*****]
. [*****]
2.4 Simulcast Analysis and Test
Under certain conditions, self-interference can result from a so-called
"simulcast condition". A harmful simulcast condition exists when the signal
level from two repeaters are within [*****] of each other and when the time
delay between the two repeaters exceeds [*****]. Prevention of harmful
simulcast conditions is a goal of the design process, and the detection of
potential harmful simulcast conditions is a goal of the test process. The
simulcast design and testing process are described in Appendix D.
The following steps define the Simulcast Design Validation process:
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
. [*****]
. [*****]
. [*****]
. [*****]
. [*****]
2.5 RF Exposure Compliance Plan
In August 1996, the Federal Communications Commission (FCC) revised the
telecommunications act for human exposures to Radio Frequency Radiation (RFR)
from the transmitters on wireless communication sites. The FCC adopted as their
standard a combination of the ANSI/IEEE C95.1-1992 and NCRP 1986 standards which
is both preventative and precautionary in nature and applies to both
"Controlled/Occupational" and "Uncontrolled/General Population" exposures of
individuals - as defined in the FCC's OET Bulletin No. 65.
An RF Safety Plan has been submitted under Item RC-2 of the Contract--an
abstract of which is attached hereto as Appendix E. This safety plan fully
explains the regulatory background and the type and extent of RF exposure
analysis and testing.
The basic steps required to assure compliance with the RF exposure requirements
are summarized below. A more detailed description of the RF exposure compliance
plan is provided in Appendix E.
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
. [*****]
. [*****]
. [*****]
. [*****]
. [*****]
Appendix A - ANET Coverage Analysis Tool
Appendix B - Measurement Based Process
Appendix C - Transmit-to-Receive Isolation Analysis and Test
Appendix D - Simulcast Design and Test
Appendix E - RF Exposure Analysis and Test
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
CONFIDENTIAL
Appendix A -- ANET Coverage Analysis Tool
1.0 Introduction
------------------
The revised design process, as well as the preliminary design process, requires
the use of a sophisticated coverage prediction tool. The ANET coverage tool
that will be used by LCC is a [*****] that meets the technical needs of the XMSR
Project and is [*****].
[***** pages 9-10]
Exhibit A -- Attachment 1 -- Document
<PAGE>
CONFIDENTIAL
CONTRACT
FOR
ENGINEERING AND CONSTRUCTION
OF
TERRESTRIAL REPEATER NETWORK SYSTEM
By and Between
XM Satellite Radio Inc.
and
LCC International, Inc.
EXHIBIT B - STATEMENT OF WORK (SOW)
CONFIDENTIALITY NOTICE
This attached Exhibit B - Statement of Work (SOW) - and the information
contained herein is confidential to the Parties and shall not be published or
disclosed to any third party without the express written consent of a duly
authorized representative of each party.
<PAGE>
CONFIDENTIAL
CONTRACT
FOR
ENGINEERING AND CONSTRUCTION
OF
TERRESTRIAL REPEATER NETWORK SYSTEM
EXHIBIT B - STATEMENT OF WORK (SOW)
TABLE OF CONTENTS
1. GENERAL..................................................................1
1.1 The Work...........................................................1
1.2 Owner Responsibilities.............................................1
2. PROGRAM MANAGEMENT.......................................................1
2.1 General............................................................1
2.2 Project Plan.......................................................1
2.3 Project Scheduling.................................................2
2.4 City Budget........................................................2
2.5 Quality Control and Safety Plan....................................3
2.6 Project Reports....................................................3
2.7 Electronic Maintenance of and Access to Project
Management Information.............................................4
2.8 Site Packages......................................................4
3. RF ENGINEERING...........................................................4
3.1 General............................................................4
3.2 Defined Coverage Area..............................................5
3.3 Preliminary City Network Design....................................5
3.4 Revised City Network Design........................................6
3.5 Build-To City Network Design.......................................7
3.6 City Network Testing...............................................7
Exhibit B - (SOW)
Page i
<PAGE>
CONFIDENTIAL
3.7 Final System Configuration.........................................7
4. SITE ACQUISITION SERVICES................................................8
4.1 Identification and Ranking of Candidate Sites......................8
4.2 Site Lease Agreements..............................................9
5. ARCHITECTURE AND ENGINEERING (A&E)......................................10
6. ZONING..................................................................12
6.1 Zoning Permits and Approvals......................................12
6.2 Zoning Analysis...................................................13
7. SITE CONSTRUCTION.......................................................13
7.1 General...........................................................13
7.2 Construction Management...........................................13
7.3 Building Permit...................................................14
7.4 Procurement of Materials and Inventory Management.................14
7.5 Preliminary Site Test.............................................14
7.6 Installation of Terrestrial Repeater Units and
Completion of Construction........................................14
8. INTERIM MAINTENANCE.....................................................15
9. ANTENNA POINTING........................................................15
10. SATELLITE RECEIVE ANTENNAS AND REPEATER TRANSMIT ANTENNAS...............15
11. REGULATORY APPROVALS....................................................16
11.1 Federal...........................................................16
11.2 State.............................................................17
12. NETWORK MANAGEMENT TESTING..............................................18
12.1 Guidelines and Assumptions........................................18
12.2 Test Report.......................................................19
Exhibit B - (SOW)
Page ii
<PAGE>
CONFIDENTIAL
13. SYSTEM ENGINEERING SERVICES.............................................19
13.1 Isolation Testing.................................................19
13.2 RF Engineering Test Plan and Test Procedures......................19
13.3 Refine Contractor's Design Tool...................................20
13.4 CD Radio vs. XM Radio Satellite Performance - Boston..............20
13.5 Design Preparation and System Specifications Definition...........20
14. DEFINITIONS.............................................................21
List of Attachments to Exhibit B
- --------------------------------------------------------
Attachment Description
---------- -----------
- --------------------------------------------------------
1 List of Cities
- --------------------------------------------------------
2 Owner Responsibilities Schedule
- --------------------------------------------------------
3 Master Schedule
- --------------------------------------------------------
4 Key Tasks
- --------------------------------------------------------
5 Standard Sites
- --------------------------------------------------------
6 Form of Weekly Status Report
- --------------------------------------------------------
7 Form of Monthly Status Report
- --------------------------------------------------------
8 Form of Quarterly Status Report
(Manpower Chart)
- --------------------------------------------------------
9 Form of Primary Candidate Site Package
- --------------------------------------------------------
10 Form of Lease Abstract
- --------------------------------------------------------
11 Contents of Zoning Analysis
- --------------------------------------------------------
12 Preliminary Site Test
- --------------------------------------------------------
13 Terrestrial Repeater Unit Acceptance
Test
- --------------------------------------------------------
14 Isolation Specifications
- --------------------------------------------------------
Exhibit B - (SOW)
Page iii
<PAGE>
CONFIDENTIAL
1. GENERAL
1.1 The Work.
The Work includes all services, material and equipment required to perform
the Program Management, RF Engineering, Site Acquisition Services, A&E, Zoning,
Site Construction, Interim Maintenance, Antenna services, Regulatory Compliance,
Network Management Testing and System Engineering described in Articles 1
through 13 below (each hereinafter sometimes referred to as a "Discipline") as
well as all other services and equipment required to produce for each City
identified on Attachment 1 attached hereto a complete and functioning City
Network in accordance with the Design Criteria to meet the Repeater Acceptance
Test Criteria. The Work further includes: (i) Contractor's performance of the
activities set forth in Exhibit E (Network Testing and Acceptance Criteria) of
the Contract; and (ii) Contractor's delivery to Owner of all Data and
Documentation described in Exhibit D (Data and Documentation) of the Contract.
1.2 Owner Responsibilities.
Owner understands that Contractor's timely performance of the Work is
dependent on the timely and effective completion of Owner's obligations and
timely decisions and approvals by Owner. A list of Owner's obligations and
required decisions and approvals is set forth in the Owner's Responsibilities
list attached hereto as Attachment 2.
2. PROGRAM MANAGEMENT
2.1 General.
Contractor shall provide for each City all program management services,
including scheduling, budgeting, management and oversight services described
herein, necessary for the complete development, RF engineering, design,
construction and testing of each City Network in accordance with the Design
Criteria to meet the Repeater Acceptance Test Criteria. The deliverables for
Program Management shall be as set forth in the remainder of this Section 2.
2.2 Project Plan.
(a) By letter dated April 30, 1999, Contractor provided to Owner the
Project Plan setting forth: (i) all key activities and tasks, by Discipline and
by City, to be performed by Contractor for the orderly and proper performance of
the Work and (ii) significant assumptions regarding third-party and governmental
response times.
(b) The Parties understand and agree that the Project Plan has been
developed for planning purposes only, based on all information available to the
date hereof, and subject to the assumptions described therein and normal project
assumptions.
Exhibit B - (SOW) Page 1
<PAGE>
CONFIDENTIAL
2.3 Project Scheduling.
(a) Contractor shall develop a detailed "Initial City Schedule" for each
City in the form provided by Contractor to Owner by letter dated April 30, 1999,
which shall, at a minimum: (i) specify all major tasks required to complete the
Work for such City, organized by Discipline, including the projected start and
stop dates of such tasks; (ii) identify all Milestones related to such City set
forth in Attachment 1.1 of Exhibit C (Contract Pricing, Payments and Milestone
Achievement Criteria) of the Contract and the projected date of achieving such
Milestones, (iii) identify all Key Tasks as set forth in Attachment 4 to this
Exhibit B; and (iv) identify assumptions regarding completion in accordance with
the schedule, including the performance of Owner's Responsibilities as set forth
in Attachment 2 hereof and the receipt of third party / governmental approvals,
Site Lease Agreements and similar items. For each City, the applicable Initial
City Schedule shall require that Acceptance of such City be completed on or
before the Acceptance Date and shall otherwise conform substantially to the
Master Schedule attached hereto as Attachment 3. Contractor shall provide Owner
with the Initial City Schedule for each City on or before forty-five (45)
Calendar Days after EDC. The Initial City Schedule shall be subject to Owner's
review and approval.
(b) For each City, Contractor shall prepare a monthly City Progress
Schedule showing the actual progress of the Work for such City against the
applicable Initial City Schedule and shall submit such City Progress Schedule as
part of the Monthly Status Report described in Section 2.6 below.
2.4 City Budget.
(a) For each City, Contractor shall provide Owner a preliminary City
Budget developed from the preliminary Site count derived from the approved
Preliminary City Network Design multiplied by the standard fixed price of each
applicable Standard Site, based on the mix of Standard Sites predicted by the
Parties upon completion of the applicable Preliminary City Network Design.
Standard Sites are described on Attachment 5 hereto.
(b) For each City, Contractor shall provide Owner a revised City
budget when 90% of the Primary Candidate Sites for the City are selected (i.e.,
upon completion of Milestone RF2). This revised City Budget shall be calculated
by multiplying the number of projected Sites for the City by the standard fixed
price of the applicable Standard Site with estimates for the remaining 10% of
undetermined Sites.
(c) Contractor shall provide Owner a second revised City Budget when
a Site Lease Agreement has been executed (including Master Lease Agreements) for
80% of the Sites within the Revised City Network Design (as defined in Section
3.4 below). This revised City Budget shall be calculated (i) by multiplying the
number of projected Sites for the City by the standard fixed price of each
applicable Standard Site, or (ii) based upon actual Site configuration and/or
the bill of materials for such Site, if available. The City Budget shall also
set forth Contractor's estimates of Permitted
Exhibit B - (SOW) Page 2
<PAGE>
CONFIDENTIAL
Reimbursable Expenses, Pass-Through Expenses and Unit Prices and provide
estimates for the remaining 20% of undetermined Sites.
(d) The City Budget shall be prepared for Owner's planning purposes and
not Contractor's management purposes.
2.5 Quality Control and Safety Plan.
(a) By letter dated May 15, 1999, Contractor provided Owner with a
copy of Contractor's comprehensive Quality Control Plan for the entire Project
setting forth the procedures and methodologies that Contractor shall employ
throughout the Project.
(b) By letter dated April 15, 1999, Contractor provided Owner with a
copy of Contractor's comprehensive Safety Plan for the entire Project setting
forth the procedures and methodologies that Contractor shall employ throughout
the Project.
2.6 Project Reports.
(a) Weekly Status Report. On Friday of each week, Contractor shall provide
Owner with a weekly report providing a brief summary of work status for each
Discipline (e.g., RF Engineering, Site Acquisition, Zoning, etc.) and outlining,
by Discipline and by City, major problems or other material information known to
Contractor that may require immediate attention and Contractor's proposed plan
to overcome such problems, including the information required by Section 3.4(e)
(regarding a Site's need for isolation testing) and Section 8 (b) (regarding a
Site's need for maintenance services) below. The Weekly Status Report shall
comply with the Form of Weekly Status Report attached hereto as Attachment 6.
(b) Monthly Status Report. Five business days after the end of each month,
Contractor shall provide Owner with a Monthly Status Report, including the City
Progress Schedules described in Section 2.3 above. The Monthly Status Report
shall include at a minimum: (i) a Project Budget which (a) sets forth the City
Budget as of the last update pursuant to Section 2.4(b) for each City, (b)
totals all such City Budgets and (c) sets forth the amounts invoiced to date by
Contractor, by City and for the entire Project; (ii) a summary of work
accomplished in each City during the month for each Discipline; (iii) the latest
version of the Repeater Delivery Requirements Schedule (see Section 7.6(a)
below); (iv) a schedule of all weekly status meetings, design review meetings
(provided Owner shall be given at least ten (10) Business Days notice of design
review meetings), regularly scheduled meetings and other meetings as requested
by Owner, which will be conducted during the current month; and (v) a schedule
of transmitter testing and testing conducted under Exhibit E (Network Testing
and Acceptance Criteria) which will commence during the current and coming
month. The Monthly Status Report shall be submitted in Contractor's standard
project tracking format. Each quarter the Monthly Status Report also shall
include a summary of activities for the past three months (using Contractor's
WINDS Master Tracking Report showing a summary of pertinent City-level
information). Contractor shall provide Owner
Exhibit B - (SOW) Page 3
<PAGE>
CONFIDENTIAL
with the first Monthly Status Report after completion of the first full calendar
month of Work under this Contract. The Monthly Status Report shall comply with
the Form of Monthly Status Report attached hereto as Attachment 7.
(c) Quarterly Status Report. Ten business days after the end of each
quarter, Contractor shall provide Owner with a Quarterly Status Report (Manpower
Chart). The Quarterly Status Report shall comply with the Form of Quarterly
Status Report attached hereto as Attachment 8. The first Quarterly Status Report
shall be due no sooner than January 17, 2000.
2.7 Electronic Maintenance of and Access to Project Management
Information.
Contractor shall maintain all Project Management information, including
the City Progress Schedule, Weekly Status Reports, Monthly Status Reports and
Quarterly Status Reports in an electronic format that is compatible with
Microsoft Office product, or other interface mutually agreed upon by Owner and
Contractor. In accordance with paragraph (c) of Article 17 (Intellectual
Property) of the Terms and Conditions of the Contract, Owner shall be afforded
electronic access (dial-up and/or e-mail) to all such information that may be
available using Contractor's WINDS project management software tool. Measured RF
performance data shall be maintained and made available to Owner as reasonably
requested by Owner in summary plots or other media mutually agreed upon by Owner
and Contractor.
2.8 Site Packages.
Promptly upon identification of each Primary Candidate Site and any
alternate candidate Sites in a Search Ring that complies with the requirements
of Section 4.1 below, Contractor shall provide a Site Package in the form
attached hereto as Attachment 9 for each Primary Candidate Site in such Search
Ring containing all required information available at such time. Such Site
Packages shall be updated by Contractor as the Work progresses. Upon Acceptance
of a City, the Site Package for each Site in such City shall contain complete
information on all items required by Attachment 5 hereto. In the event that an
alternate candidate Site becomes a Primary Candidate Site, Contractor shall
promptly provide a Site Package for such candidate Site and update and finalize
the Site Package in accordance with this Section 2.8.
3. RF ENGINEERING
3.1 General.
(a) Design Critieria and Optimization. For the Defined Coverage Area
of each City, Contractor shall perform all radio frequency (RF) engineering in
accordance with the Design Criteria and as required to design and build a
complete, integrated and functioning City Network that meets the Repeater
Acceptance Test Criteria set forth in Exhibit E (Network Testing and Acceptance
Criteria) of the Contract. Contractor shall undertake to optimize the
Preliminary City Network Design and Revised City Network Design (as defined
below) implementing the Design Criteria so as to meet the Repeater
Exhibit B - (SOW) Page 4
<PAGE>
CONFIDENTIAL
Acceptance Test Criteria for the lowest overall cost within schedule. For
purposes of this Section 3, Contractor shall perform RF engineering with respect
to both roof-top Sites and tower Sites, as necessary.
(b) Redesign and Reissuance of Search Ring. Pursuant to this Section
3, for each City, Contractor will identify Search Rings and pursuant to Section
4 below, Contractor will identify candidate Site(s) within each Search Ring. For
each Search Ring identified, Contractor will perform the RF Engineering work
reasonably required to either (i) select a viable Primary Site and complete the
Work required for such Site or (ii) disqualify such Search Ring as a viable area
for selection of a viable Primary Site. In the event a viable Primary Site
cannot be found and/or all required Work cannot be completed on a Site within
such Search Ring, Contractor will notify Owner of the need to redesign such
Search Ring and, upon Owner's written approval, Contractor shall redesign and
reissue the Search Ring.
3.2 Defined Coverage Area.
(a) By letter dated July 14, 1999, the Parties agreed to the Defined
Coverage Area for thirty (30) Cities. The Defined Coverage Area for each such
City defines the geographical areas in and around such City that are to receive
RF coverage from the combination of the satellites and terrestrial repeater
equipment so as to meet the Repeater Acceptance Test Criteria. The Defined
Coverage Area also defines exclusion zones ("Exclusion Zones") to which the
Parties agree Contractor will have no obligation to provide RF coverage.
(b) Owner shall provide Contractor with the Defined Coverage Area
for the remaining Cities within thirty (30) Calendar Days after EDC.
3.3 Preliminary City Network Design.
(a) Contractor shall perform the RF engineering necessary to produce
a preliminary city network design ("Preliminary City Network Design") for the
Defined Coverage Areas for the Cities in accordance with Exhibit A (Design
Criteria). For each City, the deliverables shall be the following:
(1) City assessment, including terrain plots, land use
plots, friendly sites databases, potential Exclusion
Zones and other information that affect the
implementation of the Preliminary City Network Design;
and
(2) Preliminary City Network Design, including (i) satellite
blockage plot (ii) terrestrial repeater coverage plot
(iii) Search Rings, (iv) projected usage of friendly
sites, (v) estimate of omni/other antenna usage, (vi)
potential Exclusion Zones, (vii) potential zoning
problems and other information then known to Contractor
(after diligent professional efforts under the
circumstances) that affect the implementation of the
Preliminary City
Exhibit B - (SOW) Page 5
<PAGE>
CONFIDENTIAL
Network Design. In developing the Preliminary City
Network Design, Contractor shall use Contractor-provided
coverage prediction tools, such as the satellite
blockage tool and a microcell model for use in the
Manhattan design.
(b) Owner and its consultants will review the Preliminary City
Network Design as submitted by Contractor. Owner will approve the Preliminary
City Network Design as submitted by Contractor or direct Contractor to revise
the Defined Coverage Area or declare one or more Exclusion Zones. Contractor
shall revise the Preliminary City Network Design as directed by Owner and
resubmit the same to Owner for review and approval or direction by Owner in
accordance with this Section. The approved Preliminary City Network Design shall
be used in subsequent design processes.
(c) As of EDC, Contractor has provided to Owner the Preliminary City
Network Designs for Tier 1 and Tier 2 Cities. Subject to paragraph (b) above,
Contractor will provide to Owner the Preliminary City Network Designs for Tier 3
Cities on or before August 24, 1999.
3.4 Revised City Network Design
(a) For each City, during Contractor's performance of RF
Engineering, Site Acquisition Services and Zoning for such City, Contractor
shall collect additional data and perform additional analysis (including
propagation testing from candidate Sites) to revise the Preliminary City Network
Design in accordance with the Design Criteria. Based upon information obtained
during the performance of RF Engineering, Site Acquisition Services and Zoning,
the results of additional analysis and comments received from Owner, Contractor
shall revise the Preliminary City Network Design as required to meet the Design
Criteria. The revised Preliminary City Network Design shall be called the
Revised City Network Design.
(b) The Revised City Network Design will also identify those Sites
to be constructed using a tower pursuant to the Master Tower Construction and
Lease Agreement.
(c) In developing the Revised City Network Design for each City,
Contractor shall set up test transmitters at each Primary Candidate Site
identified in the Preliminary City Network Design and measure the actual RF
coverage from the Site along traffic routes agreed to by the Parties. For each
Site, the deliverable shall be a Site/Cluster Test Report, including a signal
strength plot showing the coverage provided by that Site. The coverage so
measured shall be the basis for the design of further Sites within the relevant
cluster.
(d) For each City, Contractor shall provide Owner with a copy of a
Revised City Network Design for Owner's review and acceptance. Owner will review
the Revised City Network Design as submitted by Contractor. Owner will approve
the Revised City Network Design as submitted by Contractor or direct Contractor
to add
Exhibit B - (SOW) Page 6
<PAGE>
CONFIDENTIAL
Sites so as to satisfy the Design Criteria, revise the Defined Coverage Area
(subject to the change order process set forth in Article 11 of the Terms and
Conditions), revise any Exclusion Zones and/or delete Sites and declare further
Exclusion Zones. Contractor shall revise the Revised City Network Design as
directed by Owner and resubmit the same to Owner for review and written approval
or direction by Owner in accordance with this Section.
(e) In the event a Site requires isolation testing pursuant to
Isolation Specifications attached hereto as Attachment 14, Contractor shall
notify Owner through the Weekly Status Report and Contractor shall perform such
isolation testing.
(f) The foregoing may be accomplished on a Cluster-by-Cluster basis.
In the event a Cluster design does not meet the Design Criteria or exceeds cost
or schedule guidelines, Contractor shall report such matters as exceptions in
the Weekly Status Report.
3.5 Build-To City Network Design.
(a) Contractor shall proceed to complete Site Acquisition Services,
Zoning and Regulatory Compliance for the Primary Candidate Sites identified in
the Revised City Network Design. When all required Site Acquisition Services,
Zoning and Regulatory Compliance have been completed, Contractor shall revise
the Revised City Network Design to reflect the result of such services. The
revised Revised City Network Design shall be called the Build-To City Network
Design.
(b) For each City, Contractor shall provide Owner with a copy of the
Build-To City Network Design for Owner's review and acceptance. Owner will
review the Build-To City Network Design as submitted by Contractor. Owner will
approve the Build-To City Network Design as submitted by Contractor or direct
Contractor to revise the Build-To City Network Design so as to meet the Design
Criteria. Contractor shall revise the Build-To City Network Design as directed
by Owner and resubmit the same to Owner for review and written approval or
direction by Owner in accordance with this Section.
(c) The foregoing may be accomplished on a Cluster-by-Cluster basis.
3.6 City Network Testing
(a) For each City, Contractor shall perform testing on the City
Network in accordance with Exhibit E (Network Testing and Acceptance Criteria)
of the Contract.
3.7 Final System Configuration
(a) At the time Contractor provides Owner with the Repeater
Acceptance Test Report described in Exhibit E (Network Testing and Acceptance
Criteria), Contractor shall (i) provide Owner a copy of market databases,
including site characteristics and technical parameters used in ANET for
propagation modeling and
Exhibit B - (SOW) Page 7
<PAGE>
CONFIDENTIAL
(ii) identify the morphology and topology databases used in performing
propagation analyses under this Contract.
(b) After Acceptance of all City Networks has been achieved and for
so long as Contractor is licensed to use the ANET modeling tool and such tool is
maintained by a third party, at Owner's request pursuant to a duly executed task
order, Contractor shall perform propagation analysis using the ANET modeling
tool at the then prevailing market rates for such services.
4. SITE ACQUISITION SERVICES
For each Search Ring, Contractor will perform the Site Acquisition
Services reasonably required to either (i) select a viable Primary Site and
complete the Work required for such Site or (ii) disqualify such Search Ring as
a viable area for selection of a viable Primary Site.
4.1 Identification and Ranking of Candidate Sites.
For the Search Rings in each City, Contractor shall perform the following:
(a) Candidate Identification. In the course of performing Site
Acquisition Services, Contractor shall, as an initial matter, identify three
candidates for Normal-Area Sites, up to two candidates for Medium-Area Sites and
one candidate for Wide-Area Sites (as those sites are defined in Exhibit C)
(provided that Contractor may use only one candidate Site when it meets Owner's
requirements from the outset) within each Search Ring identified in the
Preliminary City Network Design. For each Search Ring, Contractor shall identify
and evaluate candidate Sites as Primary Sites and secondary candidate Sites
based on the following criteria: (i) compliance with the Site Lease Agreement
Term Sheet provided by Owner to Contractor by letter dated June 11, 1999; (ii)
availability of zoning; (iii) site constructability (including preliminary
structural, environmental suitability and accessibility to power and grounding);
and (iv) ability to minimize the need to perform RF interference analysis. For
each Primary Site evaluated and identified, the deliverable shall be a completed
copy of Contractor's standard Candidate Site Ranking Form and Site Survey Form.
For alternate candidate Sites evaluated and identified, Contractor shall provide
Owner a completed copy of Contractor's standard Candidate Site Ranking Form and
Site Survey Form, but only to the extent completed by Contractor In the event
Contractor is unable to identify a Primary Site from the candidate Sites
initially identified pursuant to this paragraph and/or the Work required to
complete a Primary Site identified from such candidate Sites cannot be
completed, Contractor will notify Owner and the Parties will review the
situation and, upon Contractor's recommendation and Owner's written concurrence,
Contractor shall either continue efforts to identify a Primary Site within the
Search Ring or disqualify the Search Ring and redesign and reissue the Search
Ring.
(b) Site Qualification. Contractor shall "Caravan" candidate Sites,
that is, obtain RF Engineering acceptance and rank candidate Sites for initial
suitability with respect to RF Engineering, Site Acquisition, Architecture and
Engineering, Zoning,
Exhibit B - (SOW) Page 8
<PAGE>
CONFIDENTIAL
Regulatory Compliance and Construction and, based on such suitability ranking,
select a Primary Candidate Site. The Site so selected shall be called a "Primary
Candidate Site" or a "Primary Site." For each Search Ring, the deliverable shall
be a completed copy of Contractor's standard Candidate Site Ranking Form and the
selection of such Primary Candidate Site, which shall be reported on
Contractor's Project Milestone Tracking Report (WINDS). The completed Site
Ranking Form shall identify those candidate Sites that likely cannot be
constructed as Standard Sites. In the event Contractor has performed the
services described in this paragraph within a Search Ring on three (3) Primary
Sites if Normal-Area Sites, two (2) Primary Sites if Medium-Area Sites and one
(1) Primary Site if Wide-Area Sites and all of such Primary Sites have been
abandoned or disqualified through no fault of Contractor, then Contractor shall
notify Owner and provide Owner with its recommendation as to how to proceed.
