<PAGE>
As filed with the Securities and Exchange Commission on September 29, 1999.
Registration No. 333-83619
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 6
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 29, 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 Financial News (CNNfn) Broadcasting Corp.)
Classic Alternative News/Information (BBC Regional Mexican
Soft Rock World Service) (Hispanic Broadcasting
ECLECTIC MUSIC Home & Garden Corp.)
Contemporary Christian Love/Relationship Line Rock en Espanol
(Salem) Farm/Rural (Hispanic Broadcasting
Traditional Christian Health/Fitness Corp.)
(Salem) Comedy Hispanic Ballads
Blues Audio Books (Hispanic Broadcasting
Traditional Jazz Consumer Classified Corp.)
Reggae/Island Soap Operas Hispanic News (CNN en
World Music For Truckers Only Espanol)
American Folk Movie Soundtrack Channel OLDIES MUSIC
Pop Classical Relationship Classified 40's Oldies
Traditional Classical (-18) 50's Oldies
Modern Jazz Relationship Classified 60's Oldies
Progressive/Fusion (19-30) 70's Oldies
POP MUSIC Relationship Classified 80's Oldies
Top 20 Contemporary Hits (31-50) 90's Oldies
Disco/Dance Relationship Classified Love Songs
Broadway Show Tunes (51+) TALK
Modern Adult Lifestyles African American Talk
Contemporary Celebrity Gossip (BET/Radio One)
Classic Vocalists Entertainment News Asian/Indian Talk
All Request Contemporary Game Show/Contest (AsiaOne)
Hits URBAN MUSIC Christian/Family Talk
SPORTS Hip Hop/Rap (BET/Radio (Salem)
Sports Headlines One) Mandarin Talk (AsiaOne)
(CNN/Sports) Urban Dance Mix (Radio Conservative Talk
Sports Talk (One-On-One One) Liberal Talk
Sports) Classic Soul (BET/Radio Senior Citizen Talk
Sportsman Channel One) Rock Talk (18-34)
Automotive Gospel (BET/Radio One) Hispanic Talk
COUNTRY MUSIC Adult Urban (BET/Radio Teen Talk
Mainstream Country One) CHILDREN'S MUSIC
Classic Country Top 20 Urban Pre-School
Bluegrass/Traditional ENVIRONMENTAL MUSIC Grade School/pre-teen
Country Soft Jazz SPECIAL/EVENTS
All Request Country New Age Reserved Channels
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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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 29, 1999, we had 61 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 have entered into a ten year lease of
approximately 120,000 square feet of additional space in Washington, D.C. 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 278,384 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 85,678 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.
Office Lease
On September 29, 1999, the Company entered into a noncancelable operating
lease for office space that will expire in 2010. The future minimum lease
payments under the noncancelable lease will be as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31:
------------------------
<S> <C>
1999............................. $ --
2000............................. 667
2001............................. 2,021
2002............................. 2,085
2003............................. 2,149
Thereafter....................... 16,566
-------
$23,488
=======
</TABLE>
Concurrent with the execution of the lease agreement, the Company
established a $3.4 million letter of credit as a security deposit for the
office space.
(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.
F-25
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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.
10.26 Form of Lease between Consortium One Eckington, L.L.C. and XM
Satellite Radio, Inc., dated September 29, 1999.
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.
* 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 29th 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 29, 1999
______________________________________ Officer, and Director
Hugh Panero (Principal Executive
Officer)
* Senior Vice President and September 29, 1999
______________________________________ Chief Financial Officer
Heinz Stubblefield (Principal Financial and
Accounting Officer)
* Chairman of the Board of September 29, 1999
______________________________________ Directors
Gary M. Parsons
* Director September 29, 1999
______________________________________
Randall T. Mays
* Director September 29, 1999
______________________________________
Randy S. Segal
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director September 29, 1999
______________________________________
Jack Shaw
* Director September 29, 1999
______________________________________
Dr. Rajendra Singh
* Director September 29, 1999
______________________________________
Ronald L. Zarrella
*By: Joseph M. Titlebaum
______________________________________
Joseph M. Titlebaum
Attorney-in-Fact
</TABLE>
II-7
<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.
Terms and Conditions
Page 8
<PAGE>
CONFIDENTIAL
(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
Terms and Conditions
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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
Terms and Conditions
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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>
CONFIDENTIAL
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
<PAGE>
CONFIDENTIAL
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
<PAGE>
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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
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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
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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
<PAGE>
CONFIDENTIAL
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
<PAGE>
CONFIDENTIAL
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
Exhibit B - (SOW) Page 15
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CONFIDENTIAL
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
<PAGE>
CONFIDENTIAL
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
<PAGE>
CONFIDENTIAL
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
<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.
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
Exhibit B - (SOW) Page 19
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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.
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
Exhibit B - (SOW) Page 20
<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.
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.
Exhibit B - (SOW) Page 21
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CONFIDENTIAL
(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
[***** Pages 1-3]
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
Page 2
<PAGE>
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.
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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,
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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) 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").
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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).
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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.
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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
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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
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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.
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
[***** Pages 1-5]
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
[***** Pages 1-6]
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 10.26
LEASE
Between
Consortium One Eckington, L.L.C.
Landlord
and
XM Satellite Radio, Inc.