Contractor shall not, without Owner's prior written approval, perform the
services under this paragraph within a Search Ring for more than three (3)
Primary Sites if Normal-Area Sites, two (2) Primary Sites if Medium-Area Sites
and one (1) Primary Site if Wide-Area Site.
4.2 Site Lease Agreements.
(a) Contractor shall identify the Landlord for each Primary Site.
Contractor shall use reasonable efforts to obtain the Landlord's agreement to
negotiate from a Form of Site Lease Agreement provided by Owner to Contractor by
letter dated June 11, 1999. Any option lease agreement presented to Owner
hereunder shall, at a minimum, be in accordance with the terms set forth in the
Site Lease Agreement Term Sheet provided by Owner to Contractor by letter dated
June 11,1999 and shall permit Contractor to commence Site design, entitlements
(zoning and permits) and pre-construction tasks (utility coordination,
inter-modulation, telco, etc.) during the option period. Contractor shall use
reasonable commercial efforts to provide that the commencement date of Owner's
rent obligations to the Landlord under each option lease agreement shall
coincide with the commencement of Contractor's construction activities at such
Site. Execution of any such option lease agreement shall be in Owner's sole
discretion. For each Site, the deliverable shall be an executable Site
Acquisition Agreement in accordance with the Site Lease Agreement Term Sheet.
(b) During negotiation of a Site Lease Agreement, any material
deviations from the Site Lease Agreement Term Sheet must be reviewed and
approved by Owner. Upon completion of negotiation of each Site Lease Agreement,
such Site Lease Agreement shall be presented to Owner, together with a lease
abstract in the form set forth as Attachment 10 hereto, which shall set forth
deviations from the Site Lease Agreement Term Sheet. If the Site Lease Agreement
is acceptable to Owner, Owner shall execute the Site Lease Agreement. Owner's
execution and delivery of the Site Lease Agreement for any Site shall constitute
approval of said Site Lease Agreement and of any deviation from the Site Lease
Agreement Term Sheet.
(c) Contractor shall seek to locate Landlords with multiple
candidate Sites so as to enter into master Site Lease Agreements that cover
multiple candidate sites ("Master Site Lease Agreement"). This effort shall be
integrated with the development of the Revised City Network Design so as to
create a Revised City Network Design meeting
Exhibit B - (SOW) Page 9
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all Design Criteria while requiring the negotiation and execution of the minimum
number of Site Lease Agreements.
(d) Contractor shall provide a preliminary title report. Pursuant to
a duly executed task order, Contractor shall provide the type and level of
additional title assurance (e.g., title insurance commitment and title
insurance) as may be agreed to by the Parties.
(e) In the event Contractor has performed the services described in
this Section 4.2 within a Search Ring on three (3) Primary Sites if Normal-Area
Sites, two (2) Primary Sites if Medium-Area Sites and one (1) Primary Site if
Wide-Area Sites and all of such Primary Sites have been abandoned or
disqualified through no fault of Contractor, then Contractor shall notify Owner
and provide Owner with its recommendation as to how to proceed. Contractor shall
not, without Owner's prior written approval, perform the services under this
Section 4.2 within a Search Ring for more than three (3) Primary Sites if
Normal-Area Sites, two (2) Primary Sites if Medium-Area Sites and one (1)
Primary Site if Wide-Area Site.
5. ARCHITECTURE AND ENGINEERING (A&E)
(a) Contractor shall provide all architectural and engineering design
services necessary to design each Site.
(b) As required by Landlord or governmental entities or as indicated by
Contractor's initial assessment of a Site (including the initial structural and
environmental assessment) and upon Owner's prior authorization by a duly
executed task order, Contractor will provide or cause to be provided a complete
structural analysis of such Site adequate to confirm that the existing
infrastructure has the structural capacity to accommodate the design loads of
the terrestrial repeater unit and antennas to be installed on such Site.
(c) Contractor shall analyze the restrictions imposed by the Landlord for
each Site to ensure that the completed design complies with such restrictions,
including but not limited to those set forth in the applicable Site Lease
Agreement.
(d) Contractor shall use reasonable commercial efforts to produce a design
for each Site that is in accordance with one of the Standard Sites described on
Attachment 5 attached hereto.
(e) In designing each Site, Contractor shall use reasonable commercial
efforts to maximize: (i) efficient use of the existing infrastructure; (ii)
operational functionality; and (iii) the likelihood that construction of the
Site in accordance with the Construction Documents for such Site will not
require a quantity of materials in excess of the quantity required for the
applicable Standard Site.
(f) Contractor will prepare "Construction Documents" consisting of final
construction Drawings and Specifications necessary for construction of each
Site. These Construction Documents will be complete and detailed and shall
include:
Exhibit B - (SOW) Page 10
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(1) bill of materials;
(2) Site layout (showing placement of coax cables, equipment
and antennas);
(3) power panel and telecommunications box details,
penetrations and routing;
(4) electrical one line diagram;
(5) grounding plan and supplemental notes;
(6) installation notes for repeater, antennas, dishes and
coax;
(7) antenna, dish, repeater enclosure mounting details and
associated notes;
(8) Site specific installation notes;
(9) HVAC requirements for internal installation;
(10) Construction Drawings as described in paragraph (h)
below; and
(11) As-Built Drawings as described in paragraph (j) below.
(g) For each Primary Site, Contractor shall, as needed to support Site
Acquisition Services and Zoning Services, produce exhibit drawings ("Exhibit
Drawings"). In the case of Standard Sites, the Exhibit Drawings shall contain
only the level of detail required to support such services, it being understood
that it is the intention of the Parties that, subject to Contractor's ability to
meet the Delivery Schedule, Owner will not incur the expense of complete,
detailed drawings (as described in paragraph (h) below) required for
construction of a Primary Site unless the Permits for such Site have been issued
or are likely to be issued. In the case of candidate Sites that are not Standard
Sites, following the site caravan exercise, Contractor shall submit to Owner,
with the Candidate Site Ranking Form, a request for approval to prepare
Construction Drawings (as defined below). Owner shall approve or reject such
request in accordance with Attachment 2 (Owner Responsibilities) hereto.
(h) For each Primary Site for which Contractor has reasonably determined
that the necessary Permits are likely to be obtained, Contractor shall produce
at least one set of professional architectural/engineer stamped construction
drawings ("Construction Drawings" or "CD") sufficient to obtain a building
permit and allow for construction of the Site.
(i) All design services shall be performed by individuals licensed to
perform such services in the jurisdiction in which such services are performed.
Exhibit B - (SOW) Page 11
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(j) During Site Construction, Contractor shall maintain and update
periodically a designated set of drawings with completed-to-date "as-built"
notations and information (red lined) (the "As-Built Drawings"). These As-Built
Drawings will be delivered to Owner as part of the final Site Package.
(k) Contractor will provide all additional architectural and engineering
services as it relates to site design for Sites that differ from the Standard
Sites.
(l) In the event Contractor has performed the services described in this
Section 5 within a Search Ring on three (3) Primary Sites if Normal-Area Sites,
two (2) Primary Sites if Medium-Area Sites and one (1) Primary Site if Wide-Area
Sites and all of such Primary Sites have been abandoned or disqualified through
no fault of Contractor, then Contractor shall notify Owner and provide Owner
with its recommendation as to how to proceed. Contractor shall not, without
Owner's prior written approval, perform the services described in this Section 5
within a Search Ring for more than three (3) Primary Sites if Normal-Area Sites,
two (2) Primary Sites if Medium-Area Sites and one (1) Primary Site if Wide-Area
Site.
6. ZONING
For each Search Ring, Contractor will perform the Zoning Services
reasonably required to either (i) select a viable Primary Site and complete the
Work required for such Site or (ii) disqualify such Search Ring as a viable area
for selection of a viable Primary Site.
6.1 Zoning Permits and Approvals.
(a) For each Primary Candidate Site, Contractor shall use
commercially reasonable efforts to obtain all local and county zoning, licenses,
and/or approvals required to construct each such Site ("Permits"). Contractor
shall not commence construction of any Site before Contractor has obtained all
Permits required for such Site.
(b) Contractor shall prepare and submit any plans, applications,
proposals, statements or other documents for submission to the proper
governmental officials in order to obtain all required Permits. Contractor shall
prepare appropriate responses to any staff report generated as a result of the
applications.
(c) As part of the Zoning process for each Site, Contractor shall
meet, as needed, with the staff members of each governmental office and agency
that has review and oversight responsibility for the proposed Site. To the
extent necessary, Contractor shall conduct and attend preliminary meetings with
applicable government officials and citizens groups (as required) so as to
advise such local and county officials and citizens groups of the plans for the
construction of the Site.
(d) In addition, Contractor shall attend any hearing, proceeding or
meeting required to procure any required Permits.
Exhibit B - (SOW) Page 12
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(e) Contractor shall be responsible for re-permitting and/or
obtaining permit extensions as required to maintain permit validity during
project delays or option periods.
6.2 Zoning Analysis.
For each jurisdiction in which a Site(s) will be located, Contractor shall
prepare a detailed analysis, as described in Attachment 11 hereto, of the
Permits required to construct a Site(s) within such jurisdiction ("Zoning
Analysis"). Contractor shall provide Owner with the Zoning Analysis in
accordance with the Initial City Schedule.
7. SITE CONSTRUCTION
7.1 General.
(a) To the extent required to construct each Site in accordance with
the Construction Documents for such Site, Contractor shall provide all (except
for equipment to be procured by Owner as set forth in Attachment 2 hereto): (i)
materials, supplies, apparatuses, appliances, equipment, tools and implements;
(ii) labor, management and supervision; (iii) transportation, storage and all
other services; (iv) facilities, including sanitary facilities; (v) temporary
protection; (vi) protection and temporary closures; (vii) cleanup and trash
removal; (viii) communications; and (ix) material and personnel hoisting
equipment.
(b) In performing Site construction Work, Contractor shall comply
with all Laws and all Landlord requirements, such as building access
restrictions and all obligations imposed by the Site Lease Agreement related to
the performance of construction activities.
(c) In the case of Sites that are not Standard Sites ("Non-Standard
Sites"), such Sites shall be constructed in accordance with the process set
forth in Section 7 of Exhibit C (Contract Pricing, Payments and Milestone
Achievement Criteria)
7.2 Construction Management.
For Primary Candidate Sites in the Revised City Network Design, Contractor
shall, as needed to support the RF Engineering, Site Acquisition, preliminary
A&E, logistics, material management and Zoning services, perform the following:
(a) participate in Site visits, constructability reviews, site
investigations and ranking /business selection decisions;
(b) be responsible for coordinating with local utility providers to
order the telecommunications circuits, power routing and related utility meters
required to operate each Site based on Owner-furnished criteria; and
(c) oversee construction civil design processes, construction
contractor selection, management and quality control of the construction
processes.
Exhibit B - (SOW) Page 13
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7.3 Building Permit.
Contractor shall use commercially reasonable efforts to obtain all
building permits required to construct each Site. Contractor shall not commence
construction of any Site before Contractor has obtained all required building
permits for such Site. Contractor shall be responsible for re-permitting and/or
obtaining building permit extensions as required to maintain permit validity
during project delays or option periods.
7.4 Procurement of Materials and Inventory Management.
Contractor shall be responsible for the procurement, receiving, inspection
and warehousing (as necessary) of all materials and equipment required for
construction of the Sites, including the satellite receive antennas and
satellite transmit antennas referred to in Section 10 below (except the
equipment to be procured by Owner as set forth in Attachment 2).
7.5 Preliminary Site Test.
Upon Contractor's completion of the construction of the Site (except for
the installation of the terrestrial repeater unit) in accordance with the
Construction Documents, Contractor shall conduct a successful Preliminary Site
Test of the Site in accordance with the procedures set forth on Attachment 12
hereto. Within thirty (30) Calendar Days after completion of such test,
Contractor shall deliver to Owner a Preliminary Site Test Report, setting forth
the results.
7.6 Installation of Terrestrial Repeater Units and Completion of
Construction.
(a) Contractor shall deliver to Owner, for Owner's review and
approval, a Repeater Delivery Requirements Schedule for the timely delivery of
terrestrial repeater units to the individual Sites. Owner shall review the
Repeater Delivery Requirements Schedule and either approve it or reject it
stating the reason for such rejection. In the event Owner rejects the proposed
Repeater Delivery Requirements Schedule, the Parties shall work together to
develop such schedule. Owner shall deliver terrestrial repeater units in
accordance with the Repeater Delivery Requirements Schedule agreed to by Owner.
(b) Contractor will receive each terrestrial repeater unit from the
repeater manufacturer at the street level/loading dock or similar receiving area
of the Site where the terrestrial repeater unit is to be installed and
Contractor shall transport the terrestrial repeater unit from such receiving
area to the location where it is to be installed at the Site. Contractor shall
provide Owner with written confirmation of the delivery of each terrestrial
repeater unit to Contractor. Contractor shall connect the terrestrial repeater
unit to all antennas and all required utilities and perform the Terrestrial
Repeater Unit Test in accordance with the procedures set forth on Attachment 13
hereto. Contractor shall either accept or reject the terrestrial repeater unit
based upon the results of the Terrestrial Repeater Unit Acceptance Test.
Contractor shall notify Owner orally
Exhibit B - (SOW) Page 14
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and in writing promptly in the event that Contractor rejects any Terrestrial
Repeater Unit, providing Owner with the results of the Terrestrial Repeater Unit
Acceptance Test.
(c) Upon Owner's request pursuant to a duly executed task order,
Contractor will support Owner in its efforts with the repeater manufacturers to
resolve any repeater failure.
(d) As part of the Repeater Delivery Requirements Schedule required
above, Contractor shall, for each terrestrial repeater unit delivered to
Contractor, track the identification and location of each such unit (and any
change to such location), the delivery of each unit to the appropriate Site, the
disposition (acceptance or rejection) of such unit and any maintenance required
on such unit during performance of the Work.
(e) "Completion of Construction" for each Site shall be deemed to
have occurred when all requirements of this Section 7 have been completed with
respect to such Site.
8. INTERIM MAINTENANCE
(a) Commencing on the first full month following Completion of
Construction of a Site in accordance with Section 7.6(e) above and thereafter
until Acceptance of such City in accordance with Article 8 of the Terms and
Conditions of the Contract, Contractor shall conduct a monthly physical
inspection of each such Site. Such inspection shall include a visual examination
of all equipment, cables, antenna, materials and other items of Work situated at
the Site (including without limitation, the repeaters) for the purpose of
identifying any damage, vandalism or disrepair incurred by any such item of
Work.
(b) In the Weekly Status Report required by Article 2.6(a) above,
Contractor shall identify any problems (such as damage, vandalism or disrepair)
identified as a result of such inspection that require corrective action and
advise Owner as to the manner in which Contractor recommends remedying the same.
Pursuant to a duly executed task order, Contractor shall remedy the same.
9. ANTENNA POINTING
As requested by Owner, on a Site-by-Site basis, Contractor shall also
activate the terrestrial repeater unit and perform final antenna alignment
approximately six (6) weeks prior to the commencement of Single Satellite
Testing and/or Live Testing on such Site or commencement of commercial revenue
service, whichever occurs first.
10. SATELLITE RECEIVE ANTENNAS AND REPEATER TRANSMIT ANTENNAS
(a) Contractor shall procure, install and provide all labor,
materials, transportation and handling services for the satellite receive
antennas and repeater
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transmit antennas described in Attachment 9.1 of Exhibit C (Contract Pricing,
Payments and Milestone Achievement Criteria).
(b) Contractor shall select the antennas to be installed at each
Site based on the assumptions set forth in Attachment 9.1 of Exhibit C (Contract
Pricing, Payments and Milestone Achievement Criteria). Attachment 9.1 of Exhibit
C identifies standard antennas and special antennas. Contractor shall not
procure a special antenna for any Site without Owner's prior written approval.
11. REGULATORY APPROVALS
For each Search Ring, Contractor will perform the Regulatory Compliance
Services reasonably required to either (i) select a viable Primary Site and
complete the Work required for such Site or (ii) disqualify such Search Ring as
a viable area for selection of a viable Primary Site. Contractor shall perform
the following Regulatory Compliance tasks for each Site.
11.1 Federal.
(a) Environmental, Airspace, FCC and RF Exposure. Contractor shall
perform the Regulatory Compliance services including environmental, airspace,
FCC, and RF exposure compliance requirements, as follows:
(1) Contractor shall analyze the regulatory policy and
enforcement environment for environmental, airspace,
tower registration, and RF exposure issues. This process
is initiated by gathering updated Federal regulation
changes supported with geographically oriented
investigations at the state and local levels. The
deliverable will be a summary report of the regulatory
policy and enforcement environment (the "Analysis of
Policy and Enforcement Report").
(2) Contractor shall present policy and process
recommendations along with a risk analysis to Owner for
approval. Contractor will then work with Owner to
develop deliverables, including a System Level
Compliance Plan defining (a) the criteria for regulatory
compliance, (b) the predesign guidelines, (c) the
process flow for regulatory management, and (d) the
process for information dissemination and training.
(3) Contractor will perform aNEPA Initial Screening.
Contractor will engage and manage an environmental
contractor who will perform an Environmental Transaction
Screening for each Primary Candidate Site. These
screenings will serve two purposes; first, to determine
if the proposed use will have an environmental
Exhibit B - (SOW) Page 16
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impact according to CFR 1.1307(a); and, secondly, if the
Site has such an environmental impact, Contractor will
recommend either abandoning the Site or proceeding with
a site feasibility analysis. Contractor will review site
investigation reports and ensure completion of all work
in a timely manner.
(4) Pursuant to a duly executed task order, Contractor will
engage and manage an environmental contractor who will
complete a Site Feasibility Analysis on raw land sites
including completion of Phase I and geo-technical
investigations for each Primary Candidate Site as
required. The evaluation will also provide information
pursuant to CERCLA for appropriate innocent purchaser
defenses provided within the CERCLA Regulations.
Contractor will review site investigation reports and
ensure completion of all Work in a timely manner.
(5) Contractor will complete FAA airspace study for each
Primary Candidate Site. If the airspace study indicates
that a FAA Impact Study is required, then Contractor
will engage a FAA consultant to complete the impact
study. Contractor will review FAA studies and ensure
completion of all Work in a timely manner.
(6) To evaluate RF Exposure compliance, Contractor will
complete (a) a baseline compliance evaluation and
characterization of each Primary Candidate Site ("RF
Exposure Site Characterization"), (b) a mitigation plan
for any Primary Candidate Sites potentially not in
compliance, (c) for each constructed Site, Contractor
will prepare a Site RF Safety Plan and (d) all
documentation required for regulatory compliance.
(b) Other. Contractor will identify, and send written notification
to Owner of, any other federal regulatory approvals required in connection with
the Project under federal environmental protection laws or by any federal
regulatory authority implementing such laws. Upon the written request of Owner
and pursuant to a duly executed task order, Contractor will proceed with all
activities required to comply with such laws and obtain such regulatory
approvals.
11.2 State.
Contractor will identify, and send written notification to Owner, of any
state regulatory approvals required in connection with the Project under state
environmental protection laws or by any state regulatory authority implementing
such laws. Upon written request of Owner and pursuant to a duly executed task
order, Contractor will
Exhibit B - (SOW) Page 17
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proceed with all activities required to comply with such laws and obtain such
regulatory approvals.
12. NETWORK MANAGEMENT TESTING
Upon Owner's written request, and as more fully set forth in the
applicable duly executed task order, Contractor shall perform Network Management
System (NMS) testing at those Sites within a City set forth in such task order,
to assure that the overall NMS is operating properly, including its fault
alarms; such testing shall be performed in accordance with a test procedure that
will be jointly developed by Owner, Contractor and the NMS supplier(s) ("NMS
Test Procedures").
12.1 Guidelines and Assumptions.
The NMS Test Procedures shall include technologically-appropriate tests on
all material systems and subsystems of the NMS, and shall be based on the
guidelines and assumptions listed below: Most faults internal to the repeater
will be simulated either from the Network Operating Center (the "NOC") or
locally by a simple process.
(a) Faults external to the repeater will be manually initiated at
the Sites, including:
(1) Satellite LNA fault (if applicable)
(2) Receive cable fault
(3) Transmission cable fault
(4) Power/emergency power fault
(5) Telco line fault/backup circuit (if applicable)
(6) Ground fault
(7) Security system fault (if applicable)
(8) Repeater unauthorized entry fault
(b) NOC operation will have been verified by the NOC vendor prior to
the City-wide NOC testing process.
(c) Contractor personnel will operate the NOC and will run the test
sequence at the NOC during the NMS testing.
(d) If specified in the task order, City-wide NMS testing will be
coincident with Repeater Acceptance Testing.
(e) Actual equipment faults and system-level checks will be in
accordance with the final NMS configuration and capabilities.
Exhibit B - (SOW) Page 18
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
12.2 Test Report.
Within ten (10) Business Days of the completion of the NMS Test
Procedures, Contractor shall deliver to Owner a test report for the City-Network
that documents the fault and system level test results for each Site within the
City. Upon Owner's request, Contractor shall deliver to Owner the data that
underlies such report, which shall include one or more summary reports generated
at the NOC.
13. SYSTEM ENGINEERING SERVICES
In addition to the services set forth in this Exhibit B, Contractor shall
perform the following:
13.1 Isolation Testing.
Contractor shall perform isolation testing on three Sites to be
identified by Contractor and approved by Owner. Two Sites shall be standard
Sites, one of Standard Site 1 and the other of Standard Site 2; the third Site
shall be a High-Power Site. Standard Site Types 1 and 2 use a [*****] channel
transmitter and have the configurations set forth in Attachment 5 hereto.
High-Power Sites use [*****] channel transmitter. The purpose of the isolation
testing is to define "minimum separation distances" between the terrestrial
transmit antenna and terrestrial satellite receive dishes of each such type of
Site. "Minimum separation distance" means the minimum distance between the
terrestrial transmit antenna and terrestrial satellite receive dish at which the
measured isolation margin is as defined in Doc. No. DARS-ENG-XMSR-026-41500,
Ver.1, to be provided by Owner to Contractor. Contractor shall submit to Owner,
for Owner's review and approval, a test plan and test procedures for isolation
testing. Contractor shall revise the isolation test plan and procedures in
accordance with Owner's comments. The deliverables shall be the isolation test
plan and procedures and a package for each tested Site, such package to include
a description of the test procedures used, the measured test results and summary
of findings.
13.2 RF Engineering Test Plan and Test Procedures.
(a) Contractor shall develop a test plan and test procedures for
validating a level of coverage reliability as agreed by the Parties in the
Defined Coverage Area in each City Network.
(b) The deliverable shall be a document setting forth the test plan
and test procedures, including equipment requirements, pass/fail test criteria
and identification of the data to be collected and provided to Owner.
(c) Contractor shall present a draft of such test plan and test
procedures to Owner for Owner's review and comment. Contractor shall revise such
plan
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
and procedures in accordance with Owner's comments. Contractor shall apply the
revised test plan and test procedures to the City Network in Pittsburgh, PA and
Washington, DC and Contractor shall present to Owner the data collected
therefrom, along with any suggested modifications to the revised test plan and
test procedures. Contractor shall revise the revised test plan and test
procedures in accordance with Owner's comments. The final test plan and test
procedures shall be subject to Owner's written approval.
13.3 Refine Contractor's Design Tool.
(a) Contractor shall refine the simulcast prediction capabilities of
Contractor's design tool so as to provide the capability to predict areas in
each Defined Coverage Area that may exceed the required simulcast delay
tolerance of [*****]. Contractor shall validate the refined simulcast delay
prediction capabilities of Contractor's design tool in the Defined Coverage Area
for Pittsburgh, PA and Los Angeles, CA.
(b) The deliverable shall be a document detailing the simulcast
delay analysis process used for RF network design, along with the analysis
results for such two Cities. In the event the analysis results for such two
Cities show that the refined Contractor design tool does not accurately predict
those areas that may exceed the simulcast delay tolerance set forth above, the
Parties will discuss and agree upon appropriate steps to further improve such
Contractor design tool's capabilities to a mutually acceptable level.
13.4 [*****] vs. XM Radio Satellite Performance - [*****].
Contractor will perform an in-depth technical analysis to determine
the satellite receive performance of [*****] Owner's satellites in [*****].
Contractor will utilize a building data base of the [*****] to enhance the
accuracy of the test simulation results and perform software adaptations in
processing the data. The study shall be conducted for two areas as agreed to by
the Parties. Contractor will provide Owner with a description of the process it
intends to use in performing this analysis. Contractor will revise such analysis
process in accordance with Owner's comments. Such Test Procedures will be
subject to Owner's prior written approval. Deliverables include a Technical
Report, setting forth Contractor's analysis, a detailed description of its
findings and its conclusions regarding the strengths and weaknesses of satellite
coverage for the satellites of Owner and [*****].
13.5 Design Preparation and System Specifications Definition.
(a) Contractor shall work with Owner to define critical system
engineering specifications and technical parameters in preparation for the
full-scale design and deployment of the Terrestrial Repeater Network. Critical
system engineering
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
specifications and technical parameters shall include the following: final link
budgets for the repeaters and the satellites, final receiver sensitivity
threshold figures, identification of antennas to be used in the design and
identification of transmit/receive isolation requirements. The deliverables
shall be (1) an interim report setting forth the critical system engineering
specifications and technical parameters as agreed to by the Parties; and (2) a
final report validating (through the cluster testing described in (b) below)
such agreed-upon specifications and parameters and including any Owner-requested
modifications to such specifications and parameters. Included in this definition
phase are such items as the measurements-based coverage design criteria, the
antennas to be used in the design, and the transmit-to-receive isolation
requirements.
(b) In addition, Contractor shall design a cluster of sites in the
City in which the three SV Test sites are located plus selected other test sites
as needed to obtain the test data. "Cluster" testing shall be performed on 5-8
Sites (including the three existing SV Test sites), utilizing test transmitters
(which have at least [*****] of output power) to simulate the transmit power of
the repeaters and extensive drive testing to gather additional test data that
will be used to finalize the Design Criteria. Owner will contact Stanford
Telecom and request permission to use the prototype repeaters in connection with
such testing. The deliverable shall be a report validating the fade margins and
other environmentally determined parameters in the repeater link budget. The
cluster testing process shall be used to further define the critical system
engineering specifications and technical parameters to be developed under (a)
above.