Tenant
<PAGE>
TABLE OF CONTENTS
1. USE, RESTRICTIONS ON USE AND COMPLIANCE
WITH LAWS.................................. 1
2. TERM....................................... 3
2.A LANDLORD'S BASE PREMISES IMPROVEMENTS
AND BASE BUILDING IMPROVEMENTS............. 4
2.B RENEWAL OPTION............................. 4
3. RENT....................................... 5
4. RENT ADJUSTMENTS........................... 6
5. SECURITY DEPOSIT........................... 7
6. ALTERATIONS................................ 8
7. REPAIR..................................... 8
8. LIENS...................................... 10
9. ASSIGNMENT AND SUBLETTING.................. 10
10. INDEMNIFICATION............................ 13
11. INSURANCE.................................. 13
12. WAIVER OF SUBROGATION...................... 14
13. SERVICES AND UTILITIES..................... 14
14. HOLDING OVER............................... 15
15. SUBORDINATION.............................. 15
16. RULES AND REGULATIONS...................... 15
17. REENTRY BY LANDLORD........................ 15
18. DEFAULT.................................... 16
19. REMEDIES................................... 17
20. TENANT'S BANKRUPTCY OR INSOLVENCY.......... 19
21. QUIET ENJOYMENT............................ 20
22. DAMAGE BY FIRE, ETC........................ 20
23. EMINENT DOMAIN............................. 21
24. SALE BY LANDLORD........................... 21
25. ESTOPPEL CERTIFICATES...................... 21
26. SURRENDER OF PREMISES...................... 22
27. NOTICES.................................... 22
28. TAXES PAYABLE BY TENANT.................... 22
29. DEFINED TERMS AND HEADINGS................. 23
30. TENANT'S AUTHORITY......................... 23
31. COMMISSIONS................................ 23
32. TIME AND APPLICABLE LAW.................... 23
33. SUCCESSORS AND ASSIGNS..................... 23
34. ENTIRE AGREEMENT........................... 24
35. EXAMINATION NOT OPTION..................... 24
36. RECORDATION................................ 24
37. LIMITATION OF LANDLORD'S LIABILITY......... 24
<PAGE>
38. TENANT'S INITIAL ALTERATIONS............... 24
39. NO THIRD PARTY BENEFICIARIES............... 28
40. REPRESENTATIONS............................ 28
41. PARTIAL PAYMENT............................ 28
42. COUNTERPARTS............................... 28
43. RIGHT OF FIRST OFFER....................... 28
44. SIGNAGE.................................... 28
45. LANDLORD AGREEMENT AS TO NAME OF BUILDING.. 29
46. TENANT'S FOOD CONCESSION................... 29
47. PENTHOUSE SPACE; ROOFTOP SPACE............. 29
48. ARBITRATION................................ 29
EXHIBIT A - PROPERTY
EXHIBIT B1 - SECOND FLOOR PREMISES
EXHIBIT B2 - THIRD FLOOR PREMISES
EXHIBIT B3 - PENTHOUSE SPACE
EXHIBIT B4 - PARTIAL LOWER LEVEL SPACE
EXHIBIT C - LOCATION OF RESERVED PARKING SPACES
EXHIBIT D - LANDLORD'S BASE PREMISES IMPROVEMENTS
EXHIBIT E - LANDLORD'S BASE PREMISES IMPROVEMENTS SCHEDULE
EXHIBIT F - LANDLORD'S BASE BUILDING IMPROVEMENTS
SCHEDULE
EXHIBIT G - LANDLORD'S BASE BUILDING IMPROVEMENTS SCHEDULE
EXHIBIT H - PARKING AREA
EXHIBIT I - FORM OF LETTER OF CREDIT
EXHIBIT J - SECURITY SPECIFICATIONS
EXHIBIT K -
EXHIBIT L - RULES AND REGULATIONS
EXHIBIT M - LOCATION OF GENERATOR FARM
EXHIBIT N - LOCATION OF DESIGNATED ROOF AREA
EXHIBIT O - LOCATION OF VERTICAL RISERS TO BE USED BY TENANT
TENANT
EXHIBIT P - DESCRIPTION AND LOCATION OF TENANT SIGNAGE
EXHIBIT Q - LANDLORD'S PENTHOUSE SPACE IMPROVEMENTS
EXHIBIT R - LOCATION, STYLE AND SIZE OF ROOF TOP TERRACE
<PAGE>
NET LEASE WITH ESCALATIONS
REFERENCE/DEFINITION PAGE
PROPERTY: That real property located in the District of Columbia
and more particularly described on Exhibit attached to
----------
this Lease, together with all improvements located
thereon, known as 1500 Eckington Place, N.E.,
Washington, D.C.
BUILDING: That building containing ________ (__________) rentable
square feet located on the Property and comprising a
portion of the Property. Landlord hereby represents and
warrants to Tenant that the number of rentable square
feet contained in the Building as identified above was
determined in accordance with BOMA Publications ANSIZ
65.1-1989.
LANDLORD: Consortium One Eckington, L.L.C.
LANDLORD'S ADDRESS: c/o The Bernstein Companies
3299 K Street, N.W.
Suite 700
Washington, D.C. 20007
Attn: Joseph S. Galli
EFFECTIVE DATE The date of the last party hereto to execute this Lease.
TENANT; TENANT'S
ADDRESS: XM Satellite Radio, Inc., a Delaware corporation
1250 23/rd/ Street, N.W.
Suite 57
Washington, D.C. 20037
with a copy to:
Rudnick & Wolfe
1201 New York Avenue, N.W.
Penthouse Level
Washington, D.C. 20005
Attention: Thomas Galli, Esq.
PREMISES
IDENTIFICATION: (i) The second floor of the Building as depicted on
Exhibit attached hereto, (ii) the third floor of the
----------
Building as depicted on Exhibit attached hereto, (iii)
----------
the portion of the lower level of the Building depicted
on Exhibit attached hereto and (iv) the fourth floor
----------
penthouse space depicted on Exhibit attached hereto
---------
(the "Penthouse Space"). The Penthouse Space shall not
be considered when determining the Premises Rentable
Area.
-i-
<PAGE>
PREMISES RENTABLE AREA: Approximately 121,214 square feet to be verified prior
to the Commencement Date in accordance with the
procedure set forth in Exhibit . Should the size of the
---------
Premises increase or decrease from the number specified
herein, the Premises Rentable Area, the Annual Rent,
Tenant's Proportionate Share of Direct Expenses and
Taxes and the amount of the Security Deposit shall be
adjusted accordingly.
BASE PREMISES
IMPROVEMENTS: Those improvements described in Exhibit attached to
---------
this Lease and denoted as "Phase I" and "Phase II",
which shall be constructed by Landlord, at its sole
expense, substantially in accordance with those plans
identified as ______________________ prepared by
_____________________, dated ________________, complete
copies of which Landlord hereby represents and warrants
have been delivered by Landlord to Tenant on or before
the Effective Date of this Lease. Landlord shall
construct the Base Premises Improvements pursuant to the
terms of Section 2A of this Lease. Tenant acknowledges
----------
that Landlord makes no representations or warranties as
to the accuracy of the measurements or specifications
set forth in the above referenced plans, and Tenant
acknowledges that it will verify all final measurements,
specifications and existing field conditions of the Base
Premises Improvements on an on-going basis.
BASE BUILDING
IMPROVEMENTS: Those improvements described in Exhibit attached to
---------
this Lease, which shall be constructed by Landlord, at
its sole expense, substantially in accordance with those
plans identified as ______________________ prepared by
___________________, dated _________________, complete
copies of which Landlord hereby represents and warrants
have been delivered by Landlord to Tenant on or before
the Effective Date of this Lease. Landlord shall
construct the Base Premises Improvements pursuant to the
terms of Section 2A of this Lease. Tenant acknowledges
----------
that Landlord makes no representations or warranties as
to the accuracy of the measurements or specifications
set forth in the above referenced plans, and Tenant
acknowledges that it will verify all final measurements,
specifications and existing field conditions of the Base
Building Improvements on an on-going basis.
COMMENCEMENT DATE: The date that Landlord delivers to Tenant Phase I of the
Base Premises Improvements Substantially Completed (as
defined in Section of this Lease).
-------- ----
-ii-
<PAGE>
RENT COMMENCEMENT DATE: Nine (9) months following the Commencement Date, subject
to extension in accordance with the terms of Article 2
---------
of this Lease.
TERMINATION DATE: The last day of the month in which the tenth (10th)
anniversary of the Rent Commencement Date occurs.
TERM OF LEASE: That period beginning on the Commencement Date and
ending on the Termination Date (unless sooner terminated
or extended pursuant to the Lease).
RENEWAL OPTIONS
(Article 2B): Two (2) options for five (5) years each.
ANNUAL NET RENT
(Article 3): Second and Third Floors:
Lease Year Annual Net Rent
----------------------------- ---------------
1 $15.75 per sq. ft. + $108,000
2 16.25 per sq. ft. + 111,240
3 16.75 per sq. ft. + 114,577
4 17.25 per sq. ft. + 118,015
5 17.75 per sq. ft. + 121,555
6 19.25 per sq. ft. + 125,202
7 19.75 per sq. ft. + 128,958
8 20.25 per sq. ft. + 132,826
9 20.75 per sq. ft. + 136,811
10 21.25 per sq. ft. + 140,915
Lower Level:
Lease Year Annual Net Rent Per Sq. Ft.
------------ -----------------------------
1 $14.75
2 15.25
3 15.75
4 16.25
5 16.75
6 18.25
7 18.75
8 19.25
9 19.75
10 20.25
MONTHLY INSTALLMENT OF
ANNUAL NET RENT
(Article 3): One-twelfth of the then-effective Annual Net Rent
TENANT'S PROPORTIONATE
SHARE: ____________ % , calculated by multiplying the number of
rentable square feet in the Premises by 100, and
dividing the product by the number of rentable square
feet in the Building. In the event the number of
rentable square feet in the Premises and/or the Building
changes, Tenant's Proportionate
-iii-
<PAGE>
Share shall be appropriately adjusted, and, with respect
to the Lease Year in which such change occurs, Tenant's
Proportionate Share for such Lease Year shall be
determined on the basis of the number of days during
such Lease Year that each such Tenant's Proportionate
Share was in effect.
PARKING: Tenant shall be entitled to use one hundred fifty (150)
parking spaces on the parking lot (including those
parking spaces occupied by any Special Equipment (as
hereafter defined)), appurtenant to the Building, which
is located on the Property and depicted on Exhibit
-----------
attached to this Lease (the "Parking Area"), thirty
(30) of which shall be on a reserved basis and one
hundred twenty (120) of which shall be on an unreserved
basis, at no additional charge to Tenant. Tenant's
reserved parking spaces are located as shown on Exhibit
-------
attached hereto. All parking spaces in the Parking
--
Area shall be striped and non-tandem, provided,
however, that the foregoing shall not preclude
"stacking" of vehicles if necessary so long as a
parking attendant provides Tenant and its employees and
guests with prompt access to their respective vehicles.
Landlord shall issue to Tenant parking passes in an
amount equal to two times the number of parking spaces
which Tenant is entitled to use, provided, however,
that in no event shall Tenant be entitled to use more
than the number of parking spaces allocated to Tenant
hereunder. Landlord shall bear the cost of the first
one hundred fifty (150) parking passes and Tenant shall
bear the cost of each parking pass in excess thereof.
Tenant may purchase parking validations from Landlord
at the then-current parking market rate plus applicable
tax. Landlord shall maintain, operate, and repair the
Parking Area in a first class manner and condition.
Landlord reserves the right to contract its obligations
as to parking under this Lease, or to sublease the
parking lot and operation thereof, to a third party,
but shall in any event remain liable for its
obligations therefor. Landlord shall be entitled to
over-commit parking spaces up to a limit ten percent
(10%) of the total parking spaces that may exist from
time to time. Landlord reserves the right to
reconfigure the Parking Area to the extent required by
applicable Laws (as hereinafter defined). Tenant's
location of any Special Equipment in any parking spaces
shall be subject to Landlord's reasonable approval, not
to be unreasonably withheld, conditioned or delayed,
and shall otherwise comply with all Laws (as hereafter
defined).
-iv-
<PAGE>
The Reference/Definition Page information is incorporated into and made a
part of the Lease. In the event of any conflict between any Reference Page
information and the Lease, the Lease shall control. This Lease includes
Exhibits A through _______, all of which are made a part of this Lease.
LANDLORD: TENANT:
Consortium One Eckington, L.L.C. XM Satellite Radio, Inc.
By: Consortium One, L.P., its
managing member By:
---------------------------------
Name:
--------------------------------
Title:
--------------------------------
Date:
--------------------------------
By: Millbank Capital Partners,
L.L.C., General Partner
By: Bernstein Millbank Capital
Partners, L.L.C., managing
member Witness:
------------------------------
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
Date:
---------------------------------
Witness:
---------------------------------
<PAGE>
LEASE
By this Lease Landlord leases to Tenant and Tenant leases from Landlord the
Premises in the Building as set forth and described on the Reference/Definition
Page. The Reference/Definition Page, including all terms defined and other
provisions thereon, is incorporated as part of this Lease.
1. USE, RESTRICTIONS ON USE AND COMPLIANCE WITH LAWS.
1.1 Tenant may use the Premises for general office purposes and for the
operation, installation, maintenance, repair and replacement of radio production
and broadcasting equipment and related facilities and other uses attendant
thereto, subject to the terms of this Lease. Landlord represents and warrants
that as of the Reference Date, Tenant's proposed use will not violate current
zoning rules, statutes or regulations affecting the Property. Tenant may also
use the Premises for any other lawful or legally permitted use, so long as such
other use is consistent with the general character of the Building. Tenant
shall not allow the Premises to be used for any unlawful purpose in or any
manner which will cause a nuisance to other tenants. Tenant shall not do,
authorize or suffer in, on, or about the Premises the sale of any alcoholic
liquor without the written consent of Landlord first obtained or the commission
of any waste. If Tenant shall do or authorize anything to be done on or about
the Premises or the Building or bring or keep anything into the Premises which
in any way prevents the procuring at standard rates of any insurance protecting
against loss or damage to the Building or any of its contents by fire or other
casualty or against liability for damage to property or injury to persons in or
about the Building or any part thereof, Tenant shall, within fifteen (15) days
after written request therefor, reimburse Landlord for any such increase or
amounts in excess of said standard rates that Landlord incurs. Landlord hereby
represents and warrants to Tenant that Tenant's use of the Premises and the
Specialty Equipment for general office purposes and for the operation,
installation, maintenance, repair and replacement of radio production and
broadcasting equipment and related facilities and other uses attended hereto,
will not under current underwriting guidelines prevent the procurement at
standard rates of any insurance protecting against loss or damage to the
Building or any of its contents by fire or other casualty or against liability
for damage to property or injury to persons in or about the Building or any part
thereof. Landlord shall not hereafter lease space in the Building to any future
tenant whose use of premises therein shall materially and adversely interfere
with Tenant's use of the Premises or the Specialty Equipment for general office
purposes, or for the operation, installation, maintenance, repair and
replacement of radio production and broadcasting equipment and related
facilities, and for other uses attendant thereto.