14. DEFINITIONS
Capitalized terms used herein shall have the meaning set forth below or in
the Terms and Conditions of the Contract.
(a) "Acceptance" has the meaning set forth in Article 8 of the Terms
and Conditions of the Contract.
(b) "Analysis of Policy and Enforcement Report" has the meaning set
forth in Section 11.1 above.
(c) "As-Built Drawings" has the meaning set forth in Section 5
above.
(d) "Build-To City Network Design" has the meaning set forth in
Section 3.5 above.
(e) "Caravan" has the meaning set forth in Section 4.1 above.
(f) "City Budget" has the meaning set forth in Section 2.4 above.
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(g) "Cluster" means approximately 6-8 Sites adjacent to each other
in a City.
(h) "Construction Documents" has the meaning set forth in Section
5(f) above.
(i) "Defined Coverage Area" has the meaning set forth in Section 3.2
above.
(j) "Design Criteria" has the meaning set forth in Section 2 of
Exhibit A (Network Design Criteria and Process).
(k) "Discipline" has the meaning set forth in Section 1.1 above.
(l) "Exclusion Zones" has the meaning set forth in Section 3.2
above.
(m) "Exhibit Drawings" has the meaning set forth in Section 5 above.
(n) "Master Tower Construction and Lease Agreement" means the
agreement to be executed between Owner and Contractor for the construction and
lease of towers.
(o) "Pass-Through Expenses" has the meaning set forth in Exhibit C
(Contract Pricing, Payments and Milestone Achievement Criteria).
(p) "Permits" has the meaning set forth in Section 6 above.
(q) "Permitted Reimbursable Expenses" has the meaning set forth in
Exhibit C (Contract Pricing, Payments and Milestone Achievement Criteria).
(r) "Preliminary City Network Design" has the meaning set forth in
Section 3.3 above.
(s) "Primary Candidate Site" or "Primary Site" shall have the
meaning set forth in Section 4.1(b) above.
(t) "Repeater Acceptance Test Criteria" has the meaning set forth in
Exhibit E (Network Testing and Acceptance Criteria).
(u) "Revised City Network Design" has the meaning set forth in
Section 3.4 above.
(v) "Search Ring" means a map showing a geographic area within which
candidate Sites are to be located.
(w) "Unit Prices" has the meaning set forth in Exhibit C (Contract
Pricing, Payments and Milestone Achievement Criteria)
Exhibit B - (SOW) Page 22
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 1
LIST OF CITIES
[***** Pages 1 to 2]
Exhibit B (SOW) - Attachment 1
Page 1
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 2
OWNER RESPONSIBILITIES
Owner shall be responsible for providing the information or performing the
tasks described below by the corresponding dates or within corresponding time
periods set forth below:
<TABLE>
<CAPTION>
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
Program Management
- -----------------------------------------------------------------------------------------------
<S> <C>
Owner's Launch Date for Commercial Service 5/15/01
- -----------------------------------------------------------------------------------------------
Contractor's Completion of Performance 4/15/01
- -----------------------------------------------------------------------------------------------
Satellite coverage (first Owner satellite successfully [*****]
launched and in orbit) available for repeater testing
- -----------------------------------------------------------------------------------------------
Ability to start NMS testing [*****]
- -----------------------------------------------------------------------------------------------
Terrestrial Repeater Manufacturer's start of shipment date [*****]
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection* of Repeater [*****]
Delivery Requirements Schedule
- -----------------------------------------------------------------------------------------------
One Satellite available for Live Testing [*****]
- -----------------------------------------------------------------------------------------------
[*****]
- -----------------------------------------------------------------------------------------------
Onwer's review and written approval or rejection or Initial [*****]
City Schedule
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of Project [*****]
Plan in accordance with Article 2.2 of Exhibit B
- -----------------------------------------------------------------------------------------------
* In the event Owner rejects any Contractor submission referenced in this Attachment 2, Owner
shall state the reasons therefor.
- -----------------------------------------------------------------------------------------------
<CAPTION>
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
<S> <C>
RF Engineering
- --------------
Provide Defined Coverage Area for Tier 3 Cities [*****]
- -----------------------------------------------------------------------------------------------
Delivery of repeater configuration, including, physical, [*****]
electrical & mechanical, typical site layouts, and details
about anchoring, grounding and utility requirements.
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of requested [*****]
Exclusion Zones
- -----------------------------------------------------------------------------------------------
</TABLE>
Exhibit B (SOW) - Attachment 2
Page 1
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<S> <C>
Owner's review and written approval or rejection of [*****]
Preliminary City Network Design
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of Revised [*****]
City Network Design or direction by Owner to revise the
Defined Coverage Area or declare one or more Exclusion Zones
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of Build-To [*****]
Design or direction by Owner to revise the Defined Coverage
Area or declare one or more Exclusion Zones
- -----------------------------------------------------------------------------------------------
Owner to provide parameters for the Link Budget (verify prior [*****]
information)
- -----------------------------------------------------------------------------------------------
Access to all repeater and receiver information required to [*****]
develop Link Budgets (verify prior information)
- -----------------------------------------------------------------------------------------------
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
Owner to provide guidelines for transmit to receive antenna [*****]
isolation configurations (Inputs for Isolation Task)
- -----------------------------------------------------------------------------------------------
Owner to provide access to all information on repeater [*****]
configurations (preliminary pending repeater contract
definition)
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of [*****]
Preliminary City Network Design for Tier 1 and Tier 2 Cities
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of [*****]
Preliminary City Network Design for Tier 3 Cities
- -----------------------------------------------------------------------------------------------
Owner and repeater manufacturer will provide repeater [*****]
installation information, test procedures and warranty policy
- -----------------------------------------------------------------------------------------------
Owner and repeater manufacturer will provide timely repair or [*****]
replacement of repeaters that fail. A process of handling
repeater repair/replacement will be developed by Owner,
Manufacturer and Contractor
- -----------------------------------------------------------------------------------------------
Owner will provide test sets required to test the functional [*****]
satellite and repeater networks in each City
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of Repeater [*****]
Acceptance Test Plan and procedures
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of Repeater [*****]
Acceptance Test Report for each City
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of a [*****]
reissuing/redesign of a Site
- -----------------------------------------------------------------------------------------------
</TABLE>
Exhibit B (SOW) - Attachment 2
Page 2
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Owner's review and written approval or rejection of Contractor [*****]
request to redesign and reissue a Search Ring
<TABLE>
<CAPTION>
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
<S> <C>
Site Acquisition
- ----------------
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of title [*****]
report and title abstract, if such documents are requested by
Owner
- -----------------------------------------------------------------------------------------------
Owner's legal review of proposed Site Lease Agreement and [*****]
written acceptance or rejection with counterproposal or
suggestions
- -----------------------------------------------------------------------------------------------
Owner's review and disposition of title curative [*****]
documentation, if any (subordination, attornment,
non-disturbance, tax, lien disposition and other
encumbrances), if such curative documentation is requested by
Owner
- -----------------------------------------------------------------------------------------------
Owner's review and written approval, execution or rejection of [*****]
final Site Lease Agreement and approval or rejection of any
counterproposal or suggestions
- -----------------------------------------------------------------------------------------------
Lease commencement letter directed by Owner and delivered to [*****]
Landlord with a copy to Contractor with required option fees
and rent deposit
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of Standard [*****]
Option Letter Form
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of Standard [*****]
Landlord's Letter of Intent and Authorization to Proceed
- -----------------------------------------------------------------------------------------------
Agency letter from XM Satellite Radio Inc.(on XM's Letterhead) [*****]
signed by an Officer of their company, granting LCC
International, Inc.'s employees authorization to act in an
official manner as Agents of XM Satellite Radio Inc. in
requesting information, negotiating leases and filing for
zoning, permits, and representing XM at city planning boards
and zoning councils, etc.
- -----------------------------------------------------------------------------------------------
Owner's provision of Site Lease Agreement, Lease Exhibits and [*****]
Lease terms, including drop-in language
- -----------------------------------------------------------------------------------------------
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
Owner's review and written approval or rejection of form of [*****]
executed Site Lease Agreement
- -----------------------------------------------------------------------------------------------
</TABLE>
Exhibit B (SOW) - Attachment 2
Page 3
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<CAPTION>
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
<S> <C>
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of of [*****]
"drop-in" language for typical Site Lease Agreement
- -----------------------------------------------------------------------------------------------
Written permission from Owner, granting Contractor the right [*****]
to contact Owner's Insurance Company directly and obtain
Certificates of Insurance on an as-needed basis
- -----------------------------------------------------------------------------------------------
Legal review and response by Owner regarding issues other than [*****]
Site Lease Agreements
- -----------------------------------------------------------------------------------------------
Title (preliminary and insurance if applicable) review and [*****]
written approval or rejection
- -----------------------------------------------------------------------------------------------
Owner will provide isolation separation requirements of dish [*****]
to antennas
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of Contractor [*****]
request to redesign and reissue a Search Ring or pursue
additional Sites within a Search Ring
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection to perform [*****]
Work Units SA2 or SA3 for more than three Primary Sites if
Normal-Area Sites, two Primary Sites if Medium-Area Sites and
one Primary Site if a Wide-Area Site within a SAR (Search
Ring)
- -----------------------------------------------------------------------------------------------
<CAPTION>
Architecture and Engineering
----------------------------
<S> <C>
Specifications for satellite receive antennas and transmit [*****]
antennas and related repeater equipment size, structural
loading, power loading, grounding requirements, power and
telecommunications requirements
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection once [*****]
Candidate Site Ranking Form is submitted for non-standard
sites with request to start Construction Drawings
- -----------------------------------------------------------------------------------------------
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
Owner's review and written approval or rejection of required [*****]
requests for A&E tasks not covered in the Fixed Prices
- -----------------------------------------------------------------------------------------------
Owner's review and written approval rejection of A&E drawings [*****]
for Sites that are not Standard Site 1 or Standard Site 2 or
provision of required Owner information for such non-standard
sites, to the extent not available to Contractor
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of Contractor [*****]
request to redesign and reissue a Search Ring or pursue
additional Sites within a Search Ring
- -----------------------------------------------------------------------------------------------
</TABLE>
Exhibit B (SOW) - Attachment 2
Page 4
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<CAPTION>
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
<S> <C>
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection to perform [*****]
Work Units for more than three Primary Sites if Normal-Area
Sites, two Primary Sites if Medium-Area Sites and one Primary
Site if a Wide-Area Site within a SAR (Search Ring)
- -----------------------------------------------------------------------------------------------
<CAPTION>
Zoning
- ------
<S> <C>
- -----------------------------------------------------------------------------------------------
Owner, upon Contractor's request, to respond to inquiries and [*****]
request for information for governmental authorities and to
provide Contractor with a copy of such response
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of conditions [*****]
applicable to gain zoning approvals
- -----------------------------------------------------------------------------------------------
Owner attendance at zoning hearings, if necessary [*****]
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection to move a SAR [*****]
(Search Ring) and reissue/redesign
- -----------------------------------------------------------------------------------------------
<CAPTION>
Regulatory Compliance **
- ------------------------
<S> <C>
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of System [*****]
Level Compliance Plan or direction by Owner to revise policy.
- -----------------------------------------------------------------------------------------------
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
Owner will provide Contractor with information required to [*****]
complete filings with regulatory agencies
- -----------------------------------------------------------------------------------------------
Owner review and submittal of all regulatory documentation [*****]
filings
- -----------------------------------------------------------------------------------------------
Owner to respond to Contractor inquiries and requests for [*****]
information for governmental authorities (other than filings).
- -----------------------------------------------------------------------------------------------
Satisfaction by Owner of applicable conditions to government [*****]
approvals
- -----------------------------------------------------------------------------------------------
Owner attendance at hearings, if necessary [*****]
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of [*****]
investigations or surveys needed on a Site
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection for Phase I [*****]
approval
- -----------------------------------------------------------------------------------------------
</TABLE>
Exhibit B (SOW) - Attachment 2
Page 5
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<CAPTION>
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
<S> <C>
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection to move a SAR [*****]
(Search Ring) and reissue/redesign
- -----------------------------------------------------------------------------------------------
</TABLE>
** Other Regulatory Compliance dependencies are covered under
the RF Engineering section
<TABLE>
<CAPTION>
Site Construction
- -----------------
<S> <C>
- -----------------------------------------------------------------------------------------------
Delivery of repeaters to the street levels/loading dock or [*****]
other receiving area of a Site
- -----------------------------------------------------------------------------------------------
Owner to provide repeater manufacturer installation [*****]
information, test procedures and warranty policy
- -----------------------------------------------------------------------------------------------
Per Section 7.6(a) of Exhibit B, Owner to deliver terrestrial
repeaters in accordance with the Repeater Delivery
Requirements Schedule
- -----------------------------------------------------------------------------------------------
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
Owner to provide proposal for procedures for [*****]
repair/replacement of defective repeaters (to be agreed to by
Owner, manufacturer and Contractor)
- -----------------------------------------------------------------------------------------------
Owner to complete application for utility connection and send [*****]
application and related fees to Contractor
- -----------------------------------------------------------------------------------------------
Owner to provide specifications for satellite receive antennas [*****]
and transmit antennas and related repeater equipment size,
structural loading, power loading, grounding requirements,
power and telecommunications requirements
- -----------------------------------------------------------------------------------------------
Payment by Owner of lease payments to Landlord [*****]
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of required [*****]
A&E services including structural analysis
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection for capacity [*****]
and upgrades
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection for [*****]
non-standard Sites once bids are in or independent assessment
is completed (assumes Contractor manages independent
Construction Consultant)
- -----------------------------------------------------------------------------------------------
Miscellaneous
- -------------
</TABLE>
Exhibit B (SOW) - Attachment 2
Page 6
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<TABLE>
<CAPTION>
RESPONSE TIME
DISCIPLINE/RESPONSIBILITY OR DEADLINE
- ------------------------- -----------
<S> <C>
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of Contractor [*****]
request for consent to Permitted Reimbursable Expenses
(single expense in excess of [*****], expense not identified
on Exhibit C or expenses under Part II of Schedule 1.3(e) of
Exhibit C)
- -----------------------------------------------------------------------------------------------
Owner's review and written approval or rejection of task orders [*****]
- -----------------------------------------------------------------------------------------------
Owner to provide reasonable quantities of Owner marketing [*****]
materials (CD ROM or color glossies) for site acquisition,
zoning and regulatory compliance. Initial estimate is [*****]
copies
- -----------------------------------------------------------------------------------------------
</TABLE>
Exhibit B (SOW) - Attachment 2
Page 7
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 3
MASTER SCHEDULE
[*****]
(This entire schedule has been omitted)
Exhibit B (SOW) - Attachment 3
Page 1
<PAGE>
CONFIDENTIAL
ATTACHMENT 4
KEY TASKS
1. Mobilization to City/Deployment Complete
2. All Search Area Requests (SAR's) Released
3. 50% of Site Leases Executed
4. Site Leases Executed*
5. Zoning Completed*
6. Site Construction Commences
7. Site Construction Completed*
8. Repeater Network Acceptance Testing Completed
* For the purposes of these Key Tasks, each such Key Task will be deemed
completed when the Key Task is completed for all but the greater of two Sites
or 5% of the Sites in a City, provided that in the case of a City with ten or
fewer Sites, the Key Task will be deemed completed when the Key Task has been
completed for all but one Site in such City.
Exhibit B (SOW) - Attachment 4
Page 1
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 5
STANDARD SITES
- --------------------------------------------------------------------------------
[***** Pages 1 to 2]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
o o
- --------------------------------------------------------------------------------
Exhibit B (SOW) - Attachment 5
Page 1
<PAGE>
CONFIDENTIAL
ATTACHMENT 6
FORM OF WEEKLY STATUS REPORT
Week Ending ___________ ___, 1999/2000
RF ENGINEERING -
Alternative 1: To be used if no problems identified: RF Engineering
continues to proceed on schedule in the ____________ [identify city] market.
Alternative 2: To be used if problems encountered: RF Engineering
activities in the _____________ [identify city] market have identified the
following problems and the following is recommended to overcome such problems:
(See ZONING below for example.)
SITE ACQUISITION - Use Alternative 1 or 2 above, as applicable.
ZONING - Zoning activities have identified several problems in obtaining zoning
for key sites in the _____________ [identify city] market. An XM representative
will be needed at a scheduled zoning hearing in _________ on , 1999/200_ and for
a scheduled zoning hearing in _________ on , 1999/200_.
A&E - Use Alternative 1 or 2 above, as applicable.
CONSTRUCTION - Use Alternative 1 or 2 above, as applicable.
OTHER COMMENTS (Include identification of Sites inspected and inspection results
of Interim Maintenance pursuant to Article 8 of Exhibit B.)
Exhibit B (SOW) - Attachment 6
Page 1
<PAGE>
CONFIDENTIAL
ATTACHMENT 7
FORM OF MONTHLY STATUS REPORT
Month Ending ___________ ___, 1999/2000
RF ENGINEERING -
Alternative 1: To be used if no problems identified: RF Engineering
continues to proceed on schedule in the ____________ [identify city] market.
Alternative 2: To be used if problems encountered: RF Engineering
activities in the _____________ [identify city] market have identified the
following problems and the following is recommended to overcome such problems:
(See ZONING below for example.)
SITE ACQUISITION - Use Alternative 1 or 2 above, as applicable.
ZONING - Zoning activities have identified several problems in obtaining zoning
for key sites in the ____________ [identify city] market. An XM representative
will be needed at a scheduled zoning hearing in _________ on , 1999/200_ and for
a scheduled zoning hearing in _________ on , 1999/200_.
A&E - Use Alternative 1 or 2 above, as applicable.
CONSTRUCTION - Use Alternative 1 or 2 above, as applicable.
OTHER COMMENTS (Include identification of Sites inspected and inspection results
of Interim Maintenance pursuant to Article 8 of Exhibit B.)
PRELIMINARY CITY BUDGET
Estimated Total # of Sites:
Preliminary Site Count: (___ Standard Sites #1) x ($ Standard Site #1) = $_____
(___ Standard Sites #2) x ($ Standard Site #2) = $_____
Total Estimated Cost: $_____
Exhibit B (SOW) - Attachment 7
Page 1
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 8
FORM OF QUARTERLY STATUS REPORT
(MANPOWER CHART)
[*****]
Exhibit B (SOW) - Attachment 8
Page 1
<PAGE>
CONFIDENTIAL
ATTACHMENT 9
FORM OF PRIMARY CANDIDATE SITE PACKAGE
Each Primary Candidate Site Package shall be broken down into the
following sections containing the following information:
-----------------------------------------------------
Section Description
------- -----------
-----------------------------------------------------
1 Table of Contents
-----------------------------------------------------
2 Correspondence
-----------------------------------------------------
3 Site Survey in Contractor's standard form
-----------------------------------------------------
4 Candidate Site Ranking in Contractor's
standard form
-----------------------------------------------------
5 Site Sketch/Plat of Site
-----------------------------------------------------
6 Maps/Photos of Site
-----------------------------------------------------
7 Zoning - Any and all Permits (including
the building permit) procured for the
Site
-----------------------------------------------------
8 Leasing - A copy of the executed Site
Lease Agreement for such Site and an
abstract of such Site Lease Agreement
-----------------------------------------------------
9 Construction Documents - The final
Construction Documents for the Site
-----------------------------------------------------
10 Lien Releases - All releases of final
claims and waivers of lien required by
the Contract with respect to such Site
-----------------------------------------------------
11 Testing - A written report and/or data set
that provides the results of all tests
performed on the Site, including the
Preliminary Site Test and Terrestrial
Repeater Unit Acceptance
-----------------------------------------------------
12 Miscellaneous information as agreed to
by Owner and Contractor
-----------------------------------------------------
13 Site Specific RF Safety Plan
-----------------------------------------------------
14 Site Specific Regulatory Compliance
Documentation
-----------------------------------------------------
Exhibit B (SOW) - Attachment 9
Page 1
<PAGE>
CONFIDENTIAL
ATTACHMENT 10
FORM OF LEASE ABSTRACT
Site Number _________________ Site Name _______________________________
Type of property -
o Rooftop
o Rawland
o Colo
Property Owner ______________________________________________________________
Lessor (if different from Owner) _____________________________________________
Lease or License ______________________________________________________________
Initial Term ______________________________________________________________
Renewal ______________________________________________________________
Rent ______________________________________________________________
Escalation? ______________________________________________________________
Current Equipment ______________________________________________________________
LLC approval of plans ________________________________________________________
Construction considerations _________________________________________________
___________________________________________________________________________
LLC approval required for additional _________________________________________
Insurance Requirements _______________________________________________________
Access restrictions _______________________________________________________
Assignable ______________________________________________________________
Exhibit B (SOW) - Attachment 10
Page 1
<PAGE>
CONFIDENTIAL
Other terms ______________________________________________________________
______________________________________________________________
Title defects ______________________________________________________________
______________________________________________________________
______________________________________________________________
Exhibit B (SOW) - Attachment 10
Page 2
<PAGE>
CONFIDENTIAL
ATTACHMENT 11
CONTENTS OF ZONING ANALYSIS
The Zoning Analysis shall consist of a Zoning Analysis and Building Permit
Report, per zoning jurisdiction, consisting of the following:
1. Pertinent sections of zoning documentation specific to the
terrestrial repeater equipment installation highlighted, in
actual documents such as ordinances, codes, rules &
regulations.
2. Explanation/summary of jurisdiction permitting/not permitting
repeater installations, including Contractor's determination
for each Site in the applicable City as to whether such Site
may be constructed under a building permit or zoning variance.
3. Addresses, titles and contact names, phone numbers, hours and
days of operation for each department.
4. Timelines from application to permitting.
5. A fee schedule when applicable.
6. Description of the nature or purpose of hearings and meetings
that may require Contractor representation and normal hearing
date schedules.
7. A & E requirements and documents required to be submitted with
zoning applications or building permits.
8. A description of the zoning and building permit application &
process per zoning jurisdiction.
9. Local generic specifications of structural/mechanical design
and wind loading requirements.
10. Any special zoning studies (noise, EMF, etc.) and the identity
of any other entity that may have to be approached for the
approval and installation of an antenna facility.
11. Any known upcoming plans to change ordinances, any moratoriums
or pending moratorium, when and possible impact.
12. Jurisdiction zoning maps.
13. Recommended strategies for obtaining all permits.
14. Executive Synopsis.
Exhibit B (SOW) - Attachment 11
Page 1
<PAGE>
CONFIDENTIAL
ATTACHMENT 12
PRELIMINARY SITE TEST
1. Antenna Visual Check: Contractor shall verify by observation that transmit
and receive antennas are oriented correctly in the azimuth and elevation
planes. Antenna check applies to GPS antenna should one be installed on
the Site.
2. RF Cable Sweep Test: Contractor shall perform a VSWR sweep for each
coaxial cable to verify cable integrity.
3. AC Power: Contractor shall perform continuity checks and voltage
measurements to verify that the power circuits are installed properly.
4. Grounding: Contractor shall perform ground resistance checks to verify
that the ground system is installed properly.
Exhibit B (SOW) - Attachment 12
Page 1
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 13
TERRESTRIAL REPEATER UNIT ACCEPTANCE TEST
The following functional test procedure shall be performed to verify
functional operation of the terrestrial repeater equipment subsequent to site
delivery. These procedures shall be considered as preliminary and will be
further detailed in the site installation manuals that will accompany the
equipment. In any case, steps 3-5 below, should not require in excess of two (2)
man-hours for installation technician(s).
1. All required signal and power cabling for repeater installation shall be
in place prior to the functional tests. This includes:
[*****]
2. Equipment shall be uncrated and inspected for physical damage. If no
indication of damage is observed, equipment shall be moved to previously
prepared equipment pad.
3. All physical connections listed in (1) shall be made.
4. Equipment shall be powered up using factory-described procedures.
Condition of relevant monitor lamps shall be recorded.
5. Through notebook PC connection with repeater local NMS port, each repeater
sub-unit shall be powered on and operational screens used to verify
correct operation.
Exhibit B (SOW) - Attachment 13
Page 1
<PAGE>
CONFIDENTIAL
ATTACHMENT 14
ISOLATION SPECIFICATIONS
Exhibit B (SOW) - Attachment 14
Page 1
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 14
ISOLATION SPECIFICATIONS
1.0 Introduction
Contractor shall design repeater sites in such a way as to prevent degradation
of the satellite signal by the repeater transmitted signal. Contractor shall
position antennas so that there is sufficient isolation to maintain transmitter
interference below the calculated maximum allowed interference, including a
margin. Calculations of maximum interference shall be site specific, using
satellite power levels for the geographic area and repeater transmit power
associated with each specific site.
2.0 Specification Parameters
Contractor shall pre-calculate the interference level using the design site
parameters (fixed and variable) developed under the Interim Services Agreement
and approved by Owner. The critical parameter will be the "Required C/(N+I)
parameter," which shall be used as the baseline signal at the receive antenna
port for acceptable operation.
Contractor will develop for Owner's approval two sample isolation calculations
using the fixed and variable parameters. The calculation result shown on the
"Isolation Margin" line shall determine if the site configuration is a)
acceptable without isolation measurements, b) requires measurement or c) must be
reconfigured for better isolation performance.
The process for performing actual calculations and measurements is provided in
Exhibit A, Attachment 1.
3.0 Specification Limits
[*****]
4.0 Reports
Results of isolation margin calculations shall be included in the Candidate Site
Package. Results of each isolation test shall be set forth in a report delivered
to Owner and included in the Candidate Site Package.
<PAGE>
CONFIDENTIAL
CONTRACT
FOR
ENGINEERING AND CONSTRUCTION
OF
TERRESTRIAL REPEATER NETWORK SYSTEM
By and Between
XM Satellite Radio Inc.
and
LCC International, Inc.
EXHIBIT C
CONTRACT PRICING, PAYMENTS AND MILESTONE ACHIEVEMENT CRITERIA
CONFIDENTIALITY NOTICE
This attached Contract and the information contained herein is confidential to
XM Satellite Radio Inc. and LCC International, Inc., and shall not be published
or disclosed to any third party without the express written consent of a duly
authorized representative of XM Satellite Radio Inc. and LCC International, Inc.
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 1
<PAGE>
CONFIDENTIAL
1. GENERAL
1.1 Introduction
The pricing for the Work is set forth below for each of the
Disciplines (as defined in Exhibit B (SOW)) and other items. The pricing
components that comprise the Contract Sum are generally described in Section 1.2
below. Except as set forth herein, the pricing set forth in this Exhibit C
includes all costs of transportation, shipping, handling, warranties (as such
warranties are described in Article 10 of the Terms and Conditions) for the
items of the Work to which such pricing relates, as well as services,
responsibilities, equipment and other products and materials not specifically
described in Exhibit B (SOW) that are incidental to and reasonably required for
the proper provision of the Work. All invoicing and payment terms shall be in
accordance with the requirements of Article 5 of the Terms and Conditions.
The "Milestone Payments" and the "Milestone Achievement Criteria",
including description of all Work Units (as defined below) comprising such
Milestone Achievement Criteria, are defined in Attachment 1.1 hereto.
1.2 Pricing Components
The components of the pricing are described below:
(a) Firm Fixed Pricing: The fixed prices set forth in this Exhibit C
cover the services, labor, materials and testing required to complete each
Discipline on a Site basis in accordance with the requirements of Exhibit B
(SOW), except for those items of Work specifically identified as being payable
on the basis of Unit Pricing, Cost-Plus Pricing, Task Order Pricing, or as
Permitted Reimbursable Expenses or Pass-Through Expenses, or "Default Pricing".
For clarification purposes, a Discipline's "Fixed Price Amount" (e.g., "RF Fixed
Price Amount", "ZN Fixed Price Amount") refers to the fixed price per Site for
such Discipline.
(b) Unit Pricing: The Work described in Attachment 1.2(b) (e.g.,
certain Construction, Labor and Materials, Additional A&E Services) hereto will
be priced on a per unit basis (e.g., per linear foot of cabling) as set forth in
such Attachment and will be paid on a monthly basis pursuant to an invoice upon
completion of such Work in accordance with the requirements of the Contract.
(c) Task Order Pricing: For the Work that is identified in this
Exhibit C as being priced on the basis of Task Order Pricing, or for other work
outside the scope of the Work under the Contract as requested by Owner or
Contractor, Contractor will provide Owner with a Task Order describing the scope
of work, schedule, associated pricing and payment terms for such task. Prior to
commencement of any work under any Task Order, Contractor and Owner will
mutually agree as to the scope, schedule, pricing and payment terms of such Task
Order.
(i) Any such Task Orders agreed to on a "Time and Materials"
basis will be invoiced based on (x) the hourly rates of
the applicable Contractor
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
personnel, as set forth in Attachment 1.2 (c) hereto,
plus (y) Contractor's actual, direct, out-of-pocket and
reasonable business expenses (invoiced at 103% of
costs); any single business expense in excess of
$2,000.00 requires Owner's written consent prior to
expenditure. There will be no additional costs under
such Time and Materials Pricing related to Contractor
General Conditions Costs (as defined in the Terms and
Conditions), general and administrative costs, home
office overhead or profit, except as otherwise agreed to
by the Parties in writing pursuant to a Task-Order.
(ii) Any such Task Order agreed to on a "Cost-Plus" basis
will be invoiced in accordance with Section 1.2 (d)
below.
(iii) Unit Pricing, where applicable, will apply to any such
Task Order Pricing.
(iv) The terms of Permitted Reimbursable Expenses and
Pass-Through Expenses set forth below, where applicable,
will apply to any such Task Order Pricing.
(d) Cost-Plus Pricing: For Work that is identified in this Exhibit C
as being priced on the basis of Cost-Plus Pricing, Owner will be invoiced for
the costs incurred by Contractor in performing the task in an amount equal to
(x) actual, direct labor and material costs incurred in performing such Work
plus (y) a mark-up of ten percent (10%) of the amount in clause (x) to
compensate Contractor for its General Conditions Costs (as defined in the Terms
and Conditions), general and administrative costs, home office overhead and
profit.
(e) Permitted Reimbursable Expenses: Contractor will invoice Owner
an amount equal to the actual, direct, out-of-pocket and reasonable expenses
incurred by Contractor as Permitted Reimbursable Expenses, as specified in
Attachment 1.2(e) attached hereto. Contractor represents that the Permitted
Reimbursable Expenses listed on Attachment 1.2(e) constitute a reasonable
estimation of the expenses that are likely to be incurred by Contractor in
performing the Work. Notwithstanding the foregoing, Contractor shall notify
Owner and obtain Owner's written consent before incurring any single Permitted
Reimbursable Expense in excess of $2,000. In addition, Contractor shall not
incur any Permitted Reimbursable Expense appearing in Part II of Attachment
1.2(e) hereto or any other expense not listed on Attachment 1.2(e), without
obtaining Owner's prior written consent. Owner shall pay Contractor a handling
fee equal to three percent (3%) of the Permitted Reimbursable Expenses, which
handling fee, in the aggregate, shall not exceed $60,000 per year.
(a) Pass-Through Expenses: Owner will be invoiced for one hundred
percent (100%) of the expenses identified as Pass-Through Expenses in Attachment
1.2(e) attached hereto to the extent incurred by Contractor in performing the
Work.
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(g) Default Pricing: In the event the Terms and Conditions specify
that "Default Pricing" shall apply, such work will be invoiced to Owner on a (i)
"Time and Materials" Pricing basis, based on the hourly rates of the applicable
Contractor personnel, set forth in Attachment 1.2 (c) hereto plus Contractor's
actual, direct, out-of-pocket and reasonable business expenses (invoiced at 103%
of cost; any single expense in excess of $2,000.00 requires Owner's written
consent prior to expenditure). There will be no additional costs under such Time
and Materials Pricing related to Contractor General Conditions Costs (as defined
in the Terms and Conditions, excluding those costs related to Contractor
demobilization, non-productive labor (i.e., idle time relating to a suspension
of Work due to Customer's fault) and remobilization, where applicable), general
and administrative costs, home office overhead or profit; or (ii) "Cost-Plus"
Pricing basis in accordance with Section 1.2 (d) above for Work subcontracted to
third party(ies) by Contractor.
(h) Owner Cancelled Sites: In the event Work on a Site is cancelled
in writing by Owner through no fault of Contractor, Contractor is entitled to
payment for the percentage of such Work actually completed at the time of notice
of cancellation.
1.3 Definitions
(a) "Normal-Area", "Medium-Area", and "Wide-Area" Sites are defined as
follows:
(i) "Normal-Area Site": A Normal-Area Site is a Site with a
[*****] repeater mounted on a low-level structure that covers
a nominal area within an urban center or suburban area,
typically 1-5 miles in diameter depending on obstructions.
(ii) "Medium-Area Site": A Medium-Area Site is a Site with a
[*****] repeater that is elevated such that the Site covers
approximately the same area as 2-5 Normal-Area Sites, or a
[*****] repeater site at a nominal elevation such that it
covers approximately the same area as 2-5 Normal-Area Sites.
(iii) "Wide-Area Site": A Wide-Area Site is a Site with a
[*****] or a [*****] repeater that is elevated such that the
Site covers a major part of an entire City, and such that
special analysis and measurements are required to prevent
simulcast interference with other Sites in the City Network.
(b) As used in this Exhibit C, the terms "Standard Site 1", "Standard
Site 2", "Standard Sites" and "Non-Standard Sites" have the meanings
attributed to them in Section 7 (Site Construction) herein and such
terms apply only in the Architecture and Engineering (A & E) and
Site Construction context.
(c) The term "Work Unit" means those tasks comprising a Discipline as
further described in Attachment 1.1 (Milestone Payments and
Milestone Achievement Criteria). Work Units are
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
identified throughout this Exhibit C with reference to the applicable
Discipline and Work Unit number (for example, "RF1", "SA2", "RC3").
(d) All other terms used in this Exhibit C have the meanings attributed
to them in the Contract.
2. PROJECT MANAGEMENT SERVICES
2.1 Firm Fixed Pricing
The Work described in Section 2 (Program Management) and Section 7.2
(Construction Management) of Exhibit B (SOW) (hereinafter collectively referred
to as "Project Management Services") will be priced on a firm fixed price basis
and is included in the per Site price determined in accordance with the table
set forth in Section 2.1.1 below (the "Project Management Fixed Price Amount").
2.1.1 Fixed Price Amount and Payment Terms
The Project Management Fixed Price Amount set forth in the table below
will be paid for each Site in accordance with this Section 2.1.
- --------------------------------------------------------------------------------
Work Unit Percentage Fixed Price per Site Amount
ID of Project
Management
Fixed Price
Amount
- --------------------------------------------------------------------------------
Normal-Area Site Medium-Area Site Wide-Area Site
- --------------------------------------------------------------------------------
M1 90% [*****] [*****] [*****]
- --------------------------------------------------------------------------------
M2 10% [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Project 100% [*****] [*****] [*****]
Management
Fixed Price
Amount
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(a) M1: Ninety percent (90%) of the Project Management Fixed Price
Amount shall be payable in equal monthly installments ("Work Unit
M1") based on the estimated site count of 1,578 Sites (for all
Cities) amortized over the term of the Contract and is subject to a
one-time final adjustment upon the "Project Completion Date"
(defined as the date upon which all Cities have achieved Acceptance
and all Work has been satisfactorily completed ***** Certain
information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
in accordance with the requirements of the Contract) pursuant to
Section 2.1.2 below. The total monthly installment for all Sites
across all Cities is equal to:
(1,578 Sites x[*****])/N months (where N equals the number of full
months from Notice to Proceed to[*****]).
Payment for such monthly installment shall commence on the first
full month following the date a Notice to Proceed is deemed to be
issued pursuant to Article 3.2 of the Terms and Conditions.
(b) M2: The remaining ten percent (10%) of the Program Management Fixed
Price Amount ("Work Unit M2") for the actual number of Sites
completed across all Cities shall be paid at Project Completion Date
and is calculated as follows:
M2 = (Actual Number of Sites at Project Completion Date x [*****]).
2.1.2 Final Adjustment to Aggregate Monthly Installment Amount
The aggregate amount paid in monthly installments by Owner to Contractor
will be adjusted to account for any change in the number of Sites from 1,578 to
the actual number of completed Sites across all Cities at the Project Completion
Date, it being understood that in no event shall the total amount paid under
this Section 2 for Project Management exceed the Project Management Fixed Price
Amount multiplied by the actual Site count at Project Completion Date.
Notwithstanding the foregoing, Contractor will be entitled to a percentage of
the Project Management Fixed Price Amount equal to the Project Management
Services Work completed for any Site that is cancelled by Owner through no fault
of Contractor.
The final adjustment will be determined as follows:
(a) If the number of Sites at Project Completion Date is
greater than 1,578, Owner shall pay Contractor, within
thirty (30) days of the Project Completion Date,
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(b) the amount equal to (([*****]) x (A - S)) where A is the
number of actual completed Sites at Project Completion
Date and S equals 1,578.
(c) If the number of completed Sites at Project Completion
Date is less than 1,578, Owner shall be entitled to an
amount equal to (([*****]) x (S - A)) where S equals
1,578 and A is the number of actual completed Sites at
Project Completion Date. Owner shall be entitled to
deduct such amount from outstanding invoices; Contractor
shall promptly pay the remaining difference to Owner.
2.2 Unit Pricing
Not applicable.
2.3 Task Order Pricing
Not applicable.
2.4 Cost-Plus Pricing
Not applicable.
3. RF ENGINEERING
3.1 Firm Fixed Pricing
The Work described in Section 3, Section 9 and Section 7.6 of
Exhibit B (SOW), excluding any Work described in Section 3.2 and Section 3.3
below, will be priced on a firm fixed price basis and is included in the per
Site price determined in accordance with the table set forth below (the "RF
Fixed Price Amount").
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
The RF Fixed Price Amount will be paid on a Site-by Site basis in
accordance with Attachment 1.1 (Milestone Payments) hereto. For clarification
purposes, the table below sets forth the pricing associated with each Work Unit
comprising the RF Fixed Price Amount.
- --------------------------------------------------------------------------------
Work Unit Fixed Price Per Site Amount*
ID
- --------------------------------------------------------------------------------
Normal-Area Site Medium-Area Site Wide-Area Site
- --------------------------------------------------------------------------------
[*****]
RF1
- --------------------------------------------------------------------------------
RF2
- --------------------------------------------------------------------------------
RF3
- --------------------------------------------------------------------------------
RF4
- --------------------------------------------------------------------------------
RF5
- --------------------------------------------------------------------------------
RF6
- --------------------------------------------------------------------------------
RF Fixed
Price
Amount
- --------------------------------------------------------------------------------
*The RF Fixed Price Amount includes, for each Search Ring identified,
performance of RF Engineering Work referenced above that is reasonably required
in such Search Ring to either (i) select a viable Primary Site and complete the
Work required for such Site or (ii) disqualify such Search Ring as a viable area
for selection of a viable Primary Site. In the event a viable Primary Site
cannot be found and/or all required Work cannot be completed on a Site within
such Search Ring, Contractor will notify Customer of the need to
reissue/redesign such Search Ring. Upon Owner's prior written approval of any
reissuance/redesign of a Search Ring, Contractor is entitled to payment for RF
Engineering Work performed within the reissued/redesigned Search Ring in
accordance with this Section 3.
3.2 Unit Pricing
Contractor will invoice Owner for Isolation Testing services in
accordance with the unit price set forth in Attachment 1.2(b) in the event such
testing is required pursuant to Section 3.4(e) of Exhibit B (SOW).
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3.3 Task Order Pricing
RF Engineering Work requested in writing by Owner that is outside
the scope of the Work described in Section 3 of Exhibit B (SOW) will be priced
on the basis of Task Order Pricing in accordance with Section 1.2 (c) above.
3.4 Cost-Plus Pricing
Not applicable.
4. SITE ACQUISITION
4.1 Firm Fixed Pricing
The Work described in Section 4 of Exhibit B (SOW), excluding any
Work described in Section 4.3 below, will be performed on a firm fixed price
basis and is included in the per Site price determined in accordance with the
table set forth below (the "SA Fixed Price Amount").
The SA Fixed Price Amount will be paid on a Site-by-Site basis in
accordance with Attachment 1.1 (Milestone Payments). For clarification purposes,
the table below sets forth the pricing associated with each Work Unit comprising
the SA Fixed Price Amount.
- --------------------------------------------------------------------------------
Percentage
Work Unit of SA Fixed Fixed Price Per Site Amount*
ID Price Amount
- --------------------------------------------------------------------------------
Standard Medium Wide
- --------------------------------------------------------------------------------
[*****]
SA1 25%
- --------------------------------------------------------------------------------
SA2 45%
- --------------------------------------------------------------------------------
SA3 30%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SA Fixed 100%
Price
Amount
- --------------------------------------------------------------------------------
*The Work Unit Fixed Price Amount for "SA1" includes, for each Search Ring
identified, performance of such Site Acquisition Work referenced above that is
reasonably required in such Search Ring to either (i) select a viable Primary
Site and complete the Work required for such Site or (ii)
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
disqualify such Search Ring as a viable area for selection of a viable Primary
Site. In the event a viable Primary Site cannot be found and/or all required
Work cannot be completed on a Site within such Search Ring, Contractor will
notify Customer of the need to reissue/redesign such Search Ring. Upon Owner's
written approval of any reissuance/redesign of a Search Ring, Contractor is
entitled to payment for SA1 performed within the reissued/redesigned Search Ring
in accordance with this Section 4.
*The Work Unit Fixed Price Amount for each of "SA2" and "SA3" includes
such Site Acquisition Work for one Primary Site within a Search Ring. In the
event and to the extent Contractor performs such Work on a viable Primary Site
and such Primary Site is disqualified and abandoned through no fault of
Contractor and Work Units SA2 and SA3 are then performed on a newly selected
viable Primary Site within the same Search Ring, Contractor is entitled to fifty
percent (50%) of the Work Unit Fixed Price Amount for such Work completed for
the additional Primary Sites in such Search Ring in accordance with this Section
5; provided, however, Contractor will not, without Owner's prior written
approval, perform Work Units SA2 or SA3 for more than three (3) Primary Sites if
Normal-Area Sites, two (2) Primary Sites if Medium-Area Sites and one (1)
Primary Site if a Wide-Area Site or reissue/redesign any Search Ring. Upon
Owner's prior written approval of any reissuance/redesign of a Search Ring,
Contractor is entitled to payment for Site Acquisition Work performed within the
reissued/redesigned Search Ring in accordance with this Section 4.
4.2 Unit Pricing
Not applicable.
4.3 Task Order Pricing
Contractor services relating to securing additional title assurance
beyond preliminary title report, as requested by Owner, will be priced on the
basis of Task Order Pricing in accordance with Section 1.2 (c) above.
4.4 Cost-Plus Pricing
Not applicable.
5. ARCHITECTURE AND ENGINEERING ("A&E", "AE")
5.1 Firm Fixed Pricing
The Work described in Section 5 of Exhibit B (SOW), excluding any Work
described in Section 5.2 and Section 5.4 below, will be performed on a firm
fixed price basis and is included in the per Site price determined in accordance
with the table set forth below (the "AE Fixed Price Amount").
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
The AE Fixed Price Amount will be paid on a Site-by-Site basis in
accordance with Attachment 1.1 (Milestone Payments). For clarification purposes,
the table below sets forth the pricing associated with each Work Unit comprising
the AE Fixed Price Amount.
- --------------------------------------------------------------------------------
Percentage Fixed Price Per Site Amount*
of AE Fixed
Work Unit Price
ID Amount
- --------------------------------------------------------------------------------
Standard Site
(1 or 2) (Pricing Non-Standard Site
for Normal, Medium
and Wide-Area
Sites, as
applicable)
- --------------------------------------------------------------------------------
AE1(a) 25% [*****] Pricing pursuant to
- ---------------------------------------------------
AE1(b) 25% [*****] Section 5.3 below*.
- ---------------------------------------------------
AE2 30% [*****]
- ---------------------------------------------------
AE3 10% [*****]
- ---------------------------------------------------
AE4 10% [*****]
- ---------------------------------------------------
AE Fixed 100% [*****]
Price
Amount
- --------------------------------------------------------------------------------
*The Work Unit Fixed Price Amount for each of the Work Units above
includes such A & E Work referenced above for one viable Primary Site within a
Search Ring. In the event and to the extent Contractor performs such Work on a
viable Primary Site and such Primary Site is disqualified and abandoned through
no fault of Contractor, and the Work Units are then performed on a newly
selected Primary Site within the same Search Ring, Contractor is entitled to
fifty percent (50%) of the Work Unit Fixed Price Amount for such Work completed
for the additional Primary Site in such Search Ring in accordance with this
Section 5; provided, however, Contractor will not, without Owner's prior written
approval, perform any of the Work Units for more than three (3) Primary Sites if
Normal-Area Sites, two (2) Primary Sites if Medium-Area Sites and one (1)
Primary Site if Wide-Area Sites or reissue/redesign any Search Ring. Upon
Owner's prior written approval of any reissuance/redesign of a Search Ring,
Contractor is entitled to payment for A & E Work performed within the
reissued/redesigned Search Ring in accordance with this Section 5.
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
5.2 Unit Pricing
To the extent the services, materials and labor listed in Attachment
1.2(b) under the heading "Roof-Top Additional A&E Services" are provided by
Contractor, Contractor will invoice Owner for such services, materials and labor
in accordance with the unit prices set forth in Attachment 1.2(b).
5.3 Cost-Plus Pricing
In the event and to the extent A & E Work for a Non-Standard Site exceeds
the Work required for a Standard Site, the price for such additional A & E Work
will be invoiced on a Cost-Plus Pricing basis in accordance with Section 1.2 (d)
above, with the "Cost" portion of such additional A & E work to be determined as
follows:
(i) Contractor will solicit and provide Owner three (3)
competitive firm fixed price bids detailing the scope,
pricing and schedule for such additional A & E work and
Contractor and Owner will mutually agree as to the bid
to accept; or
(ii) In the event the competitive bidding process described
in paragraph (i) above is not practical, then upon
Owner's request, an independent assessment of
Contractor's price proposal for such additional A & E
work will be conducted by a qualified third party that
has been mutually selected by Contractor and Owner
(hereinafter referred to as "A & E Consultant"). In the
event and to the extent such A & E Consultant rejects
Contractor's proposal (in whole or in part), Contractor
will revise such proposal in accordance with the A & E
Consultant's reasonable determination and resubmit its
proposal. In such event, the scope of work, schedule and
price for such additional A & E services shall be as
reasonably determined by such A&E Consultant. The cost
of such A & E Consultant shall be paid by Owner as a
Permitted Reimbursable Expense pursuant to Section 1.2
(e) above.
(iii) In addition, the provisions of Sections 1.2 (e) and 1.2
(f) above shall apply to any Permitted Reimbursable
Expense or Pass-Through Expense, as applicable.
5.4 Task Order Pricing
Upon Owner's prior written approval, A&E Work pursuant to Section 5(b)(i)
of Exhibit B (SOW) (i.e., Complete Structural Analysis of a Site (but not
architectural and engineering review fees charged by building/property owners
which is included in the per Site price determined in accordance with Section
5.1 above)) and A&E work that is outside the scope of the Work described in
Section 5 of Exhibit B
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(SOW) will be priced on the basis of Cost-Plus Pricing in accordance with
Section 1.2 (d) above; such A&E work outside the scope of Exhibit B (SOW)
includes the following:
o Services relating to landscape architecture
o Geotechnical and Geodetic Surveys
o Engineering Topographic Surveys and Plats
o Designs for building upgrades, modifications and repairs
o Designs for specialty antenna support structures
o Ground resistivity tests
6. ZONING ("ZN")
6.1 Firm Fixed Pricing
The Work described in Section 6 of Exhibit B (SOW) will be performed on a
firm fixed price basis and is included in the per Site price determined in
accordance with the table set forth below (the "ZN Fixed Price Amount").
The ZN Fixed Price Amount will be paid on a Site-by-Site basis in
accordance with Attachment 1.1 (Milestone Payments). For clarification purposes,
the table below sets forth the pricing associated with each Work Unit comprising
the ZN Fixed Price Amount.
- --------------------------------------------------------------------------------
Percentage
of ZN Fixed Fixed Price Per Site Amount*
Work Unit Price
ID Amount
- --------------------------------------------------------------------------------
Normal-Area Site Medium -Area Site Wide-Area Site
- --------------------------------------------------------------------------------
ZN1 50% [*****] [*****] [*****]
- --------------------------------------------------------------------------------
ZN2 40% [*****] [*****] [*****]
- --------------------------------------------------------------------------------
ZN3 10% [*****] [*****] [*****]
- --------------------------------------------------------------------------------
ZN Fixed 100% [*****] [*****] [*****]
Price
Amount
- --------------------------------------------------------------------------------
*The ZN Fixed Price Amount includes, for each Search Ring identified,
performance of ZN Work referenced above that is reasonably required in such
Search Ring to either (i) select a viable Primary Site and complete the Work
required for such Site or (ii) disqualify such Search Ring as a viable area for
selection of a viable Primary Site. In the event a viable Primary Site cannot be
found and/or all required Work cannot be completed on a Site within such Search
Ring, Contractor will notify Customer of the
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
need to reissue/redesign such Search Ring. Upon Owner's prior written approval
of any reissuance/redesign of a Search Ring, Contractor is entitled to payment
for ZN Work performed within the reissued/redesigned Search Ring in accordance
with this Section 6.
6.2 Unit Pricing
Not applicable.
6.3 Task Order Pricing
As applicable pursuant to Section 1.2 (c) above.
6.4 Cost-Plus Pricing
Not applicable.
7. SITE CONSTRUCTION
7.1 Site Construction ("SC")
The Work described in Sections 7.1, 7.3, 7.4, 7.5 and 7.6 of Exhibit
B (SOW), excluding the Work described in Section 7.2, 7.3 and 7.4 below, is
included in the per Site pricing determined in accordance with this Section 7.1.
(a) Standard Site Design: Construction of a Standard Site 1 or
Standard Site 2 (as described in Attachment 7.2 hereto)
(collectively referred to as "Standard Sites") will be
performed on a firm fixed price basis determined in accordance
with the table set forth below ("SC Fixed Price Amount").
(b) Non-Standard Site Design: In the event a Site cannot be
constructed as a Standard Site and such Site cannot be
constructed using additional materials as provided in
accordance with Section 7.2 below (a "Non-Standard Site"), the
price for construction of such Non-Standard Site will be
invoiced on a Cost-Plus Pricing basis in accordance with
Section 1.2 (d) above, with the "Cost" portion of such
Non-Standard Site Construction to be determined as follows:
(i) Contractor will solicit and provide Owner three (3)
competitive firm fixed price bids detailing the scope,
pricing and schedule for construction of such
Non-Standard Site and Contractor and Owner will mutually
agree as to the bid to accept; or
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(ii) In the event the competitive bidding process described
in paragraph (i) above is not practical, then upon
Owner's request, an independent assessment of
Contractor's price proposal for construction of such
Non-Standard Site will be conducted by a qualified third
party that has been mutually selected by Contractor and
Owner (hereinafter referred to as "Construction
Consultant"). In the event and to the extent such
Construction Consultant rejects Contractor's proposal
(in whole or in part), Contractor will revise such
proposal in accordance with the Construction
Consultant's reasonable determination and resubmit its
proposal. In such event, the scope of work, schedule and
price for construction of such Non-Standard Site shall
be as reasonably determined by such Construction
Consultant. The cost of such Construction Consultant
shall be paid by Owner as a Permitted Reimbursable
Expense pursuant to Section 1.2 (e) above.
The Work Units for Site Construction of a Non-Standard
Site will be as set forth in the table below.
In addition, the provisions of Section 1.2 (e) and 1.2
(f) above shall apply to any Permitted Reimbursable
Expense or Pass-Through Expense, as applicable.
(c) The SC Fixed Price Amount will be paid on a Site-by-Site basis in
accordance with Attachment 1.1 (Milestone Payments). For
clarification purposes, the table below sets forth the pricing
associated with each Work Unit comprising the SC Fixed Price Amount.
--------------------------------------------------------------------------
Work Percentage Fixed Per Site Amount
Unit of SC
ID Fixed
Price
Amount
--------------------------------------------------------------------------
Standard Site 1 Standard Site 2 Non-Standard Site
--------------------------------------------------------------------------
SC1 90% [*****] [*****] [*****]
--------------------------------------------------------------------------
SC2 10% [*****] [*****] [*****]
--------------------------------------------------------------------------
SC Fixed 100% [*****] [*****] [*****]
Price
Amount
--------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 15
<PAGE>
CONFIDENTIAL
7.2 Unit Pricing
In the event and to the extent the construction of a Site requires
materials, services and labor not included in construction of the Standard Sites
or quantities of materials, services and labor greater than the quantity
required for construction of the Standard Sites, and such materials, services or
labor are listed in Attachment 1.2(b) hereto, the price for construction of such
Site shall be increased in accordance with the unit prices set forth under the
heading "Construction Labor and Materials" in Attachment 1.2(b) hereto.