1.2 Landlord and Tenant shall comply with all Environmental Laws (as
hereinafter defined in Section 1.3 hereof) and shall not, and shall not direct,
suffer or permit any of its agents, contractors, employees, licensees or
invitees to at any time handle, use, manufacture, store or dispose of in or
about the Premises or the Building any flammables, explosives, radioactive
materials, hazardous wastes or materials, toxic wastes or materials, or other
similar substances, petroleum products or derivatives or any substance subject
to regulation by or under any Environmental Laws (collectively "Hazardous
Materials"), except in respect of Hazardous Materials used in connection with
Tenant's use of the Premises and (i) which Tenant identifies in writing to
Landlord prior to introduction of the same onto the Property and (ii) which are
handled, used, stored and disposed of in accordance with applicable
Environmental Laws, and with respect to Landlord and Tenant, ordinary office
supplies and cleaning supplies in quantities customary for office use, kept and
used in accordance with all applicable Environmental Laws. Tenant shall protect,
defend, indemnify and hold Landlord and each and all of the Landlord Entities
(as defined in Article 29) harmless, and Landlord shall protect, defend,
----------
indemnify and hold Tenant and each and all of the Tenant Entities (as defined in
Article 29) harmless, from and against any and all loss, claims, liability or
- ----------
costs (including court costs and reasonable attorney's fees) incurred by reason
of any actual or asserted (by a third party) failure of Landlord or Tenant, as
the case may be, to fully comply with this Section, all applicable Environmental
Laws, or the presence, handling, use, remediation or disposition in or from the
Premises or the Property by the indemnifying party of any Hazardous Materials
(even though permissible under all applicable Environmental Laws or the
provisions of this Lease), or by reason of any actual or asserted (by a third
party) failure of Landlord or Tenant, as the case may be, to keep, observe, or
perform any provision of this Section 1.2. Tenant's use of batteries,
-----------
generators and fuel tanks are acceptable, provided such items comply with all
applicable Environmental Laws and provided further Tenant
<PAGE>
removes all such items on or prior to the termination or expiration of this
Lease. Tenant agrees to indemnify Landlord and all Landlord Entities from and
against any loss, cost, damage, lawsuit, claim or liability arising from the
presence of these items in the Premises or the Building or on the Property,
except if resulting from the negligence or willful misconduct of Landlord or
other tenants of the Building or any of their respective agents, contractors,
employees, licensees or invitees.
1.3 Tenant shall comply with all applicable Laws (as defined below) with
respect to its use and occupancy of the Premises, the business it conducts
therein, its construction of any Alterations or improvements thereto or
installations therein and its installation and operation of Specialty Equipment,
including compliance with ADA with respect to the Premises; provided, however,
Tenant shall only be responsible for making improvements to the Premises
(capital or otherwise) required by applicable Laws if the necessity arises from
Tenant's use of the Premises. Tenant shall have the right to contest, without
cost or expense to Landlord, the validity or applicability of any Law of the
nature hereinabove referred to. In the event Tenant shall so contest the same,
Tenant shall have the right to delay observance thereof and compliance therewith
until such contest is finally determined and is no longer subject to appeal,
provided that: (a) such non-compliance shall not subject Landlord to criminal
prosecution or subject all or any portion of the Land and/or Building to lien,
forfeiture or sale; (b) Tenant shall first deliver to Landlord a surety bond
issued by a surety company of recognized responsibility, or other security
satisfactory to Landlord, indemnifying and protecting Landlord against any loss,
damages, claims or injury by reason of such non-compliance, if Landlord
reasonably determines that the same may exceed $200,000; (c) such contest shall
be prosecuted diligently and in good faith by appropriate proceedings; and (d)
Tenant shall pay promptly any final adverse judgment entered in any such
proceeding. Notwithstanding the foregoing, Landlord shall comply with all
applicable Laws with respect to the Base Premises Improvements and the Base
Building Improvements and, subject to Tenant's obligations set forth at the
beginning of this Section, all other portions of the Property. As used herein,
"Laws" shall mean all federal, state, county and local governmental laws,
statutes, codes, ordinances, rules, regulations, decrees, orders and other such
requirements now or hereafter imposed, including but not limited to, the ADA and
any and all Environmental Law. As used herein, "ADA" means the Americans With
Disabilities Act of 1990 (42 U.S.C. (S)1201 et seq.) and the regulations and
--------
guidelines promulgated or published thereunder, as any of the foregoing may from
time to time be amended. As used herein, "Environmental Law" means all legal
requirements relating to (a) the protection of the environment, the safety and
health of persons (including employees) or the public welfare from actual or
potential exposure (or effects of exposure) to any actual or potential release,
discharge, disposal or omission (whether past or present) of any Hazardous
Materials or (b) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any Hazardous Materials, including,
but not limited to, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. (S)9601 et seq., the Solid Waste
--------
Disposal Act, as amended by the Resource Conversation and Recovery Act of 1976,
as amended by the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C.
(S)6901 et seq., the Federal Water Pollution Control Act, as amended by the
--------
Clean Water Act of 1977, 33 U.S.C. (S) 1251 et seq., the Toxic Substances
--------
Control Act of 1976, 15 U.S.C. (S)2601 et seq., the Emergency Planning and
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Community Right-to-Know Act of 1986, 42 U.S.C. (S) 1101 et seq., the Clean Air
--------
Act of 1966, as amended, 42 U.S.C. (S)7401 et seq., the National Environmental
--------
Policy Act of 1975, 42 U.S.C. (S)4321, the Rivers and Harbors Act of 1899, 33
U.S.C. (S)401 et seq., the Endangered Species Act of 1973, as amended, 16
--------
U.S.C. (S)1531 et seq., the Occupational Safety and Health Act of 1970, as
--------
amended, 29 U.S.C. (S)651 et seq., and the Safe Drinking Water Act of 1974, as
--------
amended, 42 U.S.C. (S)300(f) et seq., and all rules, regulations and guidance
--------
promulgated or published thereunder, as any of the foregoing may from time to
time be amended.