7.3 Task Order Pricing.
As applicable pursuant to Section 1.2 (c) above.
7.4 Cost-Plus Pricing
In the event and to the extent Contractor becomes aware during
actual Site Construction that a Site requires additional work that was both
unforseen and materially exceeds the Work contemplated in the price for Site
Construction for such Site (as determined pursuant to Section 7.1 above), such
additional work will be invoiced on the basis of Cost-Plus Pricing in accordance
with Section 1.2 (d) above. Notwithstanding the foregoing, Contractor will not,
without Owner's prior written approval, incur costs related to any additional
work which would result in an aggregate increase exceeding $1,500.00 of the Site
Construction price (as determined pursuant to Section 7.1 above) for any Site.
8. SOFTWARE
(a) Contractor will provide Owner with a license to use the following
software in accordance with Article 17(c) of the Terms and Conditions:
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
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CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
- --------------------------------------------------------------------------------
Software Unit Prices
- --------------------------------------------------------------------------------
Item No. Units Unit Price
Units
- --------------------------------------------------------------------------------
Program Management Tool (WINDS) 1 Each Included in
License for one (1) copy of WINDS as set forth in Contract
Article 17 of the Terms and Conditions Sum
- --------------------------------------------------------------------------------
(b) Upon Owner's written request, Contractor will provide Owner with
software licenses for additional copies of Program Management Tool (WINDS) and
related support services in accordance with the requirements of Article 17 of
the Terms and Conditions. The terms, conditions and pricing of such software and
services will be mutually agreed between the Parties.
9. OTHER PRICING
9.1 Satellite Receive Antenna and Transmit Antenna
Owner shall pay Contractor the firm fixed prices set forth in
Attachment 9.1 hereto for each satellite receive antenna and transmit antenna
provided by Contractor in accordance with the requirements of Section 10 of
Exhibit B (SOW).
9.2 Interim Maintenance Services
Contractor will provide the following interim maintenance services
and equipment as follows:
(a) Interim Maintenance Site Visit (in accordance with the requirements
of Article 8(a) of Exhibit B (SOW)) : [*****] per site
(b) Interim Maintenance Program Equipment : To be invoiced as a
Reimbursable Expense in accordance with Section 1.2(e) above, upon
Owner's approval prior to expenditure.
(c) Interim Fault Correction Maintenance Services: Will be provided by
Contractor as requested by Owner in writing in accordance with the
requirements of Section 8(b) of Exhibit B (SOW); such services will
be priced on the basis of Task Order Pricing in accordance with
Section 1.2(c) above.
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 17
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Owner shall pay for such services and equipment, on a Site-by-Site basis,
pursuant to monthly invoices provided by Contractor (in accordance with the
requirements of Article 5.1 of the Terms and Conditions).
9.3 Network Management Testing Services
Upon Owner's written request, Contractor will provide network management
testing services in accordance with the requirements of Section 12 of Exhibit B
(SOW); such services will be priced on the basis of Task Order Pricing in
accordance with Section 1.2(c) above.
10. REGULATORY COMPLIANCE ("RC")
10.1 Firm Fixed Pricing
The Work described in Section 11 of Exhibit B (SOW), excluding any
Work described in Section 10.3 below, will be priced on a firm fixed price basis
and is included in the pricing determined in accordance with the table set forth
below ("Fixed Milestone Amounts"). This Regulatory Compliance Work set forth
below, except for RC1 and RC2, will be performed and paid on a Site-by-Site
basis in accordance with Attachment 1.1 (Milestone Payments). For clarification
purposes, the pricing associated with each Work Unit comprising the RC Work is
set forth below.
RC1 and RC2 will be performed for all Sites across all Cities and be paid
in the fixed amounts set forth below upon satisfactory completion of the
corresponding Work Unit Achievement Criteria set forth in Attachment 1.1 hereto.
Work Unit RC1: The fixed amount of [*****].
Work Unit RC2: The fixed amount of [*****].
Work Units RC3-RC7: as set forth in the table below:
- -------------------------------------------------------------------------------
Work Unit Fixed Amount Per Site*
ID
- -------------------------------------------------------------------------------
Normal -Area Site Medium-Area Site Wide-Area Site
- -------------------------------------------------------------------------------
RC3 [*****] [*****] [*****]
- -------------------------------------------------------------------------------
RC4 [*****] [*****] [*****]
- -------------------------------------------------------------------------------
RC5 [*****] [*****] [*****]
- -------------------------------------------------------------------------------
Monopole Site Single Tenant Multi-tenant
Rooftop Site Rooftop Site
- -------------------------------------------------------------------------------
RC6 [*****] [*****] [*****]
- -------------------------------------------------------------------------------
RC7 [*****] [*****] [*****]
- -------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 18
<PAGE>
CONFIDENTIAL
* The Work Unit Fixed Price Amounts includes, for each Search Ring identified,
performance of the Regulatory Compliance Work referenced above that is
reasonably required in such Search Ring to either (i) select a viable Primary
Site and complete the Work required for such Site or (ii) disqualify such Search
Ring as a viable area for selection of a viable Primary Site. In the event a
viable Primary Site cannot be found and/or all required Work cannot be completed
on a Site within such Search Ring, Contractor will notify Customer of the need
to reissue/redesign such Search Ring. Upon Owner's prior written approval of any
reissuance/redesign of a Search Ring, Contractor is entitled to payment for
Regulatory Compliance Work performed within the reissued/redesigned Search Ring
in accordance with this Section 10.
** Price includes all costs related to any Work performed by an environmental
contractor/consultant pursuant to Section 11.1(a)(3) of Exhibit B (SOW).
*** Price does not include costs related to Work performed by a FAA consultant
pursuant to Section 11.1(a)(5) of Exhibit B (SOW).
10.2 Unit Pricing
Not applicable.
10.3 Task Order Pricing
Work directed by Owner and identified as Task Order work pursuant to
Section 11.1(a)(4), Section 11.1 (b) and Section 11.2 of Exhibit B (SOW), and
other Work that is outside the scope of that described in Section 11 of Exhibit
B (SOW), will be performed on a Task Order basis and priced on the basis of Task
Order Pricing in accordance with Section 1.2(c) above.
10.4 Cost-Plus Pricing
Not applicable.
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 19
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
11. SYSTEMS ENGINEERING WORK
For the Work described in Section 13 of Exhibit B (SOW), the fixed price
amounts set forth below will be paid upon satisfactory completion of the
corresponding Milestone Achievement Criteria (set forth below) in accordance
with the requirements of the Contract :
- --------------------------------------------------------------------------------
Milestone Achievement Criteria Milestone Payment Amount
(In Accordance with the
Requirements of Section 13 of
Exhibit B (SOW))
- --------------------------------------------------------------------------------
[*****]
Section 13.1 (Exhibit B)
Delivery of Isolation Test Plan and
Procedures and a package for each
tested Site
- --------------------------------------------------------------------------------
[*****]
Section 13.2 (a) and (b) (Exhibit B)
Owner's Approval of Final RF
Engineering Test Plan and Test
Procedures
- --------------------------------------------------------------------------------
[*****]
Section 13.2 (Exhibit B) (c) Test Plan
Validation and delivery of Revised
Test Plan and Procedures
- --------------------------------------------------------------------------------
[*****]
Section 13.3 (Exhibit B) Delivery of
Document detailing Simulcast Delay
Analysis Process
- --------------------------------------------------------------------------------
[*****]
Section 13.4 (Exhibit B) Delivery of
Technical Report detailing Boston
Satellite Comparison Study
- --------------------------------------------------------------------------------
[*****]
Section 13.5 (a) (Exhibit B)
Completion of Final Critical
System Specifications and
Technical Parameters Report
- --------------------------------------------------------------------------------
[*****]
Section 13.5 (b) (Exhibit B)
Completion of Cluster Testing
Report
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 20
<PAGE>
CONFIDENTIAL
11.2 Unit Pricing
Not applicable.
11.3 Task Order Pricing
As applicable pursuant to Section 1.2 (c) above.
11.4 Cost-Plus Pricing
Not applicable.
12. ANNUAL ADJUSTMENT TO PRICING
The pricing herein is subject to annual adjustment beginning July 16,
2001; such adjustment to be calculated using a percent change methodology
(whether up or down) based on the Consumer Price Index for All Urban Consumers,
not seasonally adjusted, as published by the Department of Labor, Bureau of
Labor Statistics (hereinafter "CPI"). For the first adjustment, August 1999 will
serve as the base rate period and the CPI Index published closest to but not
after July 15, 2001 as the reference point to measure the percent change for
such adjustment.
For the second adjustment on July 16, 2002, the CPI Index published
closest to, but not after, July 15, 2001 will serve as the base rate period and
the CPI Index published closest to but not after July 15, 2002 as the reference
point to measure the percent change for such adjustment. Subsequent adjustments
will be made on the 16th of July of each year using the same year-to-year
percent change methodology.
If no CPI Index data is published during the twelve-month period prior to
the 16th day of July in any given year, the Parties shall mutually agree upon a
substitute Index.
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 21
<PAGE>
CONFIDENTIAL
ATTACHMENT 1.1
PART I: MILESTONES PAYMENTS AND MILESTONE ACHIEVEMENT CRITERIA
The following Milestone Payments (1-12) will be paid on a Site-by-Site
basis upon satisfactory completion of the corresponding Milestone Achievement
Criteria in accordance with the requirements of the Contract. All Work
associated with each Work Unit set forth under each Milestone must be
satisfactorily completed in accordance with the requirements of the Contract for
the Milestone Achievement Criteria to be met and the Milestone Payment to be
payable.
Contractor shall only be entitled to payment for Work Units performed on
multiple candidate Sites within a Search Ring where the multiple instances for
payment of those Work Units are specifically indicated in this Exhibit C. Any
such payments shall be payable upon satisfactory completion of the corresponding
Work Unit Achievement Criteria.
- --------------------------------------------------------------------------------
Milestone Milestone Achievement Milestone Milestone Milestone
Payment Criteria (applicable Work Payment Payment Payment
Number Unit Achievement Criteria Amount for Amount for Amount for
are defined in Part II of Normal-Area Medium Area Wide-Area
this Attachment 1.1) Site Site Site
- --------------------------------------------------------------------------------
Milestone 1 RF1 [*****] [*****] [*****]
Total [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Milestone 2 SA1 [*****] [*****] [*****]
SA2 [*****] [*****] [*****]
RF2 [*****] [*****] [*****]
AE1(a) [*****] [*****] [*****]
RC3 [*****] [*****] [*****]
Total [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Milestone 3 RF3 [*****] [*****] [*****]
RC6** [*****] [*****] [*****]
[*****] [*****] [*****]
Total
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 22
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
- --------------------------------------------------------------------------------
Milestone Achievement Milestone Milestone Milestone
Criteria (applicable Work Payment Payment Payment
Milestone Unit Achievement Criteria Amount for Amount for Amount for
Payment are defined in Part II of Normal-Area Medium Area Wide-Area
Number this Attachment 1.1) Site Site Site
- --------------------------------------------------------------------------------
Milestone 4 RC4 [*****] [*****] [*****]
RC5 [*****] [*****] [*****]
Total [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Milestone 5 SA3 [*****] [*****] [*****]
Total [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Milestone 6 ZN1 [*****] [*****] [*****]
AE1(b) [*****] [*****] [*****]
Total [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Milestone 7 AE2 [*****] [*****] [*****]
ZN2 [*****] [*****] [*****]
Total [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Milestone 8 SC1* [*****] [*****] [*****]
Total [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Milestone 9 RF4 [*****] [*****] [*****]
Total [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 23
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
- --------------------------------------------------------------------------------
Milestone Achievement Milestone Milestone Milestone
Criteria (applicable Work Payment Payment Payment
Milestone Unit Achievement Criteria Amount for Amount for Amount for
Payment are defined in Part II of Normal-Area Medium Area Wide-Area
Number this Attachment 1.1) Site Site Site
- --------------------------------------------------------------------------------
Milestone 10 SC2* Not Not Not
applicable; applicable; applicable;
see below* see below* see below*
AE3 [*****] [*****] [*****]
AE4 [*****] [*****] [*****]
RC7** Not Not Not
applicable; applicable; applicable;
see below** see below** see below**
Total [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Milestone 11 RF5 [*****] [*****] [*****]
ZN3 [*****] [*****] [*****]
Total [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Milestone 12 RF6 [*****] [*****] [*****]
Total [*****] [*****] [*****]
- --------------------------------------------------------------------------------
*Pricing for Site Construction Work Units is set forth below:
- --------------------------------------------------------------------------------
Standard Site 1 Standard Site 2 Non-Standard Site
- --------------------------------------------------------------------------------
SC1 (90%) [*****] [*****] [*****]
- --------------------------------------------------------------------------------
SC2 (10%) [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 24
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
** Pricing for Regulatory Compliance Work Units RC6 and RC7 is set forth below:
- --------------------------------------------------------------------------------
Single Tenant Multi-tenant
Monopole Site Rooftop Site Rooftop Site
- --------------------------------------------------------------------------------
RC6 [*****] [*****] [*****]
- --------------------------------------------------------------------------------
RC7 [*****] [*****] [*****]
- --------------------------------------------------------------------------------
Notes:
1. Payment amounts for RC1 and RC2 are set forth in Section 10 herein.
2. Payment amounts and Milestone Achievement Criteria for Systems Engineering
Work are set forth in Section 11 herein.
3. Payment amounts for Project Management Services are set forth in Section 2
herein.
4. Pricing and payment amounts for other items (e.g., antennas) are as set
forth in this Exhibit C.
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 25
<PAGE>
CONFIDENTIAL
ATTACHMENT 1.1
PART II: WORK UNIT ACHIEVEMENT CRITERIA
A Work Unit shall be deemed completed when completed in accordance with the
requirements of the Contract.
- --------------------------------------------------------------------------------
ID DISCIPLINE WORK UNIT ACHIEVEMENT CRITERIA
- --------------------------------------------------------------------------------
SA1 Site Candidate Identification: This Work Unit is achieved
Acquisition when Contractor has identified and submitted the
Site Survey Form to Owner that have met the
Search/Leasing and RF Design criteria in accordance
with the requirements of Section 4 of Exhibit B
(SOW).
- --------------------------------------------------------------------------------
SA2 Site Site Qualification: This Work Unit is achieved when
Acquisition Contractor has identified, caravaned, obtained RF
engineering's acceptance, ranked/selected and
submitted the Site as the Primary Candidate Site.
Contractor shall provide a ranking of the Sites
within the Search Area Ring ("SAR") if more than one
Site is examined.
A rejected SAR will be reviewed by RF and Site
Acquisition services along with Program Management
and Owner to determine if a redesign of a SAR is
necessary.
The deliverable is a completed WINDS Candidate Site
Ranking Form justifying such ranking.
This Work Unit shall be accomplished in accordance
with the requirements of Section 4 of Exhibit B
(SOW).
- --------------------------------------------------------------------------------
SA3 Site Site Lease Agreement: Contractor's submission to
Acquisition Owner of an executable Site Lease Agreement and
preliminary title report for such Site in accordance
with the requirements of Section 4 of Exhibit B
(SOW).
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 26
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
ID DISCIPLINE WORK UNIT ACHIEVEMENT CRITERIA
- --------------------------------------------------------------------------------
ZN1 Zoning Filing of Zoning Application: This Work Unit is
achieved when Contractor has Submitted and Filed the
Primary Site zoning application request or
acceptable evidence to Owner that no zoning approval
is required.
The deliverable to Owner is a copy of the zoning
application or certification by Contractor that no
approval is required.
This Work Unit shall be accomplished in accordance
with the requirements of Section 6 of Exhibit B
(SOW).
- --------------------------------------------------------------------------------
ZN2 Zoning Approval or Denial of Zoning Application: This Work
Unit is achieved when the local zoning authority has
approved or denied the Primary Site zoning
application request or acceptable evidence to Owner
that no zoning approval is required. If the parties
determine that a denied Application is not to be
appealed by some means, then the SAR will be
redesigned.
The deliverable to Owner is a copy of the
governmental authorization action or certification
by Contractor that no approval is required.
This Work Unit shall be accomplished in accordance
with the requirements of Section 6 of Exhibit B
(SOW).
- --------------------------------------------------------------------------------
ZN3 Zoning City Network Acceptance in accordance with the
requirements of Article 8 of the Terms and
Conditions.
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 27
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
ID DISCIPLINE WORK UNIT ACHIEVEMENT CRITERIA
- --------------------------------------------------------------------------------
RF1 RF Engineering Preliminary City Network Design Report: A
propagation tool will be set up for the market, a
satellite blockage plot made, land use plot made,
coverage prediction plot made -- and the terrestrial
repeater coverage prediction plots correlated with
satellite line of site and land use plots to assure
that the Preliminary City Network Design is a
reasonable approximation of the citywide preliminary
design goals, in accordance with the requirements of
Section 3 of Exhibit B (SOW). The output of the
Preliminary Design Report is coverage plots and
search area maps with respect to the Defined
Coverage Area and exclusion zones of the City within
the citywide boundaries.
This Work Unit will be achieved upon Owner's
approval of the Preliminary City Network Design in
accordance with the requirements of Section 3 of
Exhibit B (SOW).
- --------------------------------------------------------------------------------
RF2 RF Engineering Preliminary Site Selection: Contractor shall have
selected a primary Site from the Search Ring and
initially screened RF, environmental, zoning and
leasing sufficiently to confirm that the Site has a
reasonable probability of being used as a final
Site. If a Primary Candidate Site cannot be selected
from the candidates, then RF and site acquisition
services, along with Program Management, will
determine if a redesign of the SAR is necessary.
This Work Unit shall be accomplished in accordance
with the requirements Section 3 of Exhibit B (SOW).
The deliverable to Owner is a WINDS Candidate Site
Ranking Form completed in accordance with the
requirements of Section 3 of Exhibit B (SOW).
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 28
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
ID DISCIPLINE WORK UNIT ACHIEVEMENT CRITERIA
- --------------------------------------------------------------------------------
RF3 RF Engineering Final Site Selection and Site/Cluster Test Report:
Contractor shall have technically qualified or
rejected the Site through testing or other means,
performed rooftop studies as needed, determined that
the zoning, permitting and leasing process has a
reasonable probability of success, and that the Site
will not be affected by action on adjacent sites.
The deliverable shall be the Site/Cluster Test
Report, including signal strength plot showing the
coverage and CW transmission provided by that Site.
This Work Unit shall be accomplished in accordance
with the requirements of Section 3 of Exhibit B
(SOW).
- --------------------------------------------------------------------------------
RF4 RF Engineering Terrestrial Repeater Unit Acceptance Test: The
repeater will have been received from the
manufacturer, acceptance tested (prior to
installation), installed, and passed a Terrestrial
Repeater Unit Acceptance Test, and the Site is
certified as ready for operation and a repeater
activation report is submitted to Owner in
accordance with the requirements of Sections 3 and
7.6 of Exhibit B (SOW).
- --------------------------------------------------------------------------------
RF5 RF Engineering City Network Acceptance in accordance with the
requirements of Article 8 of the Terms and
Conditions.
- --------------------------------------------------------------------------------
RF6 RF Engineering Satellite Receive Antenna Repointing to be performed
in accordance with the requirements of Section 9 of
Exhibit B (SOW).
The deliverable to Owner shall be a certification by
Contractor that such repointing has been
successfully completed in accordance with the
requirements of Section 9 of Exhibit B (SOW).
- --------------------------------------------------------------------------------
RC1 Regulatory Policy and Enforcement Summary ReportA report will
Compliance be delivered to Owner, summarizing regulatory policy
and enforcement environment for Environmental,
Airspace, FCC and RF Exposure Compliance
requirements in accordance with the requirements of
Section 11 of Exhibit B (SOW).
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 29
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
ID DISCIPLINE WORK UNIT ACHIEVEMENT CRITERIA
- --------------------------------------------------------------------------------
RC2 Regulatory System Level Compliance Plan: Policy and process
Compliance will be agreed upon by Contractor and Owner for
Regulatory Compliance in accordance with the
requirements of Section 11 of Exhibit B (SOW).
The deliverable is a System Level Compliance Plan in
accordance with the requirements of Section 11 of
Exhibit B (SOW).
- --------------------------------------------------------------------------------
RC3 Regulatory NEPA Initial Screening: Each candidate within an RF
Compliance Search Ring will be evaluated for environmental
considerations applicable to the National
Environmental Policy Act. This evaluation is to
select the Primary Candidate Sites by eliminating
sites based upon environmental considerations in
accordance with the requirements of Section 11 of
Exhibit B (SOW).
The deliverable is a NEPA Initial Screening report
in accordance the requirements of Section 11 of
Exhibit B (SOW).
- --------------------------------------------------------------------------------
RC4 Regulatory Transactional Screening: The Primary Candidate Site
Compliance from the RF Search Ring will be screened for
additional environmental considerations in
accordance with the requirements of Section 11 of
Exhibit B (SOW).
The deliverable is a Transactional Screening report
in accordance with the requirements of Section 11 of
Exhibit B (SOW).
- --------------------------------------------------------------------------------
RC5 Regulatory FAA Screening & Studies: The Primary Sites within
Compliance the RF Search Ring will be evaluated. The
appropriate FAA studies and filings will be
submitted as required in accordance with the
requirements of Section 11 of Exhibit B (SOW).
The deliverable to Owner is an FAA Report and/or FAA
Impact Study (if so required) in accordance with the
requirements of Section 11 of Exhibit B (SOW).
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 30
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
ID DISCIPLINE WORK UNIT ACHIEVEMENT CRITERIA
- --------------------------------------------------------------------------------
RC6 Regulatory RF Exposure Site Characterization: The Primary
Compliance Candidate Sites will have been evaluated and
characterized for RF Exposure in accordance with the
requirements of Section 11 of Exhibit B (SOW).
The deliverable to Owner is the RF Exposure
compliance evaluation/characterization and
mitigation in accordance with the requirements of
Section 11 of Exhibit B (SOW).
- --------------------------------------------------------------------------------
RC7 Regulatory Site RF Safety Plan: The documentation for Site RF
Compliance Safety Report will be completed in accordance with
the requirements of Section 11 of Exhibit B (SOW).
The deliverable is a copy of the Safety Plan and
other documentation required for regulatory
compliance.
- --------------------------------------------------------------------------------
AE1(a) Architectural & Submission of Leasing Exhibit and Drawing Package
Engineering Contractor submits the completed Site Acquisition
Exhibits and Drawings Package to Site Acquisition
Services and Owner in accordance with the
requirements of Section 5 of Exhibit B (SOW).
- --------------------------------------------------------------------------------
AE1(b) Architectural & Submission of Zoning Exhibit and Drawing Package:
Engineering Contractor submits the completed Zoning Exhibits and
Drawings to Zoning Services and Owner in
accordance with the requirements of Section 5 of
Exhibit B (SOW).
- --------------------------------------------------------------------------------
AE2 Architectural & Construction Documents and Building Permits:
Engineering Contractor submits to Owner completed Construction
Drawings and Documents to the issuance ready stage
in accordance with the requirements of Section 5 of
Exhibit B (SOW).
- --------------------------------------------------------------------------------
AE3 Architectural & Final "As Built" Drawings: Contractor submits to
Engineering Owner completed, final "As-Built" drawings in
accordance with the requirements of Section 5 of
Exhibit B (SOW).
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 31
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
ID DISCIPLINE WORK UNIT ACHIEVEMENT CRITERIA
- --------------------------------------------------------------------------------
AE4 Architectural & Completion of Construction: Resolution of all punch
Engineering list items to complete the Site in accordance with
the requirements of Section 7 of Exhibit B (SOW).
The deliverable is a copy of the resolved punchlist.
- --------------------------------------------------------------------------------
SC1 Site Substantial Completion: The Site has been
Construction constructed to the point where the Site is ready to
receive the repeater equipment including all coax,
power and telco services have been provisioned,
repeater mounting frame defined and antenna
structure developed and all items satisfactorily
tested in accordance with the requirements of
Section 7 of Exhibit B (SOW).
The deliverable to Owner is the Preliminary Site
Test Report completed in accordance with the
requirements of Section 7 of Exhibit B (SOW).
- --------------------------------------------------------------------------------
SC2 Site Completion of Construction: Resolution of all punch
Construction list items to complete the Site in accordance with
the requirements of Section 7 of Exhibit B (SOW).
The deliverable is a copy of the resolved punchlist.
- --------------------------------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 32
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 1.2(b)
Unit Prices
---------------------------------------------------------------------------
Item Units Price
---------------------------------------------------------------------------
Construction Labor, Services & Materials
---------------------------------------------------------------------------
Furnish and Install Ice Bridge (Over 50 feet) lf [*****]
---------------------------------------------------------------------------
Furnish And Install Transformer ea [*****]
---------------------------------------------------------------------------
Furnish And Install Submeter ea [*****]
---------------------------------------------------------------------------
Furnish and Install 1-5/8" Coax Runs (Over 100 feet) lf [*****]
---------------------------------------------------------------------------
Furnish and Install 7/8" Coax (Over 100 feet) lf [*****]
---------------------------------------------------------------------------
Furnish And Install Power Runs (Over 100 feet) lf [*****]
---------------------------------------------------------------------------
Furnish And Install Telco Runs (Over 100 feet) lf [*****]
---------------------------------------------------------------------------
Furnish and install grounding runs (Over 100 feet) lf [*****]
---------------------------------------------------------------------------
Core Drilling ea [*****]
---------------------------------------------------------------------------
Slab X-Ray ea [*****]
---------------------------------------------------------------------------
Furnish and Install load center (120/240V, 100A, 12 ea [*****]
circuits)
---------------------------------------------------------------------------
Furnish and Install meter socket (4 Terminal, 100A) ea [*****]
---------------------------------------------------------------------------
Additional RF Services
---------------------------------------------------------------------------
Isolation Testing, RF Per Site [*****]
---------------------------------------------------------------------------
Additional A&E Services
---------------------------------------------------------------------------
2-C Site Survey W / Certification ea [*****]
---------------------------------------------------------------------------
Photo Simulations (2 Views) ea [*****]
---------------------------------------------------------------------------
Abbreviations: ea: each
lf: per foot
sf: per square foot
cuyd: per cubic yard
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 33
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 1.2(c)
HOURLY RATE FOR TIME AND MATERIALS PRICING
------------------------------------------------------
LCC International, Inc.
------------------------------------------------------
Title Hourly Rate
------------------------------------------------------
General Manager of Ops [*****]
------------------------------------------------------
Regional Program Manager [*****]
------------------------------------------------------
Market Manager [*****]
------------------------------------------------------
Administrative Assistant [*****]
------------------------------------------------------
Project Schedule Analyst [*****]
------------------------------------------------------
Database Specialist [*****]
------------------------------------------------------
Documentation Control Specialist [*****]
------------------------------------------------------
System Support [*****]
------------------------------------------------------
RF Project Manager [*****]
------------------------------------------------------
RF Senior Engineer [*****]
------------------------------------------------------
RF Design Engineer [*****]
------------------------------------------------------
RF Associate [*****]
------------------------------------------------------
RF Local Assistant [*****]
------------------------------------------------------
RF Technical Assistant [*****]
------------------------------------------------------
Site Acq/Zoning Manager [*****]
------------------------------------------------------
Administrative Assistant [*****]
------------------------------------------------------
Lawyer [*****]
------------------------------------------------------
Leasing Paralegal [*****]
------------------------------------------------------
Leasing Assistant [*****]
------------------------------------------------------
NEPA Supervisor [*****]
------------------------------------------------------
NEPA Specialist (s) [*****]
------------------------------------------------------
Administrative Assistant [*****]
------------------------------------------------------
Site Acquisition Supervisor [*****]
------------------------------------------------------
Site Acquisition Specialist [*****]
------------------------------------------------------
Zoning Supervisor [*****]
------------------------------------------------------
Zoning Specialist [*****]
------------------------------------------------------
Construction Manager [*****]
------------------------------------------------------
Contracts Manager [*****]
------------------------------------------------------
Utility Coordinator [*****]
------------------------------------------------------
Construction Field Inspector [*****]
------------------------------------------------------
Materials Manager [*****]
------------------------------------------------------
Materials Coordinator [*****]
------------------------------------------------------
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 34
<PAGE>
CONFIDENTIAL
ATTACHMENT 1.2(e)
Permitted Reimbursable Expenses
Owner shall reimburse Contractor for 103% of the costs and expenses set
forth below as incurred by Contractor in performance of the services hereunder.
Part I. No Owner Consent Required (Except for Single Items Above $2,000.00,
which shall require the prior written consent of Owner's authorized
representative, which consent may be provided by e-mail).
1. Zoning fees, building permit fees and other fees and charges paid to local
jurisdictions, utility providers and governmental and quasi-governmental
agencies for review, filing, processing, permitting and inspection of
potential Sites, including fees to third parties or costs incurred in
obtaining local zoning maps and regulations;
2. Permit extensions or renewal fees if incurred as a result of Excusable
Delay;
3. Fees paid to third parties for title search and preliminary title reports;
and
4. Express courier charges for site-package document control.
Part II. Owner Consent Required*
1. Third-party expenses for site appraisals, estimates, and expert witnesses
at zoning hearings;
2. Upgrades or modifications required for existing structures to meet
required codes, including costs incurred as a result of hidden or
concealed obstructions and latent structural problems;
3. Flood investigations (other than consulting local flood mapping as a part
of the site feasibility process);
4. Public relations support performed by third parties;
5. If required by landlord, reimbursement of landlord's legal expenses in
connection with review of Site Lease Agreements;
6. AM Tower Analysis, if required;
7. Crane rentals as required for drive testing;
8. Riggers (Tower Crews), if required;
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 35
<PAGE>
CONFIDENTIAL
9. Payments made, upon Owner's request, to Landlords under Site Lease
Agreements, Site option payments.
10. Third party services related to securing additional title assurance beyond
preliminary title report;
11. Interim Maintenance Program Equipment as described in Section 9.2(b) of
this Exhibit C;
12. Construction Consultant as defined in Section 7 of this Exhibit C;
13. A & E Consultant as defined in Section 5 of this Exhibit C.
14. FAA consultant services as required pursuant to Section 11.1(a)(5) of
Exhibit B (SOW).
* Requires the prior written consent by Owner's authorized representative, which
consent may be given by e-mail.
Pass-Through Expenses
Owner shall reimburse Contractor for one hundred percent (100%) of sales taxes
or duties related to the Work.
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 36
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 7.2
Standard Site Design Descriptions
- --------------------------------------------------------------------------------
Roof Top Standard Site Description
- --------------------------------------------------------------------------------
Standard Site 1 Standard Site 2
- --------------------------------------------------------------------------------
[*****]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For purposes of clarification, the descriptions and pricing associated with the
Standard Sites do not include the following materials, labor or services:
1. Complete Structural Analysis of a Site pursuant to Section 5(b)(i)
of Exhibit B (SOW) (but pricing does include architectural and
engineering review fees charged by building/property owners)
2. roof penetration
3. lightning rods
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 37
<PAGE>
CONFIDENTIAL
4. cable ladders
5. transformers
6. circuit box or Ground Fault Interruption Circuit
7. submeter.
* For purposes of further clarification, the repeater hardware will be delivered
to each Site location by the repeater manufacturer and Contractor will receive
and install such repeater hardware in accordance with Section 7.6 of Exhibit B
(SOW).
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 38
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 9.1
ANTENNA PRICING (attached)
[*****]
(entire table has been omitted)
Exhibit C - Contract Pricing, Payments and Milestone Achievement Criteria
Page 39
<PAGE>
CONFIDENTIAL
CONTRACT
FOR
ENGINEERING AND CONSTRUCTION
OF
TERRESTRIAL REPEATER NETWORK SYSTEM
By and Between
XM Satellite Radio Inc.
and
LCC International, Inc.
EXHIBIT D -- DATA AND DOCUMENTATION
PROPRIETARY NOTICE
This attached Exhibit D -- Data and Documentation -- and the information
contained herein is confidential and proprietary to XM Satellite Radio Inc., and
shall not be published or disclosed to any third party without the express
written consent of a duly authorized representative of XM Satellite Radio Inc.
<PAGE>
CONFIDENTIAL
CONTRACT
FOR
ENGINEERING AND CONSTRUCTION
OF
TERRESTRIAL REPEATER NETWORK SYSTEM
EXHIBIT D -- DATA AND DOCUMENTATION
As a part of the Work, Contractor shall deliver to Owner the following
Data and Documentation in accordance with the schedule indicated:
- --------------------------------------------------------------------------------
Data & Documentation Delivery Date Owner Response
- --------------------------------------------------------------------------------
Initial City Project Schedules, EDC + 45 Calendar Review and Approval
in accordance with Section 2.3 of Days
Exhibit B
- --------------------------------------------------------------------------------
For each City, a City Budget, in See Section 2.4 of Information
accordance with Section 2.4 of Exhibit B
Exhibit B
- --------------------------------------------------------------------------------
Weekly Status Reports, in See Section 2.6 of
accordance with Section 2.6 of Exhibit B Information
Exhibit B
- --------------------------------------------------------------------------------
Monthly Status Reports, in See Section 2.6 of
accordance with Section 2.6 of Exhibit B Information
Exhibit B
- --------------------------------------------------------------------------------
Quarterly Status Reports, in See Section 2.6 of
accordance with Section 2.6 of Exhibit B Information
Exhibit B
- --------------------------------------------------------------------------------
For each City, a Preliminary City August 20, 1999 Approval
Network Design, in accordance
with Section 3.3 of Exhibit B
- --------------------------------------------------------------------------------
For each City, the Revised City See Initial City
Network Design, in accordance Schedule Approval
with Section 3.4 of Exhibit B
- --------------------------------------------------------------------------------
For each City, the Build-To City See Initial City
Network Design, in accordance Schedule Approval
with Section 3.5 of Exhibit B
- --------------------------------------------------------------------------------
For each City, the Final System See Section 3.7 of
Configuration, in accordance with Exhibit B Information
Section 3.7 of Exhibit B
- --------------------------------------------------------------------------------
Exhibit D (Data and Documentation)
Page 1
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
Data & Documentation Delivery Date Owner Response
- --------------------------------------------------------------------------------
For each Site, a Site Acquisition See Section 4.2 of Approval and
Agreement in accordance with Exhibit B Execution By Owner
Section 4.2 of Exhibit B
- --------------------------------------------------------------------------------
Preliminary Site Test Report, in See Section 7.5 of
accordance with Section 7.5 of Exhibit B Information
Exhibit B
- --------------------------------------------------------------------------------
Repeater Unit Acceptance Test See Section 7.6 of
results in accordance with Exhibit B Information
Section 7.6 of Exhibit B
- --------------------------------------------------------------------------------
Repeater Acceptance Test Plan and EDC + 30 Calendar Days Approval
Procedures, in accordance with
Section 2 of Exhibit E
- --------------------------------------------------------------------------------
Repeater Acceptance Test Report, See Section 4 of
in accordance with Section 4 of Exhibit B Approval
Exhibit E
- --------------------------------------------------------------------------------
Site Package, in accordance with See Initial City
Section 2.8 of Exhibit B Schedule Information
- --------------------------------------------------------------------------------
NMS Report, in accordance with See Section 12.2 of
Section 12.2 of Exhibit B Exhibit B Information
- --------------------------------------------------------------------------------
Exhibit D (Data and Documentation)
Page 2
<PAGE>
CONFIDENTIAL
CONTRACT
FOR
ENGINEERING AND CONSTRUCTION
OF
TERRESTRIAL REPEATER NETWORK SYSTEM
By and Between
XM Satellite Radio Inc.
and
LCC International, Inc.
EXHIBIT E - NETWORK TESTING AND
ACCEPTANCE CRITERIA
CONFIDENTIALITY NOTICE
This attached Exhibit E - Network Testing and Acceptance Criteria -- and the
information contained herein is confidential to the Parties and shall not be
published or disclosed to any third party without the express written consent of
a duly authorized representative of each Party.
<PAGE>
CONFIDENTIAL
CONTRACT
FOR
ENGINEERING AND CONSTRUCTION
OF
TERRESTRIAL REPEATER NETWORK SYSTEM
EXHIBIT E - NETWORK TESTING AND
ACCEPTANCE CRITERIA
1. Definitions. As used in this Exhibit E:
A. "Central Business District" or "CBD" shall mean, for each City, that
geographic area on which is situated a substantial portion of that
City's business and through which travels a substantial portion of
the City's vehicular traffic and for which there is a high
probability that Owner's satellites, when properly launched and
functioning in accordance with their specification, will not provide
adequate coverage. As of EDC, the CBD for certain Cities is set
forth in Attachment 1 hereto. On or before EDC plus thirty (30)
Calendar Days, Owner will identify the CBDs for the remaining
Cities. The CBD identification shall be incorporated into the
Contract by an Amendment in accordance with Article 28.3 of the
Terms and Conditions.
B. "Drive Test Route" shall mean, with respect to a City, those
thoroughfares within the Defined Coverage Area on which a
substantial portion of the City's vehicular traffic (including
commuter traffic) travels and from which Contractor shall test the
City Network. The Drive Test Routes consist of the aggregate of the
individual Primary Drive Test Routes and Secondary Drive Test
Routes. As of EDC, the Drive Test Routes for certain Cities are as
set forth in Attachment 2 hereto. The Parties shall mutually agree
on the Drive Test Routes for the remainder of the Cities on or
before EDC plus thirty (30) Calendar Days. The Drive Test Routes for
such remaining Cities shall be roughly equivalent to, and as
comprehensive as, those set forth in Attachment 2 hereto and such
Drive Test Routes shall be incorporated into the Contract by an
Amendment in accordance with Article 28.3 of the Terms and
Conditions.
C. "Defined Coverage Area" shall have the meaning set forth in Section
3.2 of Exhibit B (SOW).
D. "Primary Drive Test Route" shall mean, with respect to either a City
or a CBD of a City, a series of individual traffic routes on which
there is the highest density of a City's vehicular traffic
(including commuter traffic) and from which Contractor shall test
the City Network. As of the Effective Date, the Primary Drive Test
Routes for certain Cities and CBDs are as set forth in Attachment 2
hereto. The Parties shall mutually agree on the Drive Test Routes
for the remainder of the Cities and CBDs on or before EDC plus
thirty (30) Calendar Days. The Primary
Exhibit E (Network Testing and Acceptance Criteria)
Page 1
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Drive Test Routes for such remaining Cities shall be roughly
equivalent to, and as comprehensive as, those set forth in
Attachment 2 hereto and such Primary Drive Test Routes shall be
incorporated into the Contract by an Amendment in accordance with
Article 28.3 of the Terms and Conditions.
E. "Repeater Acceptance Test Criteria" shall mean the criteria against
which a City Network shall be tested, and the conformity to which
shall indicate that Contractor has successfully completed the
Repeater Acceptance Test with respect to such City Network. The
Repeater Acceptance Test Criteria are set forth in Section 2.B
below.
F. "Secondary Drive Test Route" shall mean a Drive Test Route that is
not a Primary Drive Test Route. As of the Effective Date, the
Secondary Drive Test Route for certain Cities and CBDs are as set
forth in Attachment 2 hereto. The Parties shall mutually agree on
the Drive Test Routes for the remainder of the Cities and CBDs on or
before EDC plus thirty (30) Calendar Days. The Secondary Drive Test
Routes for such remaining Cities shall be roughly equivalent to, and
as comprehensive as, those set forth in Attachment 2 hereto and such
Secondary Drive Test Routes shall be incorporated into the Contract
by an Amendment in accordance with Article 28.3 of the Terms and
Conditions.
G. "Signal Reliability" shall mean that the Repeater Network Acceptance
Testing verifies a signal level greater than [*****].
H. "Signal Outage" shall mean any testing distance interval during
which the Repeater Acceptance Testing verifies a signal level at or
below [*****].
2. Repeater Network Acceptance Testing
A. In accordance with Article 8.1 of the Contract, Contractor shall
perform Repeater Network Acceptance Testing with respect to each
City Network in accordance with the Repeater Acceptance Test Plan
and Procedures, including testing intervals and test equipment
configuration(s) to be used by Contractor hereunder. Contractor
shall deliver to Owner for Owner's review and approval the Repeater
Acceptance Test Plan and Procedures on or before EDC plus thirty
(30) Calendar Days. Contractor shall incorporate Owner's reasonable
comments. The Owner-approved Repeater Acceptance Test Plan and
Procedures will be incorporated into the Contract as Attachment 3
hereto by an Amendment in accordance with Article 28.3 of the Terms
and Conditions.
B. A City Network shall be deemed to have no defects when the City
Network satisfies the following criteria (the "Repeater Acceptance
Test Criteria"):
Exhibit E (Network Testing and Acceptance Criteria)
Page 2
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(1) For each individual Primary Drive Test Route in the Central Business
District of a City there is: (a) [*****] Signal Reliability
(excluding Exclusion Zones and those areas reasonably determined to
be covered by signals from Owner's satellites) along the length of
each Primary Drive Test Route; and (b) no individual Signal Outage
greater than [*****].
(2) For each individual Primary Drive Test Route outside the Central
Business District of a City there is: (a) [*****] Signal Reliability
(excluding Exclusion Zones and those areas reasonably determined to
be covered by signals from Owner's satellites) along the length of
each Primary Drive Test Route; and (b) no individual Signal Outage
greater than [*****].
(3) For the aggregate of the Secondary Drive Test Routes for a City,
there is: (a) [*****] Signal Reliability (excluding Exclusion Zones
and those areas reasonably determined to be covered by signals from
Owner's satellites) along the aggregate of the lengths of such
Secondary Drive Test Routes; and (b) no individual Signal Outage
greater than [*****].
3. Witness of Repeater Acceptance Testing. For each City Network, and in
accordance with this Exhibit E, the following shall apply: (i) Owner shall be
entitled to attend and witness all testing performed hereunder; and (ii)
Contractor shall provide Owner with fourteen (14) Calendar Days prior written
notice of commencement of any such testing.
4. Repeater Acceptance Test Report. With respect to each City Network, within
twenty-one (21) Calendar Days after Contractor's completion of all testing
performed in accordance with this Exhibit E, Contractor shall provide to Owner
the Repeater Acceptance Test Report. The Repeater Acceptance Test Report shall
set forth the following: (i) for each set of routes set forth in Sections B.1,
B.2, and B.3 above, respectively, an RF coverage plot showing the location of
each measurement and whether or not such measurement proves Signal Reliability;
(ii) for each set of routes set forth in Sections B.1, B.2, and B.3 above,
respectively, a graph of distance against signal strength showing where
measurements prove or fail to prove Signal Reliability; and (iii) for the City
Network, detailed analysis showing whether or not the City Network meets the
Repeater Acceptance Test Criteria set forth above.
5. Certification. In the event the Repeater Acceptance Test Report states that
the City Network meets the Repeater Acceptance Test Criteria set forth above,
concurrent with Contractor's delivery of such report, Contractor shall provide
to Owner a detailed report setting forth the test results and a certification in
the form of Attachment 3 (Form of Certification for Acceptance) hereto. In the
event the Repeater Acceptance Test Report sets forth that the City Network fails
to meet the Repeater Acceptance Test Criteria set forth above, the Parties shall
proceed to correct
Exhibit E (Network Testing and Acceptance Criteria)
Page 3
<PAGE>
CONFIDENTIAL
the City Network in accordance with Article 8.1 (c) of the Contract (as if Owner
had delivered to Contractor an undisputed Notice of Defects).
6. Notice of Acceptance. Owner shall provide Contractor notice of its acceptance
of the City Network or Notice of Defects thereof in accordance with Article 8 of
the Terms and Conditions.
Exhibit E (Network Testing and Acceptance Criteria)
Page 4
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 1
CENTRAL BUSINESS DISTRICTS
[*****]
(Maps attached hereto have been omitted)
Exhibit E - Attachment 1
Page 1-1
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
ATTACHMENT 2
PRIMARY AND SECONDARY DRIVE
TEST ROUTES
[*****]
(Maps attached hereto have been omitted)
Exhibit E - Attachment 1
Page 1-2
<PAGE>
CONFIDENTIAL
ATTACHMENT 3
REPEATER ACCEPTANCE TEST PLAN
AND TEST PROCEDURES
Exhibit E - Attachment 2
Page 2-1
<PAGE>
CONFIDENTIAL
ATTACHMENT 4
FORM OF ACCEPTANCE CERTIFICATION
This certificate is being delivered pursuant to the Contract for
Engineering and Construction of Terrestrial Repeater Network System, dated as of
___________ ___, 1999 (as more particularly defined therein, the "Contract"), by
and between XM Satellite Radio Inc. ("Owner") and LCC International, Inc.
("Contractor"). All capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Contract.
Pursuant to Section 4 (Repeater Acceptance Test Report) of Exhibit E of
the Contract, the undersigned, a duly authorized officer of Contractor, hereby
certifies to Owner as follows with respect to the City Network for
________________ [identify the applicable City] (the "Certified City Network"):
(a) All testing required by the Repeater Acceptance Test Plan and Test
Procedures for the Certified City Network has been performed in
accordance with the requirements of the Contract, including, without
limitation, Exhibit E (Network Testing Plan and Acceptance
Criteria);
(b) The testing completed pursuant to the Repeater Acceptance Test Plan
and Test Procedures shows that the City Network satisfies the
Repeater Acceptance Test Criteria; and
(c) Contractor has delivered to Owner the Repeater Acceptance Test
Report in accordance with the requirements of the Contract.
For LCC International, Inc.
Signature:_____________________________
Name:__________________________________
Title:_________________________________
Date:__________________________________
Exhibit E - Attachment 3
Page 3-1
<PAGE>
Exhibit 10.22
- ----------------------------------------------------------------------------
This document constitutes part of a prospectus covering securities that have
been registered under the Securities Act of 1933.
- ----------------------------------------------------------------------------
-----------------------------------------
XM SATELLITE RADIO HOLDINGS INC.
EMPLOYEE STOCK PURCHASE PLAN
-----------------------------------------
-------------------------------
ARTICLE I
PURPOSE AND SCOPE OF THE PLAN
-------------------------------
1.1 Purpose
The XM Satellite Radio Holdings Inc. Employee Stock Purchase Plan is
intended to encourage employee participation in the ownership and economic
progress of the Corporation.
1.2 Definitions
Unless the context clearly indicates otherwise, the following terms have
the meaning set forth below:
"XM Benefits Administration" shall mean the Corporation's Human Resources
Group.
"Board" shall mean the Board of Directors of the Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean a committee of officers or employees of the
Corporation and/or one or more of its Subsidiaries appointed by the Board, which
Committee shall administer the Plan as provided in Section 1.3 hereof.
"Common Stock" shall mean shares of common stock of the Corporation.
"Compensation" shall mean the base salary, bonuses, overtime, and
commissions paid to an Employee by the Corporation or a Subsidiary in accordance
with established payroll procedures.
"Corporation" shall mean XM Satellite Radio Holdings Inc.
"Covered Officer" shall mean an Employee who is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
"Eligible Employee" shall mean an Employee who (i) is scheduled to work at
least 20 hours per week and (ii) whose customary employment is more than five
(5) months in a calendar year.
"Employee" shall mean any employee of the Corporation or a Subsidiary.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exercise Date" shall mean the date as determined by the Committee.
"Fair Market Value" of a share of Common Stock shall mean (i) with respect
to the Initial Offering Date, the price at which a share of Common Stock is sold
to the public in the Initial Public Offering, or (ii) in all other cases, the
amount equal to the average of the closing bid and asked for prices of a Share
on the applicable date as reported by the consolidated tape of the National
Association of Securities Dealers Automated Quotation (or on such other
recognized quotation system on which the trading prices of the Common Stock are
quoted on the applicable date), or, if no Share transactions are reported on
such tape (or such other system) on the applicable date, the average of the
closing bid and
<PAGE>
asked for prices of a Share on the immediately preceding date on which Share
transactions were so reported, or as determined pursuant to a reasonable method
adopted by the Committee in good faith for such purpose.
"Initial Offering" shall mean the first Option Period under the Plan,
which shall begin on the Initial Offering Date and shall end on December 31,
1999.
"Initial Offering Date" shall mean September __, 1999.
"Offering Date" shall mean such date as shall be determined by the
Committee in accordance with the terms of the Plan.
"Option Period" shall mean (i) in the case of the Initial Offering, the
period beginning on the Initial Offering Date and ending on December 31, 1999,
or (ii) in all other cases, the period beginning on an Offering Date and ending
on the next succeeding Exercise Date.
"Option Price" shall mean the purchase price of a share of Common Stock
hereunder as provided in Section 3.1 hereof.
"Participant" shall mean any Eligible Employee who elects to participate.
"Plan" shall mean this XM Satellite Radio Holdings Inc. Employee Stock
Purchase Plan, as the same may be amended from time to time.
"Plan Account" shall mean an account established and maintained by the
Corporation in the name of each Participant.
"Plan Year" shall mean the twelve (12) month period beginning January 1
and ending on the following December 31.
"Stock Purchase Agreement" shall mean the form prescribed by the Committee
which must be executed by an Employee who elects to participate in the Plan.
"Subsidiary" shall mean any company in which the Corporation owns,
directly or indirectly, shares possessing 50% of the total combined voting power
of all classes of stock.
1.3 Administration of Plan
The Committee shall have the authority to administer the Plan and to make
and adopt rules and regulations not inconsistent with the provisions of the
Plan, provided that, except with respect to the Initial Offering, the Committee
also is authorized to change the Offering Periods, Offering Dates and Exercise
Dates under the Plan by providing written notice to all Employees at least 15
days prior to the Exercise Date following which such changes will take effect.
The Committee shall adopt the form of Stock Purchase Agreement and all notices
required hereunder. The Committee may delegate administrative tasks under the
Plan to one or more agents. The Committee's interpretation and decisions in
respect to the Plan shall be final and conclusive.
1.4 Effective Date of Plan
The plan shall become effective on September __, 1999, which shall be the
Initial Offering Date, provided that the Plan is approved by the stockholders of
the Corporation within 12 months before or after the date the Plan is adopted by
the Board.
1.5 Termination of Plan
The Plan shall continue in effect through December 31 , 2009 unless
terminated prior thereto pursuant to Section 4.3 hereof, or by the Board which
shall have the right to terminate the Plan at any time. Upon any such
termination, the balance of any payroll deductions in each Participant's Plan
Account shall be refunded and, except as provided in Article VI with respect to
Covered Officers, a certificate or certificates for any shares of Common Stock
in each Participant's Plan Account shall be distributed to the Participant.
-2-
<PAGE>
--------------------------------
ARTICLE II
PARTICIPATION
--------------------------------
2.1 Eligibility
Except in the case of the Initial Offering, each person who is an Eligible
Employee on an Offering Date may become a Participant by executing and filing a
Stock Purchase Agreement at least 15 days prior to said Offering Date. In the
case of the Initial Offering, each person who is an Eligible Employee on the
Initial Offering Date may become a Participant by executing and filing a Stock
Purchase Agreement on or before the date determined by the Committee in
accordance with applicable law. An Employee may not participate in the Plan if
immediately after the applicable Offering Date or, in the case of the Initial
Offering, the Initial Offering Date, the Employee would be deemed for purposes
of Section 423(b)(3) of the Code to possess 5% or more of the total combined
voting power or value of all classes of stock of the Corporation or any
Subsidiary. Notwithstanding the foregoing, the eligibility of any Participant
who is a Covered Officer is further limited to the extent provided in Article
VI.
2.2 Payroll Deductions
Payment for shares of Common Stock purchased hereunder shall be made by
authorized payroll deductions from each payment of Compensation in accordance
with instructions received from a Participant. Payroll deductions (a) shall be
equal to at least 1% of Compensation and (b) must equal at least five dollars
($5.00) per pay period and (c) may be expressed either as (i) a whole number
percentage or (ii) a fixed dollar amount, subject to the provisions of section
3.3 hereof. A Participant may not increase or decrease the deduction during an
Option Period. A Participant may, however, change the percentage deduction for
any subsequent Option Period by filing another Stock Purchase Agreement at least
15 days prior to the Offering Date on which such subsequent Option Period
commences. Amounts deducted from a Participant's Compensation pursuant to this
Section 2.2 shall be credited to the Participant's Plan Account.
--------------------------------
ARTICLE III
PURCHASE OF SHARES
--------------------------------
3.1 Option Price
The Option Price of each share of the Common Stock shall be determined by
the Committee; provided; however, that the Option Price per share of the Common
-------- -------
Stock sold to Participants hereunder shall be no less than 85% of the Fair
Market Value of such share on (i) in the case of the Initial Offering, either
the Initial Offering Date or the Exercise Date of the Option Period, whichever
is lower, or (ii) in all other cases, either the Offering Date or the Exercise
Date of the Option Period, whichever is lower, but in no event shall the Option
Price per share be less than the par value of the Common Stock.
3.2 Purchase of Shares
On each Exercise Date, the amount in a Participant's Plan Account shall be
charged with the aggregate Option Price of the largest number of whole shares of
Common Stock which can be purchased with said amount. The balance, if any, in
such Plan Account shall be carried forward to the next succeeding Offering
Period, unless the Participant has elected to withdraw from the Plan pursuant to
Section 5.1 hereof.