1.4 Tenant warrants that it will promptly deliver to the Landlord, (i)
copies of any documents received from the United States Environmental Protection
Agency and/or any state, county or municipal environmental or health agency
concerning the Tenant's operations upon the Premises, and (ii) copies of any
documents submitted by Tenant to the United States Environmental Protection
Agency and/or any state, county or municipal environmental or health
-2-
<PAGE>
agency concerning its operations on the Premises, including but not limited to
copies of permits, licenses, annual filings and registration forms.
1.5 Landlord represents and warrants to Tenant that to the best of
Landlord's actual knowledge, after diligent inquiry, no Hazardous Materials
exist on, under or about the Property that would materially adversely affect
either Tenant's use and occupancy of the Premises or human health. Landlord
agrees to remediate at no cost to Tenant any Hazardous Materials located on, in,
under or about the Property to the extent required by Environmental Laws and to
reimburse Tenant for any additional costs Tenant may incur in direct connection
therewith or as a direct result thereof. Notwithstanding the foregoing,
Landlord shall be under no obligation to remediate any Hazardous Materials
placed in, on, under or about the Property by Tenant, any of its agents,
employees, invitees, contractors or collocators, all of which shall be the sole
responsibility of Tenant.
1.6 Landlord grants to Tenant the non-exclusive right to use common
corridors and hallways, stairwells, elevators, and other public or common areas
located on the Property. Without limiting the foregoing, Tenant shall have the
right to use common stairwells in the Building for internal circulation between
floors in the Building in which a portion of the Premises is located.
2. TERM.
2.1 The Term of this Lease shall begin on the Commencement Date.
2.2 Landlord shall permit Tenant to use and occupy the Premises upon the
Commencement Date to commence Tenant's Initial Alterations (as defined in
Section 2.8.1 hereof) and for other uses and purposes permitted under this
- -------------
Lease. Such early possession shall be subject to all the provisions of this
Lease, except for the payment of rent and other charges, and, provided, however,
that Tenant shall pay for its electricity usage in the manner set forth in this
Lease commencing on that date that such electrical usage is separately metered,
but in no event earlier than the date which is four (4) months following the
Commencement Date. Such early possession shall not advance the Rent
Commencement Date or Termination Date. Tenant hereby agrees to indemnify and
hold Landlord harmless from and against any loss, cost, claim, lawsuit, damage
or liability incurred by Landlord as a result of Tenant's or its agents',
employees' or contractors' entry onto the Premises.
2.3 Landlord and Tenant shall execute a memorandum setting forth the
actual Commencement Date, Rent Commencement Date and Termination Date promptly
after the Rent Commencement Date has been determined.
2.4 In the event that either Phase I and/or Phase II of the Base Premises
Improvements are not Substantially Completed by the scheduled date for
Substantial Completion (as hereinafter defined) of the same set forth in Exhibit
-------
attached hereto, the Rent Commencement Date shall be extended one (1) day for
each day of such delay for the first forty-five (45) days of such delay, and
thereafter shall be extended two (2) days for each day of such delay, except
that if such delay is attributable to an event of Force Majeure, excluding
strike, or lockout, or inability to obtain materials, goods, equipment,
services, utilities, labor or any other matter, in each instance resulting from
matters pertaining to the use or non-use of union labor or materialmen, the Rent
Commencement Date extension shall be limited to one (1) day for each day of such
delay regardless of the duration of such delay. In the event that either Phase
I and/or Phase II of the Base Premises Improvements are not substantially
completed by one hundred eighty (180) days following the scheduled date for
Substantial Completion of the same set forth in Exhibit , Tenant shall have
-----------
the option, exercisable within thirty (30) days thereafter, to either complete
the Base Premises Improvements or to terminate the Lease. If Tenant elects to
complete the subject Base Premises Improvements, Tenant's right to terminate the
Lease shall extend for an additional sixty (60) days from the date of such
election. Notwithstanding anything herein to the contrary, the Rent
Commencement Date shall not be extended to the extent that such delay in
Substantial Completion is directly caused by or attributable to any act or
omission of Tenant or any of its agents, employees, contractors, subcontractors,
or licensees.
-3-
<PAGE>
2.5 In the event that any portion of the Base Building Improvements are
not Substantially Completed by the date for the same set forth in Exhibit
-----------
attached hereto, and as a proximate result thereof Tenant experiences a delay in
completing the Initial Alterations, the Rent Commencement Date shall be
extended, or if the rent has commenced the same shall abate, as the case may be,
one (1) day for each day of such delay for the first forty-five (45) days of
such delay, and thereafter the Rent Commencement Date shall be extended or the
rent abated, as the case may be, two (2) days for each day of such delay, except
that if such delay is attributable to an event of Force Majeure, excluding
strike, or lockout, or inability to obtain materials, goods, equipment,
services, utilities, labor or any other matter, in each instance resulting from
matters pertaining to the use or non-use of union labor or materialmen, the Rent
Commencement Date extension or the rent abatement, as the case may be, shall be
limited to one (1) day for each day of such delay regardless of the duration of
such delay. In the event that any portion of the Base Building Improvements are
not Substantially Completed by one hundred eighty (180) days following the
scheduled date for Substantial Completion of the same set forth in Exhibit ,
----------
Tenant shall have the option, exercisable within thirty (30) days thereafter, to
either complete the Base Building Improvements or to terminate the Lease. If
Tenant elects to complete the Base Building Improvements, Tenant's right to
terminate the Lease shall extend for an additional sixty (60) days from the date
of such election. In the event Tenant elects to complete all or any portion of
the Base Premises Improvements and/or the Base Building Improvements pursuant to
Section 2.4 and/or Section 2.5, Landlord shall reimburse to Tenant upon demand
- ----------- -----------
all actual costs incurred by Tenant in connection with the completion of the
subject work, together with interest thereon at the Interest Rate accrued from
the date incurred by Tenant until paid by Landlord. Notwithstanding anything
herein to the contrary, the Rent Commencement Date shall not be extended to the
extent that such delay in Substantial Completion is directly caused by or
attributable to any act or omission of Tenant or any of its agents, employees,
contractors, subcontractors, or licensees.