3.3 Limitations on Purchase
The Fair Market Value (determined on the Offering Date or the Initial
Offering Date, as the case may be) of the number of shares of Common Stock that
may be purchased under the Plan by a Participant in any calendar year shall not
exceed $25,000.
-3-
<PAGE>
3.4 Transferability of Rights
Rights to purchase shares of Common Stock hereunder shall not be
transferable otherwise than by will or the laws of descent and distribution, and
may be exercised during the Participant's lifetime only by the Participant.
--------------------------------
ARTICLE IV
PROVISIONS RELATING
TO COMMON STOCK
--------------------------------
4.1 Common Stock Reserved
There shall be 300,000 authorized and unissued shares of Common Stock,
reissued treasury shares of Common Stock, or shares of Common Stock otherwise
acquired by the Corporation, reserved for the Plan, subject to adjustment in
accordance with Section 4.2 hereof. The aggregate number of shares which may be
purchased under the Plan shall not exceed the number of shares reserved for the
Plan.
4.2 Adjustment for Changes in Common Stock
In the event that adjustments are made in the number of outstanding shares
of Common Stock or the shares are exchanged for a different class of stock of
the Corporation or for shares of stock of any other corporation by reason of
merger, consolidation, stock dividend, stock split or otherwise, the Committee
may make appropriate adjustments in (i) the number and class of shares or other
securities that may be reserved for purchase hereunder, and (ii) the Option
Price. All such adjustments shall be made in the sole discretion of the
Committee, and its decision shall be binding and conclusive.
4.3 Insufficient Shares
If the aggregate funds available for the purchase of Common Stock on any
Exercise Date would cause an issuance of shares in excess of the number provided
for in Section 4.1 hereof, (i) the Committee shall proportionately reduce the
number of shares that would otherwise be purchased by each Participant in order
to eliminate such excess, and (ii) the Plan shall automatically terminate
immediately after such Exercise Date.
4.4 Confirmation
Each purchase of Common Stock hereunder shall be confirmed in writing to
the Participant. A record of purchases shall be maintained by appropriate
entries on the books of the Corporation. Except as provided in Article VI with
respect to Covered Officers, Participants may obtain a certificate or
certificates for all or part of the shares of Common Stock purchased hereunder
by requesting same in writing.
4.5 Rights as Shareholders
The shares of Common Stock purchased by a Participant on an Exercise Date
shall, for all purposes, be deemed to have been issued and sold at the close of
business on such Exercise Date. Prior to that time, none of the rights or
privileges of a stockholder of the Corporation shall exist with respect to such
shares.
--------------------------------
ARTICLE V
TERMINATION OF PARTICIPATION
--------------------------------
-4-
<PAGE>
5.1 Voluntary Withdrawal
A Participant may withdraw from the Plan at any time by filing notice of
withdrawal prior to the close of business on an Exercise Date. Upon withdrawal,
the entire amount, if any, in a Participant's Plan Account shall be refunded to
him or her, unless the Participant elects in such notice of withdrawal to have
such amount used to purchase whole shares of Common Stock pursuant to Section
3.2 hereof on said Exercise Date, and have any remaining balance refunded.
Except as provided in Article VI with respect to Covered Officers, any
Participant who withdraws from the Plan may again become a Participant in
accordance with Section 2.1 hereof.
5.2 Termination of Eligibility
If a Participant retires, he or she may elect to (i) withdraw the entire
amount, if any, in his or her Plan Account, or (ii) have the amount used to
purchase whole shares of Common Stock pursuant to Section 3.2 hereof on the next
succeeding Exercise Date, and have any remaining balance refunded.
If a Participant ceases to be eligible under Section 2.1 hereof for any
reason other than retirement, the dollar amount in such Participant's Plan
Account will be refunded and, except as provided in Article VI with respect to
Covered Officers, the number of unissued shares in such Participant's Plan
Account will be distributed to the Participant or his or her designated
beneficiary or estate.
------------------------------------
ARTICLE VI
SPECIAL RULES FOR COVERED OFFICERS
------------------------------------
6.1 Withdrawal From Plan
Unless permitted by the Committee, if a Participant who is a Covered
Officer withdraws from the Plan (i.e., ceases participation), he or she will not
- -
again be eligible to participate in the Plan until the expiration of six months
from the effective date of the notice of withdrawal. In the event of such
withdrawal, the entire amount, if any, in the Participant's Plan Account shall
be refunded to him or her, unless the Participant elects in the notice of
withdrawal to purchase shares of Common Stock at the end of the Option Period
and have the balance, if any, in the Participant's Plan Account refunded (in
such case, the effective date of the notice of withdrawal will be the Exercise
Date).
6.2 Obtaining Certificates for Common Stock
Unless otherwise permitted by the Committee, a Participant who is a
Covered Officer shall not be permitted to receive a certificate or certificates
representing shares of Common Stock held in his or her Plan Account until the
expiration of six months from the Exercise Date on which the shares are
purchased. If such a Participant withdraws from the Plan (i.e., ceases
- -
participation) or the Plan terminates, and the Participant has shares of Common
Stock in his or her Plan Account that have not been held for such six-month
period, no certificates for the shares will be issued to the Participant until
the end of that six-month period unless the Committee so permits. Unless
permitted by the Committee, if a Participant who is a Covered Officer wishes to
receive a certificate or certificates representing shares of Common Stock that
have been held in his or her Plan Account for at least six months, the
Participant also must withdraw from the Plan (i.e., cease participation) as of
- -
the date the certificate or certificates are issued and will not again be
eligible to participate in the Plan until the expiration of six months from that
date.
6.3 Qualification under Code Section 423
Should any provision of this Article VI cause the Plan not to qualify as
an "employee stock purchase plan" within the meaning of Section 423 of the Code,
then such provision shall not be a requirement under the Plan and shall instead
be a guideline that each Participant who is a Covered Officer is urged to follow
in order to avoid possible liability to the Corporation pursuant to Section
16(b) of the Exchange Act with respect to transactions under the Plan.
--------------------------------
ARTICLE VII
--------------------------------
-5-
<PAGE>
--------------------------------
GENERAL PROVISIONS
--------------------------------
7.1 Broad Based, Nondiscriminatory Plan
The Plan shall at all times be a broad based, nondiscriminatory plan
within the meaning of Rule 16b-3(d)(2)(i)(A) under the Exchange Act.
7.2 Notices
Any notice that a Participant files pursuant to the Plan shall be made on
forms prescribed by the Committee and, except with respect to a notice of
withdrawal that is intended to take effect after the purchase of shares of
Common Stock at the end of the Option Period (see Section 5.1 above), shall be
effective when received by XM Benefits Administration.
7.3 Condition of Employment
Neither the creation of the Plan nor participation therein shall be deemed
to create any right of continued employment or in any way affect the right of
the Corporation or a Subsidiary to terminate an Employee.
7.4 Amendment of the Plan
The Board of Directors may at any time, or from time to time, amend the
Plan in any respect, except that, without approval of the stockholders, no
amendment may increase the aggregate number of shares reserved under the Plan
other than as provided in Section 4.2 hereof, materially increase the benefits
accruing to Participants, or modify the requirements as to eligibility for
participation in the Plan. Any amendment of the Plan must be made in accordance
with applicable provisions of the Code and/or any regulations issued thereunder.
7.5 Application of Funds
All funds received by the Corporation by reason of purchase of Common
Stock hereunder may be used for any corporate purpose.
7.6 Legal Restrictions
The Corporation shall not be obligated to sell shares of Common Stock
hereunder if counsel to the Corporation determines that such sale would violate
any applicable law or regulation.
7.7 Governing Law
The Plan and all rights and obligations thereunder shall be construed and
enforced in accordance with the laws of the State of Delaware.
-6-
<PAGE>
Exhibit 10.23
OPTION NO.
OPTIONEE: Gary Parsons
DATE OF GRANT: As of July 16, 1999
OPTION PRICE: $509,711 per share
COVERED SHARES: 5.00 shares of the Class A common stock of XM
---------------------------------------------------------------------------
XM SATELLITE RADIO HOLDINGS INC.
1998 SHARE AWARD PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
1. Definitions. Terms defined in the Plan and not otherwise defined in this
-----------
Agreement are used in this Agreement as defined in the Plan. In this Agreement,
except where the context otherwise indicates, the following definitions apply:
A. "Agreement" means this Non-Qualified Stock Option Agreement.
B. "XM" means XM Satellite Radio Holdings Inc., a Delaware corporation.
C. "Committee" means the committee appointed by the XM Board of Directors
to administer the Plan.
D. "Covered Shares" means the Shares subject to the Option.
E. "Date of Exercise" means the date on which XM receives notice of the
exercise, in whole or in part, of the option pursuant to Section 5.A. of this
Agreement.
F. "Date of Expiration" means, subject to the provisions of Section 3.C
and D of this Agreement, ten (10) years after the Date of Grant.
G. "Date of Grant" means the date set forth as the "Date of Grant" on page
1 of this Agreement.
H. "In-Orbit Acceptance of XM's Second Satellite" shall mean that the
second satellite determined by XM to be a "Satisfactorily Operating Satellite"
as defined in Section 1.1(sss) of the "Satellite Purchase Contract for In-Orbit
Delivery by and between American Mobile Radio Corporation [XM Satellite Radio
Inc.] and Hughes Space and Communication International, Inc." dated as of March
20, 1998, as may be amended from time to time.
I. "Option" means the non-qualified stock option granted to the Optionee
in Section 2 of this Agreement.
J. "Option Period" means the period beginning on the Date of Grant and
terminating on the Date of Expiration.
K. "Option Price" means the dollar amount per Share set forth as the
Option Price on page 1 of this Agreement.
-1-
<PAGE>
L. "Optionee" means the person identified as the "Optionee" on page 1 of
this Agreement.
M. "Plan" means the XM 1998 Shares Award Plan, as the same may be amended
from time to time.
N. "Public Offering" has the meaning set forth in Section 6.B of this
Agreement.
O. "Securities Act" means the Securities Act of 1933, as amended.
P. "Shares" means shares of Class A common stock of XM.
2. Grant of Option. Pursuant to the Plan and subject to the terms of this
---------------
Agreement, XM grants to the Optionee the Option to purchase from XM that number
of Shares identified as the "Covered Shares" on page 1 of this Agreement,
exercisable at the Option Price, effective on the Date of Grant.
3. Terms of the Option.
-------------------
A. Type of Option. The Option is intended to be a non-qualified stock
--------------
option and is not an incentive stock option within the meaning of Section 422 of
the Code.
B. Vesting and Exercise. The Option may be exercised during the Option
--------------------
Period, subject to the limitation that the Option shall vest in three (3) annual
installments such that:
(a) no portion of the Covered Shares may be exercised during the first
year following the Date of Grant;
(b) during the second year following the Date of Grant, the Option may
be exercised to a maximum of three of the five Covered Shares (with one
being subject to the proviso set forth below);
(c) during the third year following the Date of Grant, the Option may
be exercised to a cumulative maximum of four of the five Covered Shares
(with the additional one share (of the four) being subject to the
proviso set forth below));
(d) thereafter the Option with respect to the Covered Shares may be
exercised in full (with the additional one share (of the five) being
subject to the proviso set forth below);
provided that with respect to the vesting of one share in each of
--------
clauses (b), (c) and (d) above (i.e. with respect to a total of three
of the five Covered Shares), the performance objectives set forth in
Exhibit B to this Agreement are met at the time of each such vesting
period in accordance with the terms of Exhibit B.
C. Termination of employment: If the Optionee's employment terminates
-------------------------
during the Option Period, the Option may be exercised for the following periods
after such termination: zero (0) months in the case of a termination for Cause
(as defined in the Employment Agreement between the Corporation and Optionee);
three (3) months in the case of a voluntary termination; six (6) months
following an involuntary termination, or twelve (12) months in the case of
death, disability, retirement or voluntary or involuntary termination after a
Change of Control. Upon the Optionee's termination of employment, the Option
shall be exercisable only to the extent that it was vested and exercisable as of
the date of the Optionee's termination, except that in the case of the
Optionee's death or involuntary termination within one year of a Change of
Control, the Option shall vest immediately in full and shall be fully
exercisable by the Optionee or the Optionee's authorized representative or by
his or her properly appointed attorney-in-fact, guardian, trustee, or
conservator, as the case may be.
D. Nontransferability. The Option is not transferable by the Optionee
------------------
other than (i) by will or by the laws of descent and distribution, or (ii)
pursuant to a qualified domestic relations order as defined in Section 414(p) of
the Code or Title I of the Employee Retirement Income Security Act or the rules
thereunder,
-2-
<PAGE>
and is exercisable, during the Optionee's lifetime, only by the Optionee or, in
the case of the Optionee's legal disability, by the Optionee's legal
representative except as provided in paragraph C of this Section 3.
4. Capital Adjustments. The number of Covered Shares and the Option Price
-------------------
shall be subject to such adjustment, if any, in accordance with Section 11(a) of
the Plan.
5. Method of Exercise.
------------------
A. Notice. The Option shall be exercised, in whole or in part, by the
------
delivery to XM of written notice of such exercise, in such form as the Committee
may from time to time prescribe, accompanied by:
(a) full payment in cash or readily available funds or in Shares in
the amount of the Option Price with respect to that portion of the
Option being exercised or pursuant to a cashless exercise program to
be established by the Committee in accordance with Section 4(b) of the
Plan; and
(b) any amount that must be withheld by XM for Federal, State, and/or
local tax purposes, payable either in cash or in Shares, including
through withholding of Shares upon exercise; and
(c) such representations and documents as the corporation, in its
absolute discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act and any other
Federal or State securities laws or regulations. XM may, in its
absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance, including, without limitation
placing legends on share certificates and issuing stop-transfer orders
to transfer agents and registrars; and
(d) if the Option or portion thereof shall be exercised pursuant to
this provisions of Section 3.C of this Agreement by any person or
persons other than the Optionee, appropriate proof of the right of
such person or persons to exercise the Option or portion thereof.
Until the Committee notifies the Optionee to the contrary, the form attached to
this Agreement as Exhibit A shall be used to exercise the Option.
B. Effect. The exercise, in whole or in part, of the Option shall cause a
------
reduction in the number of Covered Shares equal to the number of Shares with
respect to which the Option is exercised.
6. Restriction on Exercise and Upon Disposition of Shares of Common Stock
----------------------------------------------------------------------
Issued Upon Exercise.
--------------------
A. Limitation on Exercise: Notwithstanding any other provision of this
----------------------
Agreement, the Optionee agrees, for himself or herself and his or her
successors, that XM shall not be required to honor the exercise of the Option if
XM does not have in effect a registration statement under the Securities Act
relating to the offer of Shares to the Optionee under the Plan, if XM reasonably
determines that the exercise of such Option would violate the Securities Act.
The Optionee further agrees, for himself or herself and his or her successors,
that upon the issuance of any Shares upon the exercise of the Option, he or she
will, upon the request of the XM, agree in writing that he or she is acquiring
the Shares for investment only and not with a view to resale, and that he or she
will not sell, pledge or otherwise dispose of such shares so issued, unless and
until (a) XM is furnished with an opinion of counsel satisfactory to XM to the
effect that registration of such shares pursuant to the Securities Act is not
required by that Act and the rules and regulations thereunder; (b) the staff of
the Securities and Exchange Commission has issued a "no-action" letter with
respect to such disposition; or (c) such registration or notification as is, in
the opinion of counsel for the corporation, required for the lawful disposition
of such shares has been filed by XM and has become effective; provided, however,
that XM is not obligated hereby to file any such registration or notification.
B. Limitation on Sale: If XM has not completed an offering to the public
------------------
(a "Public Offering") of its shares of common stock (or such class of shares
into which such common stock has been converted), the Optionee agrees not to
sell, pledge, or dispose of any Shares issued upon exercise of the Option,
except in
-3-
<PAGE>
accordance with applicable law. If at any time XM does complete a Public
Offering, it will cause the shares issuable upon the exercise of the Option to
be registered under the Securities Act if required to permit the public sale of
such Shares by the Optionee.
C. [Intentionally Omitted].
D. Legends: The Optionee further agrees that XM may place a legend
-------
embodying the foregoing restrictions on the certificates evidencing such shares.
7. Representations and Warranties. Upon exercise of the Option in whole or in
------------------------------
part, the Optionee shall represent, warrant and acknowledge the following:
A. The Optionee has made such investigations as the Optionee deems
necessary and appropriate of the business and/or financial prospects of XM.
B. The Option is being exercised and the Covered Shares are being acquired
for investment for the Optionee's own account and not with the view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act, and the certificate for such stock may be
legended to that effect, that such stock is not registered under federal or
state securities laws and that the registration exemptions being relied on are
the federal and state private or limited offering exemptions and the Optionee
has no reason to believe that such exemptions are not applicable to the
Optionee.
C. The Optionee acknowledges that XM has made available to the Optionee
the opportunity to obtain information to evaluate the merits and risks
associated with this Agreement and the transactions contemplated thereby. The
Optionee acknowledges that the investment contemplated by the Option involves a
high degree of risk, including risks associated with XM's business operations
and prospects including competition and the dependence on XM's technology and
events beyond XM's control, the limits on transferability of the Option and
Covered Shares, and the absence of a public market for the Covered Shares.
8. Rights as Stockholder. The Optionee shall have no rights as a stockholder
---------------------
with respect to any Covered Shares subject to the Option until and unless a
certificate or certificates representing such shares are issued to the Optionee
pursuant to this Agreement. Except as provided in Section 4 of this Agreement,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the issuance of such certificate or certificates.
9. Employment. Neither the granting of the Option evidenced by this Agreement
----------
nor any term or provision of this Agreement shall constitute or be evidence of
any understanding, express or implied, on the part of XM to employ or continue
the employment of the Optionee for any period. Whenever reference is made in
this Agreement to the employment of the Optionee, it means employment by XM or
its Affiliate.
10. Subject to the Plan. The Option evidenced by this Agreement and the
-------------------
exercise of the Option are subject to the terms and conditions of the Plan,
which are incorporated herein by reference and made a part hereof, but the terms
of the Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, the Option is subject to any rules and regulations
promulgated by the Committee.
11. Fractional Shares. Notwithstanding anything contained herein to the
-----------------
contrary, following a Public Offering, Award exercises and issuances involving
the issuance of Shares may only be effected in whole (and not fractional)
shares.
12. Applicable Law. This Agreement shall be subject to the laws of the State
--------------
of Delaware, without giving effect to the principles of conflict of laws
thereof.
13. Entire Agreement. This Agreement is in lieu of and supersedes all prior
----------------
agreements, representations, negotiations, or other understandings of the
parties with respect to the subject matter hereof. It may not be amended or
altered except in a writing signed by the Optionee and the authorized
representatives of XM.
-4-
<PAGE>
14. Waiver and Severability. A. The waiver by either party of a breach of any
-----------------------
provision of this Agreement shall not operate or be construed as a waiver of the
same or any other breach by either of the parties to this Agreement, whether
prior or subsequent.
B. If any term or provision of this Agreement is determined by a court of
competent jurisdiction to be illegal, invalid, or unenforceable, the legality,
validity, or enforceability of the remainder of this Agreement shall not thereby
be affected, and this Agreement shall be deemed to be amended to the extent
necessary to delete such provision.
15. Headings: The Section, paragraph, and subparagraph headings contained in
--------
this Agreement are for reference purposes only, and shall not in any way affect
the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Non-Qualified Stock Option
Agreement to be signed effective as of the Date of Grant.
ATTEST: XM SATELLITE RADIO HOLDINGS INC.
__________________ By: ___________________________________
Accepted and agreed to as of the Date of Grant:
__________________
Optionee
__________________
Name
-5-
<PAGE>
"EXHIBIT A"
EXERCISE OF OPTION
Chairman, Board of Directors
XM Satellite Radio Holdings Inc.
1250 23/rd/ Street NW
Washington, DC 20037
To the Board:
The undersigned, the Optionee under the Non-Qualified Stock Option
Agreement identified as Option No. __________, granted pursuant to the XM
Satellite Radio Holdings Inc. 1998 Share Award Plan, hereby irrevocably elects
to exercise the Option granted in the Agreement to purchase _______ shares of
common stock of XM Satellite Radio Holdings Inc. ("XM"), par value $0.10 per
share ("Shares"), and herewith makes payment of $__________ in the form of
[cash, Common Stock, cash plus Common Stock, through the exercise of the
cashless exercise program] for the shares purchased and $_________ in the form
of _________________ [cash, Common Stock, cash plus Common Stock, through the
exercise of the cashless exercise program] to cover the Corporation's
withholding tax liability in respect of the purchase. (Please complete, and
complete separate cashless exercise form as appropriate.)
The Optionee hereby represents, warrants and acknowledges the following:
A. The Optionee has made such investigations as the Optionee feels
necessary and appropriate of the business and/or financial prospects of XM.
B. The Shares are being acquired for investment for the Optionee's own
account and not with the view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
of 1933, as amended, and the certificate for such stock may be legended to that
effect, that such stock is not registered under federal or state securities laws
and that the registration exemptions being relied on are the federal and state
private or limited offering exemptions and the Optionee has no reason to believe
that such exemptions are not applicable to the Optionee.
C. The Optionee acknowledges that XM has made available to the Optionee
the opportunity to obtain information to evaluate the merits and risks
associated with this Agreement and the transactions contemplated thereby. The
Optionee acknowledges that the investment contemplated by the Option involves a
high degree of risk, including risks associated with XM's business operations
and prospects including competition and the dependence on XM's technology and
events beyond XM's control, the limits on transferability of the Shares, and the
absence of a public market for the Shares.
-1-
<PAGE>
[Note: Shares of Common Stock being delivered in payment of all or any part of
the exercise price must be represented by certificates registered in the name of
the Optionee and duly endorsed by the Optionee and by each and every other co-
owner in whose name the shares may also be registered.]
Dated: _____________________ _______________________________
(Signature of Optionee)
Date Received by
XM Satellite Radio Holdings Inc.: _________________________
Received by: __________________________________
__________________________________
Name
__________________________________
Title
-2-
<PAGE>
"EXHIBIT B"
Performance criteria required for the Optionee shall be established and/or
modified from time to time by the Compensation Committee of the Board of
Directors. Absent specific additional or substitute performance criteria,
successful completion of the following objectives must be achieved, or the
requirements waived, by the Compensation Committee of the Board, prior to the
vesting of any stock options which carry performance requirements as a vesting
criteria:
Year One Performance Objectives:
. XM shall have successfully completed a public offering of its shares
and be listed on a recognized public market exchange (NASDAQ).
. XM shall have secured sufficient additional capital resources to fund
its operation during the year.
Year Two Performance Objectives:
. XM shall have secured sufficient funding, whether through debt or
equity offerings, at least equaling its projected cash needs through
its commercial service launch
. XM shall not be in default on any of its financing instruments or major
contracts.
Year Three Performance Objectives:
. XM shall have commercially launched its service offerings as evidenced
by significant numbers of revenue-producing subscribers, and widespread
availability of XM Radio's service throughout the United States.
By way of example, with respect to those Covered Shares subject to this Exhibit
B, in order to exercise the first installment of the Option, the objectives
relating to year one must be met (or waived); to exercise the second
installment, the objectives relating to year two must be met (or waived); and to
exercise the third installment, the objectives relating to year three must be
met (or waived).
-1-
<PAGE>
Exhibit 10.24
OPTION NO.
OPTIONEE: Hugh Panero
DATE OF GRANT: As of July 1, 1998, amended as of July 8, 1999.
OPTION PRICE: $509,711 per share
COVERED SHARES: 5.00 shares of the Class A common stock of XM
------------------------------------------------------------------------
XM SATELLITE RADIO HOLDINGS INC.
1998 SHARE AWARD PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
1. Definitions. Terms defined in the Plan and not otherwise defined in this
-----------
Agreement are used in this Agreement as defined in the Plan. In this Agreement,
except where the context otherwise indicates, the following definitions apply:
A. "Agreement" means this Non-Qualified Stock Option Agreement.
B. "XM" means XM Satellite Radio Holdings Inc., a Delaware corporation.
C. "Committee" means the committee appointed by the XM Board of Directors
to administer the Plan.
D. "Covered Shares" means the Shares subject to the Option.
E. "Date of Exercise" means the date on which XM receives notice of the
exercise, in whole or in part, of the option pursuant to Section 5.A. of this
Agreement.
F. "Date of Expiration" means, subject to the provisions of Section 3.C
and D of this Agreement, ten (10) years after the Date of Grant.
G. "Date of Grant" means the date set forth as the "Date of Grant" on page
1 of this Agreement.
H. "In-Orbit Acceptance of XM's Second Satellite" shall mean that the
second satellite determined by XM to be a "Satisfactorily Operating Satellite"
as defined in Section 1.1(sss) of the "Satellite Purchase Contract for In-Orbit
Delivery by and between American Mobile Radio Corporation [XM Satellite Radio
Inc.] and Hughes Space and Communication International, Inc." dated as of March
20, 1998, as may be amended from time to time.
I. "Option" means the non-qualified stock option granted to the Optionee
in Section 2 of this Agreement.
J. "Option Period" means the period beginning on the Date of Grant and
terminating on the Date of Expiration.
K. "Option Price" means the dollar amount per Share set forth as the
Option Price on page 1 of this Agreement.
-1-
<PAGE>
L. "Optionee" means the person identified as the "Optionee" on page 1 of
this Agreement.
M. "Plan" means the XM 1998 Shares Award Plan, as the same may be amended
from time to time.
N. "Public Offering" has the meaning set forth in Section 6.B of this
Agreement.
O. "Securities Act" means the Securities Act of 1933, as amended.
P. "Shares" means shares of Class A common stock of XM.
2. Grant of Option. Pursuant to the Plan and subject to the terms of this
---------------
Agreement, XM grants to the Optionee the Option to purchase from XM that number
of Shares identified as the "Covered Shares" on page 1 of this Agreement,
exercisable at the Option Price, effective on the Date of Grant.
3. Terms of the Option.
-------------------
A. Type of Option. The Option is intended to be a non-qualified stock
--------------
option and is not an incentive stock option within the meaning of Section 422 of
the Code.
B. Vesting and Exercise. The Option may be exercised during the Option
--------------------
Period, subject to the limitation that the Option shall vest in three (3) equal
annual installments such that:
(a) no portion of the Covered Shares may be exercised during the first
year following the Date of Grant;
(b) during the second year following the Date of Grant, the Option may
be exercised to a maximum of 33 1/3 % of the Covered Shares (i.e., 1
and 2/3 shares vest);
(c) during the third year following the Date of Grant, the Option may
be exercised to a cumulative maximum of 66 2/3% of the Covered Shares
(i.e., an additional 1 and 2/3 shares vest);
(d) thereafter the Option with respect to the Covered Shares may be
exercised in full (i.e., an additional 1 and 2/3 shares vest);
provided, that with respect to the vesting of one share in each of the
---------
cases set forth in clauses (b), (c) and (d) above (i.e. with respect to
a total of three shares), the performance objectives set forth in
Exhibit B to this Agreement are met at the time of each such vesting
period in accordance with the terms of Exhibit B.
C. Termination of employment: If the Optionee's employment terminates
-------------------------
during the Option Period, the Option may be exercised for the following periods
after such termination: zero (0) months in the case of a termination for Cause
(as defined in the Employment Agreement between the Corporation and Optionee);
three (3) months in the case of a voluntary termination; six (6) months
following an involuntary termination, or twelve (12) months in the case of
death, disability, retirement or voluntary or involuntary termination after a
Change of Control. Upon the Optionee's termination of employment, the Option
shall be exercisable only to the extent that it was vested and exercisable as of
the date of the Optionee's termination, except that in the case of the
Optionee's death or involuntary termination within one year of a Change of
Control, the Option shall vest immediately in full and shall be fully
exercisable by the Optionee or the Optionee's authorized representative or by
his or her properly appointed attorney-in-fact, guardian, trustee, or
conservator, as the case may be.
D. Nontransferability. The Option is not transferable by the Optionee
------------------
other than (i) by will or by the laws of descent and distribution, or (ii)
pursuant to a qualified domestic relations order as defined in Section 414(p) of
the Code or Title I of the Employee Retirement Income Security Act or the rules
thereunder,
-2-
<PAGE>
and is exercisable, during the Optionee's lifetime, only by the Optionee or, in
the case of the Optionee's legal disability, by the Optionee's legal
representative except as provided in paragraph C of this Section 3.
4. Capital Adjustments. The number of Covered Shares and the Option Price
-------------------
shall be subject to such adjustment, if any, in accordance with Section 11(a) of
the Plan.
5. Method of Exercise.
------------------
A. Notice. The Option shall be exercised, in whole or in part, by the
------
delivery to XM of written notice of such exercise, in such form as the Committee
may from time to time prescribe, accompanied by:
(a) full payment in cash or readily available funds or in Shares in
the amount of the Option Price with respect to that portion of the
Option being exercised or pursuant to a cashless exercise program to
be established by the Committee in accordance with Section 4(b) of the
Plan; and
(b) any amount that must be withheld by XM for Federal, State, and/or
local tax purposes, payable either in cash or in Shares, including
through withholding of Shares upon exercise; and
(c) such representations and documents as the corporation, in its
absolute discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act and any other
Federal or State securities laws or regulations. XM may, in its
absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance, including, without limitation
placing legends on share certificates and issuing stop-transfer orders
to transfer agents and registrars; and
(d) if the Option or portion thereof shall be exercised pursuant to
this provisions of Section 3.C of this Agreement by any person or
persons other than the Optionee, appropriate proof of the right of
such person or persons to exercise the Option or portion thereof.
Until the Committee notifies the Optionee to the contrary, the form attached to
this Agreement as Exhibit A shall be used to exercise the Option.
B. Effect. The exercise, in whole or in part, of the Option shall cause a
------
reduction in the number of Covered Shares equal to the number of Shares with
respect to which the Option is exercised.
6. Restriction on Exercise and Upon Disposition of Shares of Common Stock
----------------------------------------------------------------------
Issued Upon Exercise.
--------------------
A. Limitation on Exercise: Notwithstanding any other provision of this
----------------------
Agreement, the Optionee agrees, for himself or herself and his or her
successors, that XM shall not be required to honor the exercise of the Option if
XM does not have in effect a registration statement under the Securities Act
relating to the offer of Shares to the Optionee under the Plan, if XM reasonably
determines that the exercise of such Option would violate the Securities Act.
The Optionee further agrees, for himself or herself and his or her successors,
that upon the issuance of any Shares upon the exercise of the Option, he or she
will, upon the request of the XM, agree in writing that he or she is acquiring
the Shares for investment only and not with a view to resale, and that he or she
will not sell, pledge or otherwise dispose of such shares so issued, unless and
until (a) XM is furnished with an opinion of counsel satisfactory to XM to the
effect that registration of such shares pursuant to the Securities Act is not
required by that Act and the rules and regulations thereunder; (b) the staff of
the Securities and Exchange Commission has issued a "no-action" letter with
respect to such disposition; or (c) such registration or notification as is, in
the opinion of counsel for the corporation, required for the lawful disposition
of such shares has been filed by XM and has become effective; provided, however,
that XM is not obligated hereby to file any such registration or notification.
B. Limitation on Sale: If XM has not completed an offering to the public
------------------
(a "Public Offering") of its shares of common stock (or such class of shares
into which such common stock has been converted), the Optionee agrees not to
sell, pledge, or dispose of any Shares issued upon exercise of the Option,
except to
-3-
<PAGE>
XM as provided in paragraph C of this Section 6. If at any time XM does complete
a Public Offering, it will cause the shares issuable upon the exercise of the
Option to be registered under the Securities Act if required to permit the
public sale of such Shares by the Optionee.
C. Repurchase by XM: In the event that XM has not completed a Public
----------------
Offering by the date the first anniversary of the In-Orbit Acceptance of XM's
Second Satellite occurs, but in no event later than December 31, 2001, XM will
determine and report to Optionee the fair market value as of recent date of a
single share of XM's Common Stock as if XM were sold in its entirety in an arm's
length transaction involving a willing buyer and a willing seller (the "Value").
Such determination will be made by the Board of Directors in good faith (and may
be based, in the Board's discretion, upon a valuation by an appropriate
appraiser selected by the Board). XM will cause a new valuation to be made
annually thereafter unless prior to such time it has completed a Public
Offering, and it may, in its sole discretion, undertake to have such valuations
made more frequently than yearly intervals. From and after the date that any
valuation is made and until it is superseded by a subsequent valuation, XM shall
purchase for cash, from the holder of Common Stock issued upon exercise of the
Option such number of shares as may be requested by such holder from time to
time at a price per share equal to the then-current value, provided, that XM
shall not be obligated to so purchase such shares if by the date of such request
XM has completed a Public Offering.
D. Legends: The Optionee further agrees that XM may place a legend
-------
embodying the foregoing restrictions on the certificates evidencing such shares.
7. Representations and Warranties. Upon exercise of the Option in whole or in
------------------------------
part, the Optionee shall represent, warrant and acknowledge the following:
A. The Optionee has made such investigations as the Optionee deems
necessary and appropriate of the business and/or financial prospects of XM.
B. The Option is being exercised and the Covered Shares are being acquired
for investment for the Optionee's own account and not with the view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act, and the certificate for such stock may be
legended to that effect, that such stock is not registered under federal or
state securities laws and that the registration exemptions being relied on are
the federal and state private or limited offering exemptions and the Optionee
has no reason to believe that such exemptions are not applicable to the
Optionee.
C. The Optionee acknowledges that XM has made available to the Optionee
the opportunity to obtain information to evaluate the merits and risks
associated with this Agreement and the transactions contemplated thereby. The
Optionee acknowledges that the investment contemplated by the Option involves a
high degree of risk, including risks associated with XM's business operations
and prospects including competition and the dependence on XM's technology and
events beyond XM's control, the limits on transferability of the Option and
Covered Shares, and the absence of a public market for the Covered Shares.
8. Rights as Stockholder. The Optionee shall have no rights as a stockholder
---------------------
with respect to any Covered Shares subject to the Option until and unless a
certificate or certificates representing such shares are issued to the Optionee
pursuant to this Agreement. Except as provided in Section 4 of this Agreement,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the issuance of such certificate or certificates.
9. Employment. Neither the granting of the Option evidenced by this Agreement
----------
nor any term or provision of this Agreement shall constitute or be evidence of
any understanding, express or implied, on the part of XM to employ or continue
the employment of the Optionee for any period. Whenever reference is made in
this Agreement to the employment of the Optionee, it means employment by XM or
its Affiliate.
10. Subject to the Plan. The Option evidenced by this Agreement and the
-------------------
exercise of the Option are subject to the terms and conditions of the Plan,
which are incorporated herein by reference and made a part hereof, but the terms
of the Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, the Option is subject to any rules and regulations
promulgated by the Committee.
-4-
<PAGE>
11. Fractional Shares. Notwithstanding anything contained herein to the
-----------------
contrary, following a Public Offering, Award exercises and issuances involving
the issuance of Shares may only be effected in whole (and not fractional)
shares.
12. Applicable Law. This Agreement shall be subject to the laws of the State
--------------
of Delaware, without giving effect to the principles of conflict of laws
thereof.
13. Entire Agreement. This Agreement is in lieu of and supersedes all prior
----------------
agreements, representations, negotiations, or other understandings of the
parties with respect to the subject matter hereof. It may not be amended or
altered except in a writing signed by the Optionee and the authorized
representatives of XM.
14. Waiver and Severability. A. The waiver by either party of a breach of any
-----------------------
provision of this Agreement shall not operate or be construed as a waiver of the
same or any other breach by either of the parties to this Agreement, whether
prior or subsequent.
B. If any term or provision of this Agreement is determined by a court of
competent jurisdiction to be illegal, invalid, or unenforceable, the legality,
validity, or enforceability of the remainder of this Agreement shall not thereby
be affected, and this Agreement shall be deemed to be amended to the extent
necessary to delete such provision.
15. Headings: The Section, paragraph, and subparagraph headings contained in
--------
this Agreement are for reference purposes only, and shall not in any way affect
the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Non-Qualified Stock Option
Agreement to be signed effective as of the Date of Grant.
ATTEST: XM SATELLITE RADIO HOLDINGS INC.
____________ By: _________________________________
Accepted and agreed to as of the Date of Grant:
____________
Optionee
____________
Name
-5-
<PAGE>
"EXHIBIT A"
EXERCISE OF OPTION
Chairman, Board of Directors
XM Satellite Radio Holdings Inc.
1250 23/rd/ Street NW
Washington, DC 20037
To the Board:
The undersigned, the Optionee under the Non-Qualified Stock Option
Agreement identified as Option No. __________, granted pursuant to the XM
Satellite Radio Holdings Inc. 1998 Share Award Plan, hereby irrevocably elects
to exercise the Option granted in the Agreement to purchase _______ shares of
common stock of XM Satellite Radio Holdings Inc. ("XM"), par value $0.10 per
share ("Shares"), and herewith makes payment of $__________ in the form of
[cash, Common Stock, cash plus Common Stock, through the exercise of the
cashless exercise program] for the shares purchased and $_________ in the form
of _________________ [cash, Common Stock, cash plus Common Stock, through the
exercise of the cashless exercise program] to cover the Corporation's
withholding tax liability in respect of the purchase. (Please complete, and
complete separate cashless exercise form as appropriate.)
The Optionee hereby represents, warrants and acknowledges the following:
A. The Optionee has made such investigations as the Optionee feels
necessary and appropriate of the business and/or financial prospects of XM.
B. The Shares are being acquired for investment for the Optionee's own
account and not with the view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
of 1933, as amended, and the certificate for such stock may be legended to that
effect, that such stock is not registered under federal or state securities laws
and that the registration exemptions being relied on are the federal and state
private or limited offering exemptions and the Optionee has no reason to believe
that such exemptions are not applicable to the Optionee.
C. The Optionee acknowledges that XM has made available to the Optionee
the opportunity to obtain information to evaluate the merits and risks
associated with this Agreement and the transactions contemplated thereby. The
Optionee acknowledges that the investment contemplated by the Option involves a
high degree of risk, including risks associated with XM's business operations
and prospects including competition and the dependence on XM's technology and
events beyond XM's control, the limits on transferability of the Shares, and the
absence of a public market for the Shares.
-1-
<PAGE>
[Note: Shares of Common Stock being delivered in payment of all or any part of
the exercise price must be represented by certificates registered in the name of
the Optionee and duly endorsed by the Optionee and by each and every other co-
owner in whose name the shares may also be registered.]
Dated: _____________________ ____________________________
(Signature of Optionee)
Date Received by
XM Satellite Radio Holdings Inc.: ________________________________
Received by:
________________________________
________________________________
Name
________________________________
Title
-2-
<PAGE>
"EXHIBIT B"
Performance criteria required for the Optionee shall be established and/or
modified from time to time by the Compensation Committee of the Board of
Directors. Absent specific additional or substitute performance criteria,
successful completion of the following objectives must be achieved, or the
requirements waived, by the Compensation Committee of the Board, prior to the
vesting of any stock options which carry performance requirements as a vesting
criteria:
Year One Performance Objectives:
. Completion of private financing transaction in excess of $150 million
. Recruitment of senior staff
. Execution of at least 5 of programming contracts
Year Two Performance Objectives:
. XM shall have successfully completed a public offering of its shares and
be listed on a recognized public market exchange.
. XM shall have secured sufficient additional capital resources to fund
its operation during the year.
Year Three Performance Objectives:
. XM have secured sufficient funding, whether through debt or equity
offerings, at least equaling its projected cash needs through its
commercial service launch
. XM shall not be in default on any of its financing instruments or major
contracts.
By way of example, with respect to those Covered Shares subject to this Exhibit
B, in order to exercise the first installment of the Option, the objectives
relating to year one must be met (or waived); to exercise the second
installment, the objectives relating to year two must be met (or waived); and to
exercise the third installment, the objectives relating to year three must be
met (or waived).
-1-
<PAGE>
Exhibit 10.25
OPTION NO.
OPTIONEE:
DATE OF GRANT: As of July 8, 1999
OPTION PRICE: $509,711 per share
COVERED SHARES: 0.500 shares of the Class A common stock of XM
_____________________________________________________________________
XM SATELLITE RADIO HOLDINGS INC.
1998 SHARE AWARD PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
1. Definitions. Terms defined in the Plan and not otherwise defined in this
-----------
Agreement are used in this Agreement as defined in the Plan. In this Agreement,
except where the context otherwise indicates, the following definitions apply:
A. "Agreement" means this Non-Qualified Stock Option Agreement.
B. "XM" means XM Satellite Radio Holdings Inc., a Delaware corporation.
C. "Committee" means the committee appointed by the XM Board of Directors
to administer the Plan.
D. "Covered Shares" means the Shares subject to the Option.
E. "Date of Exercise" means the date on which XM receives notice of the
exercise, in whole or in part, of the option pursuant to Section 5.A. of this
Agreement.
F. "Date of Expiration" means, subject to the provisions of Section 3.C
and D of this Agreement, ten (10) years after the Date of Grant.
G. "Date of Grant" means the date set forth as the "Date of Grant" on page
1 of this Agreement.
H. "Option" means the non-qualified stock option granted to the Optionee
in Section 2 of this Agreement.
I. "Option Period" means the period beginning on the Date of Grant and
terminating on the Date of Expiration.
J. "Option Price" means the dollar amount per Share set forth as the
Option Price on page 1 of this Agreement.
K. "Optionee" means the person identified as the "Optionee" on page 1 of
this Agreement.
L. "Plan" means the XM 1998 Shares Award Plan, as the same may be amended
from time to time.
M. "Public Offering" has the meaning set forth in Section 6.B of
this Agreement.
-1-
<PAGE>
N. "Securities Act" means the Securities Act of 1933, as amended.
O. "Shares" means shares of Class A common stock of XM.
2. Grant of Option. Pursuant to the Plan and subject to the terms of this
---------------
Agreement, XM grants to the Optionee the Option to purchase from XM that number
of Shares identified as the "Covered Shares" on page 1 of this Agreement,
exercisable at the Option Price, effective on the Date of Grant.
3. Terms of the Option.
-------------------
A. Type of Option. The Option is intended to be a non-qualified stock
--------------
option and is not an incentive stock option within the meaning of Section 422 of
the Code.
B. Vesting and Exercise. The Option shall vest immediately and may be
--------------------
exercised at any time during the Option Period.
C. Termination of service as a Director: If the Optionee ceases to serve
------------------------------------
as a member of the Corporation's Board of Directors, this Option may be
exercised for the following periods thereafter: (i) except as set forth under
(ii), seven (7) months; or (ii) twelve (12) months in the case of death or
--
disability, in which case the Option shall be fully exercisable by the Optionee
or the Optionee's authorized representative or by his or her properly appointed
attorney-in-fact, guardian, trustee, or conservator, as the case may be.
D. Nontransferability. The Option is not transferable by the Optionee
------------------
other than (i) by will or by the laws of descent and distribution, or (ii)
pursuant to a qualified domestic relations order as defined in Section 414(p) of
the Code or Title I of the Employee Retirement Income Security Act or the rules
thereunder, and is exercisable, during the Optionee's lifetime, only by the
Optionee or, in the case of the Optionee's legal disability, by the Optionee's
legal representative except as provided in paragraph C of this Section 3.
4. Capital Adjustments. The number of Covered Shares and the Option Price
-------------------
shall be subject to such adjustment, if any, in accordance with Section 11(a) of
the Plan.
5. Method of Exercise.
------------------
A. Notice. The Option shall be exercised, in whole or in part, by the
------
delivery to XM of written notice of such exercise, in such form as the Committee
may from time to time prescribe, accompanied by:
(a) full payment in cash or readily available funds or in Shares in
the amount of the Option Price with respect to that portion of the
Option being exercised or pursuant to a cashless exercise program to
be established by the Committee in accordance with Section 4(b) of the
Plan; and
(b) any amount that must be withheld by XM for Federal, State, and/or
local tax purposes, payable either in cash or in Shares, including
through withholding of Shares upon exercise; and
(c) such representations and documents as the corporation, in its
absolute discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act and any other
Federal or State securities laws or regulations. XM may, in its
absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance, including, without limitation
placing legends on share certificates and issuing stop-transfer orders
to transfer agents and registrars; and
(d) if the Option or portion thereof shall be exercised pursuant to
this provisions of Section 3.C of this Agreement by any person or
persons other than the Optionee, appropriate proof of the right of
such person or persons to exercise the Option or portion thereof.
-2-
<PAGE>
Until the Committee notifies the Optionee to the contrary, the form attached to
this Agreement as Exhibit A shall be used to exercise the Option.
B. Effect. The exercise, in whole or in part, of the Option shall cause a
------
reduction in the number of Covered Shares equal to the number of Shares with
respect to which the Option is exercised.
6. Restriction on Exercise and Upon Disposition of Shares of Common Stock
----------------------------------------------------------------------
Issued Upon Exercise.
--------------------
A. Limitation on Exercise: Notwithstanding any other provision of this
----------------------
Agreement, the Optionee agrees, for himself or herself and his or her
successors, that XM shall not be required to honor the exercise of the Option if
XM does not have in effect a registration statement under the Securities Act
relating to the offer of Shares to the Optionee under the Plan, if XM reasonably
determines that the exercise of such Option would violate the Securities Act.
The Optionee further agrees, for himself or herself and his or her successors,
that upon the issuance of any Shares upon the exercise of the Option, he or she
will, upon the request of the XM, agree in writing that he or she is acquiring
the Shares for investment only and not with a view to resale, and that he or she
will not sell, pledge or otherwise dispose of such shares so issued, unless and
until (a) XM is furnished with an opinion of counsel satisfactory to XM to the
effect that registration of such shares pursuant to the Securities Act is not
required by that Act and the rules and regulations thereunder; (b) the staff of
the Securities and Exchange Commission has issued a "no-action" letter with
respect to such disposition; or (c) such registration or notification as is, in
the opinion of counsel for the corporation, required for the lawful disposition
of such shares has been filed by XM and has become effective; provided, however,
that XM is not obligated hereby to file any such registration or notification.
B. Limitation on Sale: If XM has not completed an offering to the public
------------------
(a "Public Offering") of its shares of common stock (or such class of shares
into which such common stock has been converted), the Optionee agrees not to
sell, pledge, or dispose of any Shares issued upon exercise of the Option,
except in accordance with applicable law. If at any time XM does complete a
Public Offering, it will cause the shares issuable upon the exercise of the
Option to be registered under the Securities Act if required to permit the
public sale of such Shares by the Optionee.
C. Legends: The Optionee further agrees that XM may place a legend
-------
embodying the foregoing restrictions on the certificates evidencing such shares.
7. Representations and Warranties. Upon exercise of the Option in whole or in
------------------------------
part, the Optionee shall represent, warrant and acknowledge the following:
A. The Optionee has made such investigations as the Optionee deems
necessary and appropriate of the business and/or financial prospects of XM.
B. The Option is being exercised and the Covered Shares are being acquired
for investment for the Optionee's own account and not with the view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act, and the certificate for such stock may be
legended to that effect, that such stock is not registered under federal or
state securities laws and that the registration exemptions being relied on are
the federal and state private or limited offering exemptions and the Optionee
has no reason to believe that such exemptions are not applicable to the
Optionee.
C. The Optionee acknowledges that XM has made available to the Optionee
the opportunity to obtain information to evaluate the merits and risks
associated with this Agreement and the transactions contemplated thereby. The
Optionee acknowledges that the investment contemplated by the Option involves a
high degree of risk, including risks associated with XM's business operations
and prospects including competition and the dependence on XM's technology and
events beyond XM's control, the limits on transferability of the Option and
Covered Shares, and the absence of a public market for the Covered Shares.
8. Rights as Stockholder. The Optionee shall have no rights as a stockholder
---------------------
with respect to any Covered Shares subject to the Option until and unless a
certificate or certificates representing such shares are issued to the Optionee
pursuant to this Agreement. Except as provided in Section 4 of this Agreement,
-3-
<PAGE>
no adjustment shall be made for dividends or other rights for which the record
date is prior to the issuance of such certificate or certificates.
9. Continuation of Service as a Director. Neither the granting of the Option
-------------------------------------
evidenced by this Agreement nor any term or provision of this Agreement shall
constitute or be evidence of any understanding, express or implied, on the part
of XM to continue the service of the Optionee as a Director of XM for any
period.
10. Subject to the Plan. The Option evidenced by this Agreement and the
-------------------
exercise of the Option are subject to the terms and conditions of the Plan,
which are incorporated herein by reference and made a part hereof, but the terms
of the Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, the Option is subject to any rules and regulations
promulgated by the Committee.
11. Fractional Shares. Notwithstanding anything contained herein to the
-----------------
contrary, following a Public Offering, Award exercises and issuances involving
the issuance of Shares may only be effected in whole (and not fractional)
shares.
12. Applicable Law. This Agreement shall be subject to the laws of the State
--------------
of Delaware, without giving effect to the principles of conflict of laws
thereof.
13. Entire Agreement. This Agreement is in lieu of and supersedes all prior
----------------
agreements, representations, negotiations, or other understandings of the
parties with respect to the subject matter hereof. It may not be amended or
altered except in a writing signed by the Optionee and the authorized
representatives of XM.
14. Waiver and Severability. A. The waiver by either party of a breach of any
-----------------------
provision of this Agreement shall not operate or be construed as a waiver of the
same or any other breach by either of the parties to this Agreement, whether
prior or subsequent.
B. If any term or provision of this Agreement is determined by a court of
competent jurisdiction to be illegal, invalid, or unenforceable, the legality,
validity, or enforceability of the remainder of this Agreement shall not thereby
be affected, and this Agreement shall be deemed to be amended to the extent
necessary to delete such provision.
15. Headings: The Section, paragraph, and subparagraph headings contained in
--------
this Agreement are for reference purposes only, and shall not in any way affect
the meaning or interpretation of this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Non-Qualified Stock Option
Agreement to be signed effective as of the Date of Grant.
ATTEST: XM SATELLITE RADIO HOLDINGS INC.
_____________________ By: ______________________________
Accepted and agreed to as of the Date of Grant:
_____________________
Optionee
_____________________
Name
-5-
<PAGE>
"EXHIBIT A"
EXERCISE OF OPTION
Chairman, Board of Directors
XM Satellite Radio Holdings Inc.
1250 23rd Street NW
Washington, DC 20037
To the Board:
The undersigned, the Optionee under the Non-Qualified Stock Option
Agreement identified as Option No. __________, granted pursuant to the XM
Satellite Radio Holdings Inc. 1998 Share Award Plan, hereby irrevocably elects
to exercise the Option granted in the Agreement to purchase _______ shares of
common stock of XM Satellite Radio Holdings Inc. ("XM"), par value $0.10 per
share ("Shares"), and herewith makes payment of $__________ in the form of
[cash, Common Stock, cash plus Common Stock, through the exercise of the
cashless exercise program] for the shares purchased and $_________ in the form
of _________________ [cash, Common Stock, cash plus Common Stock, through the
exercise of the cashless exercise program] to cover the Corporation's
withholding tax liability in respect of the purchase. (Please complete, and
complete separate cashless exercise form as appropriate.)
The Optionee hereby represents, warrants and acknowledges the following:
A. The Optionee has made such investigations as the Optionee feels
necessary and appropriate of the business and/or financial prospects of XM.
B. The Shares are being acquired for investment for the Optionee's own
account and not with the view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
of 1933, as amended, and the certificate for such stock may be legended to that
effect, that such stock is not registered under federal or state securities laws
and that the registration exemptions being relied on are the federal and state
private or limited offering exemptions and the Optionee has no reason to believe
that such exemptions are not applicable to the Optionee.
C. The Optionee acknowledges that XM has made available to the Optionee
the opportunity to obtain information to evaluate the merits and risks
associated with this Agreement and the transactions contemplated thereby. The
Optionee acknowledges that the investment contemplated by the Option involves a
high degree of risk, including risks associated with XM's business operations
and prospects including competition and the dependence on XM's technology and
events beyond XM's control, the limits on transferability of the Shares, and the
absence of a public market for the Shares.
-1-
<PAGE>
[Note: Shares of Common Stock being delivered in payment of all or any part of
the exercise price must be represented by certificates registered in the name of
the Optionee and duly endorsed by the Optionee and by each and every other co-
owner in whose name the shares may also be registered.]
Dated: _____________ _______________________
(Signature of Optionee)
Date Received by
XM Satellite Radio Holdings Inc.:
________________________
Received by:
___________________________________
___________________________________
Name
___________________________________
Title
-2-
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF XM SATELLITE RADIO HOLDINGS INC.
------------------------------------------------
1. XM Satellite Radio Inc.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
XM Satellite Radio Holdings Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
Our report, dated February 12, 1999, except for Note 14 which is as of
September 9, 1999 contains an explanatory paragraph that states that the Company
has not commenced operations, has negative working capital and is dependent upon
additional debt and equity financings, which raise substantial doubt about its
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of that
uncertainty.
/s/ KPMG LLP
McLean, Virginia
September 28, 1999