2.6 Reimbursement and Indemnification Obligations. In the event Tenant
---------------------------------------------
terminates the Lease pursuant to this Article, Landlord shall promptly following
Landlord's receipt of Tenant's written request reimburse Tenant for all costs
and expenses incurred by Tenant in connection with the design, construction
and/or installation of the Initial Alterations and all other costs and expenses
incurred by Tenant in connection with its negotiation and execution of this
Lease and all related documentation. Notwithstanding the preceding sentence,
this Section 2.6 shall not apply and Tenant shall not be entitled to any such
-----------
reimbursement in the event Landlord's inability to complete the Base Premises
Improvement or the Base Building Improvements, as the case may be, by the date
scheduled for Substantial Completion of the same in Exhibit results from an
-----------
event of Force Majeure, excluding strike, or lockout, or inability to obtain
materials, goods, equipment, services, utilities, labor or any other matter, in
each instance resulting from matters pertaining to the use or non-use of union
labor or materialmen.
2.7 Delay in Rent Commencement Date. Landlord shall give Tenant fifteen
-------------------------------
(15) days' advance written notice of the Commencement Date. In the event of a
Landlord Delay (as defined below) or a Union Labor Delay (as defined below), the
Rent Commencement Date shall be delayed or, if rent has commenced the rent shall
be abated, by one day for each day of such delay for the first forty-five (45)
days of such delays and, thereafter, the Rent Commencement Date shall be delayed
or the rent abated, however the case may be, by two (2) days for each day of
such delay. Except with regard to a Union Labor Delay, there shall be no delay
in the Rent Commencement Date or abatement of rent as a result of a Force
Majeure event. Landlord hereby agrees to indemnify, protect, defend (with
counsel reasonably satisfactory to Tenant) and hold Tenant harmless from and
against any and all losses, damages, liabilities, claims, costs and expenses
suffered or incurred by Tenant to the extent proximately caused by a Landlord
Delay.
2.8 Defined Terms.
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2.8.1 The term "Initial Alterations" as used in this Lease shall
mean the Speciality Equipment (as defined in Section 38.1 of this Lease) and
------------
all other Alterations which Tenant shall desire to make in connection with the
commencement of its business operations in the Premises.
-4-
<PAGE>
2.8.2 Reserved.
2.8.3 The term "Landlord Delay" shall mean any delay in the
Substantial Completion of the Initial Alterations (as defined in Section 2.8.8
-------------
below) which is proximately caused by any act or omission of Landlord, its
agents, employees, contractors, subcontractors or licensees. Tenant will
deliver notice of such delay promptly following the date Tenant learns of the
same. In the event Landlord and Tenant are utilizing the same contractors,
subcontractor or licensees, the same shall only be considered to be Landlord's
contractors, subcontractors and licensees when performing Base Building
Improvements or Base Premises Improvements. The term Landlord Delay shall
include, but shall not be limited to, any: (i) delay attributable to the failure
or refusal of Landlord or any of its agents, employees, contractors,
subcontractors or licensees to permit Tenant, its agents, or employees,
contractors, or subcontractors access to and use of the Building or any Building
facilities or services, including hoists, elevators, and loading docks, or any
other portion of the Property, which access and use are required for the orderly
and continuous performance of the work necessary to complete the Initial
Alterations or to install Tenant's furniture, fixtures, equipment and personal
property; (ii) delay due to Landlord's unreasonable withholding of any consent
required hereunder; (iii) delay due to any other default by Landlord in its
obligations under this Lease; and (iv) delay due to any amendments or other
changes to the plans for the Base Building Improvements and/or the Base Premises
Improvements made at Landlord's direction following the delivery of the plans to
Tenant. Notwithstanding the foregoing, no Landlord Delay shall be deemed to
exist on account of Landlord's failure to timely approve any matter requiring
Landlord's approval hereunder with respect to any matter that is deemed
approved.
2.8.4 The term "Union Labor Delay" shall mean any delay in the
substantial completion of the Initial Alterations or the Specialty Equipment
which results from a strike, or lockout, or inability to obtain services or
labor at the Property, in each case resulting from matters pertaining to the use
or non-use of union labor.
2.8.5 For purposes hereof, Phase I of the Base Premises
Improvements shall be deemed "Substantially Completed" or to have reached
"Substantial Completion" at such time as (a) Landlord completes the work
identified in Exhibit attached hereto such that (i) Tenant shall be able to
-----------
commence the Initial Alterations on the second floor of the Building and (ii)
the only remaining items of Phase I of the Base Premises Improvements to be
completed by Landlord are punch-list items which do not individually or in the
aggregate affect Tenant's construction of the Initial Alterations or the
installation of the Speciality Equipment on the second floor of the Building,
other than in a de minimus manner; (b) Landlord has obtained all permits,
certificates and approvals required from governmental authorities with respect
to the completion of Phase I of the Base Premises Improvements necessary for
Tenant's construction of its Initial Alterations on the second floor of the
Building, provided, however, that in the event Landlord is unable to obtain any
such permits, certificates or approvals as a proximate result of work being
performed by Tenant or Tenant's failure to complete such work, Landlord shall
nevertheless be deemed to have satisfied its obligations under this clause (b)
with respect to such permits, certificates or approvals; (c) Tenant has been
tendered continuous and uninterrupted access to the second floor of the Building
except for de minimus interruptions from time to time.
2.8.6 For purposes hereof, Phase II of the Base Premises
Improvements shall be deemed "Substantially Completed" or to have reached
"Substantial Completion" at such time as (a) Landlord completes the work
identified in Exhibit attached hereto such that the only remaining items of
-----------
Phase II of the Base Premises Improvements to be completed by Landlord are
punch-list items which do not individually or in the aggregate affect Tenant's
construction of the Initial Alterations or installation of the Speciality
Equipment on the third floor of the Building, in the lower level of the Building
and on the roof of the Building, other than in a de minimus manner; (b) Landlord
has obtained all permits, certificates and approvals required from governmental
authorities with respect to the completion and use of the Base Premises
Improvements necessary for Tenant's construction of its Initial Alterations
therein, provided, however, that in the event Landlord is unable to obtain any
such permits, certificates or approvals as a proximate result of work being
performed by Tenant or Tenant's failure to complete such work, Landlord shall
nevertheless be deemed to have satisfied its obligations under this clause (b)
with respect to such permits, certificates or approvals; and (c) Tenant has been
tendered
-5-
<PAGE>
continuous and uninterrupted access to the Premises and all other portions of
the Building and the Property where Tenant may construct and/or install Initial
Alterations and/or the Specialty Equipment, excluding the Penthouse Space, and
except for de minimum interruptions from time to time.
2.8.7 For purposes hereof, the Base Building Improvements shall be
deemed "Substantially Completed" or to have reached "Substantial Completion" at
such time as (a) Landlord completes the work identified in Exhibit attached
------------
hereto such that the only remaining items of the Base Building Improvements to
be completed by Landlord are punch-list items do not individually or in the
aggregate affect Tenant's construction of the Initial Alterations, installation
of the Speciality Equipment or the use of the Premises or any other portion of
the Building or the Property which Tenant is permitted to use in accordance with
this Lease, other than in a de minimus manner; (b) Landlord has obtained all
permits, certificates and approvals required from governmental authorities with
respect to the completion and use of the Base Building Improvements, provided,
however, that in the event Landlord is unable to obtain any such permits,
certificates or approvals as a proximate result of work being performed by
Tenant or Tenant's failure to complete such work, Landlord shall nevertheless be
deemed to have satisfied its obligations under this clause (b) with respect to
such permits, certificates or approvals; (c) Tenant has been tendered continuous
and uninterrupted access to the Premises and all other portions of the Building
and the Property where Tenant may construct or install the Initial Alterations
and/or the Speciality Equipment, except for de minimus interruptions from time
to time; and (d) all systems comprising a portion of the Base Premises
Improvements and/or the Base Building Improvements are fully operational.
2.8.8 The Initial Alterations shall be deemed substantially complete when:
(i) Tenant has completed all work in connection with the construction of the
Initial Alterations, including, the Specialty Equipment, in accordance with
Article ___ of this Lease; (ii) all permits, certificates and approvals required
from governmental authorities with respect to Tenant's use and occupancy of the
Premises as permitted by this Lease have been obtained by Tenant; and (iii)
Tenant has installed its furniture, fixtures, telephones, communications
systems, free-standing workstations and other equipment Tenant desires in the
Premises.
2A. LANDLORD'S BASE PREMISES IMPROVEMENTS AND BASE BUILDING IMPROVEMENTS.
Landlord shall, at its cost, install, furnish and perform all of the work
and materials for completion of the Base Premises Improvements and the Base
Building Improvements. Until the Base Premises Improvements and the Base
Building Improvements have been Substantially Completed, Landlord shall schedule
and conduct bi-weekly meetings among Landlord, Landlord's general contractor,
Tenant and Tenant's general contractor to address matters concerning the status
of construction and other matters relative to the Base Premises Improvements,
the Base Building Improvements and the Initial Alterations. Such meetings shall
be held at the Building. The Base Premises Improvements and the Base Building
Improvements shall be performed by Landlord substantially in accordance with the
plans for the same identified in the Reference/Definition Page at the beginning
of this Lease, as such plans may be amended from time to time. In the event any
such amendments (i) constitute material changes to the parking lot and/or any
common areas; or (ii) constitute a change (other than a de minimus change) to
the Base Premises Improvements, any other portion of the Base Building
Improvements, or affect the Premises, then Landlord shall obtain Tenant's
approval, which approval shall not be unreasonably withheld, conditioned or
delayed. Tenant's failure to respond to any request for such approval within ten
(10) business days thereof shall be deemed Tenant's approval of such amendments.
Landlord shall reimburse to Tenant promptly following demand all actual costs
and expenses incurred by Tenant in connection with Tenant's review of changes to
such plans for which Tenant's consent is required. Provided that Tenant notifies
Landlord in writing at the time Tenant gives its consent to any such amendments
for which Tenant's approval is required of any increased costs Tenant will incur
in connection with the Initial Alterations as a proximate result of any such
amendments, Landlord shall reimburse Tenant for such costs promptly following
its receipt of Tenant's written request therefor. The Base Premises Improvements
and the Base Building Improvements shall be performed by Landlord in a good and
workmanlike manner and in accordance with all applicable Laws. Tenant shall have
the
-6-
<PAGE>
right from time-to-time to inspect the Building and the progress of construction
of the Base Premises Improvements and the Base Building Improvements. Following
Substantial Completion of each of Phase I and Phase II of the Base Premises
Improvements, Landlord shall diligently prosecute completion of any punch-list
items. Following Substantial Completion of the Base Building Improvements,
Landlord shall diligently prosecute completion of any punch-list items.
2B. RENEWAL OPTION.
2B.1 Landlord grants Tenant the right and option to extend the Term for the
option periods indicated in the Renewal Option Section of the Reference Pages
(each a "Renewal Term"). Tenant shall notify Landlord in writing of its
election to extend this Lease for each Renewal Term not less than twelve (12)
months nor more than eighteen (18) months prior to the then-current expiration
date of the Term. Tenant's failure to timely exercise any option hereunder
shall cause the automatic extinguishment of such option and later options, time
being of the essence. Each Renewal Term shall be upon all of the terms,
covenants, and conditions of this Lease except that the Annual Rent payable
during the first Renewal Term shall be 95% of the then current Market Rate (as
defined below) for the Premises and during the second renewal term shall be 100%
of the then current Market Rate for the Premises. Notwithstanding the above,
Tenant shall have no right to extend or renew this Lease if at the time of such
election there exists a Material Breach (as defined in Article 18 of this Lease)
----------
with respect to which Landlord has obtained a judgment against Tenant. In the
event Landlord obtains such a judgment, to the extent Tenant has the right to
cure such Material Breach in accordance with the terms of this Lease, Tenant's
right to extend the Term of this Lease as set forth herein shall be reinstated
upon such cure provided that such cure is effected by no later than eleven (11)
months prior to the then-current expiration date of the Term.
2B.2 Within thirty (30) days after Landlord's receipt of Tenant's
renewal notice, Landlord shall provide to Tenant its determination of the Market
Rate for the Premises ("Landlord's Determination"). Tenant shall have fifteen
(15) days (the "Tenant's Review Period") after receipt of Landlord's
Determination within which to accept the same. In the event Tenant fails to
accept in writing Landlord's Determination, then such proposal shall be deemed
rejected and Landlord and Tenant shall attempt in good-faith to agree upon the
Market Rate. If Landlord and Tenant fail to reach agreement by that date which
is fifteen (15) days following the end of Tenant's Review Period (the "Outside
Agreement Date"), then each party shall place in a separate sealed envelope its
final proposal of the Market Rate and such determination shall be submitted to
arbitration in accordance with Sections 2B.2.1 through 2B.2.7 below. In the
------------------------------
event Landlord fails to timely generate the initial written notice of Landlord's
opinion of the Market Rate which triggers the negotiation period of this
Section, then Tenant may commence such negotiations by providing the initial
notice, in which event Landlord shall have fifteen (15) days ("Landlord's Review
Period") after receipt of Tenant's notice of the new rental within which to
accept such rental. In the event Landlord fails to accept in writing such
rental proposed by Tenant, then such proposal shall be deemed rejected, and
Landlord and Tenant shall attempt in good faith to agree upon such Market Rate.
If Landlord and Tenant fail to reach agreement by that date which is fifteen
(15) days following the end of Landlord's Review Period (which date shall be, in
such event the "Outside Agreement Date" in lieu of the above definition of such
date), then each party shall place in a separate sealed envelope its final
proposal of the Market Rate and such determination shall be submitted to
arbitration in accordance with Sections 2B.2.1 through 2B.2.7 below.
------------------------------
2B.2.1 Landlord and Tenant shall meet with each other within five
(5) business days of the Outside Agreement Date and exchange the sealed
envelopes and open such envelopes in each other's presence. If Landlord and
Tenant do not mutually agree upon the Market Rate within three (3) business days
of the exchange and opening of envelopes, then, within ten (10) business days of
the exchange and opening of envelopes, Landlord and Tenant shall each appoint
one independent arbitrator who shall by profession be a real estate broker or
appraiser who shall have been active over the ten (10) year period ending on the
date of such appointment in the leasing or appraisal of buildings comparable to
the Building. The determination of the arbitrators shall be limited solely to
the issue of whether Landlord's or Tenant's submitted Market Rate is the closest
to the actual Market Rate as determined by the arbitrators, taking into account
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the requirements for determining Market Rate set forth in Section 2B of this
----------
Lease with respect to an option to extend the Term, and the requirements of
Article 43 of this Lease with respect to space leased pursuant to Tenant's right
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of first offer.
2B.2.2 The two arbitrators so appointed shall within ten (10) days
of the date of the appointment of the last appointed arbitrator agree upon and
appoint a third arbitrator who shall be qualified under the same criteria set
forth hereinabove for qualification of the initial two arbitrators.
2B.2.3 The three arbitrators shall within thirty (30) days of the
appointment of the third arbitrator reach a decision as to whether Landlord's or
Tenant's submitted Market Rate is closer to the Market Rate as determined by
such arbitrators and shall notify Landlord and Tenant thereof.
2B.2.4 The decision of the majority of the three arbitrators shall
be binding upon Landlord and Tenant.
2B.2.5 If either Landlord or Tenant fails to appoint an arbitrator
within fifteen (15) days after the applicable Outside Agreement Date, the
arbitrator appointed by one of them shall reach a decision, notify Landlord and
Tenant thereof, and such arbitrator's decision shall be binding upon Landlord
and Tenant.
2B.2.6 If the two arbitrators fail to agree upon and appoint a
third arbitrator, or both parties fail to appoint an arbitrator, then the
appointment of the third arbitrator, or any arbitrator, shall be dismissed and
the matter to be decided shall be forthwith submitted to arbitration under the
provisions of the American Arbitration Association, but subject to the
instruction set forth in this Section 2B.2.6.
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2B.2.7 Landlord and Tenant shall each bear the fees, costs, and
expenses incurred by the arbitrator appointed by them respectively, and shall
share equally the fees, costs and expenses of the third arbitrator and all other
costs of arbitration.
2B.3 The term "Market Rate" for purposes of this Lease shall mean what a
willing, comparable, new, non-expansion, non-renewal, non-equity tenant would
pay, and a willing landlord of a comparable building in the Washington, D.C.
area would accept, at arm's length, for a comparable amount of space for a
comparable period of time, in each case giving appropriate consideration to:
(a) the age, condition, location and unique physical and technical nature of the
existing features of the Building, excluding the Premises; (b) the annual rental
rates per rentable square foot excluding the Penthouse Space (defined in
Section hereof) and excluding the Rooftop Space (defined in Section
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hereof); (c) the standard of measurement by which the rentable square footage is
measured; (d) the ratio of rentable square feet to usable square feet; (e) the
type of escalation clauses (including, without limitation, type, base year and
stop); (f) the extent of building services; (g) abatement provisions reflecting
free rent during the lease term; (h) brokerage commissions, if any, which would
be payable by Landlord in a comparable transaction; (i) length of the lease
term; (j) size and location of premises being leased; (k) building standard work
and/or tenant improvement allowances, if any; (l) other economic concessions, if
any; and (m) other general applicable conditions of tenancy for a comparable new
transaction, so that Tenant will obtain the same rent and other economic
benefits that Landlord would otherwise give to any comparable prospective tenant
and so that Landlord will make the same economic payments and concessions that
Landlord would otherwise make in a comparable new transaction.
3. RENT.
3.1 Commencing on the Rent Commencement Date, Tenant agrees to pay to
Landlord the Annual Net Rent in effect from time to time by paying the Monthly
Installment of Annual Net Rent then in effect on or before the first day of each
full calendar month during the Term. The Monthly Installment of Annual Net Rent
for any period during the Term which is less than a full month shall be a
prorated portion of the Monthly Installment of Annual Net Rent based upon the
number of days in the subject month. Said rent shall be paid to Landlord
without notice or
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demand, and without deduction or offset except as specifically provided in
Section of this Lease, at the Landlord's address, as set forth on the
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Reference Page, or to such other person or at such other place as Landlord may
from time to time designate in writing.
3.2 In the event that Tenant shall fail to timely pay any Monthly
Installment of Annual Net Rent or any other amounts when due under the Lease, or
in the event Landlord shall fail to timely pay any amount due Tenant under this
Lease, such payments shall accrue interest at the "Interest Rate" (as defined in
Section 49.5 of this Lease) from the date such payment was due until the date
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paid, which interest charges shall be due and payable in full in connection with
such late payment. In addition, Landlord shall also be entitled to assess
against Tenant any penalty or late charge imposed upon Landlord by its
mortgagees, which penalties or late charges result from Tenant's failure to pay
any amount of any Monthly Installment of Annual Net Rent.
The provisions of this Section 3.2 in no way relieve Tenant of the obligation to
-----------
pay Annual Net Rent or any other amounts or relieve Landlord of the obligation
to pay any amount due Tenant under this Lease on or before the date on which
they are due, nor do the terms of this Section 3.2 in any way affect either
-----------
party's remedies pursuant to Article 19 of this Lease in the event any such
----------
amounts remain unpaid after the date due.
3.3 Until such time as a subway station located near the intersection of
New York and Florida Avenues is operational, Tenant shall be entitled to a rent
credit, in the amount of $5,416.67 per month, for reimbursement of Tenant's
expenses incurred in operating a shuttle service or providing other
transportation expenses incurred for its employees.
4. RENT ADJUSTMENTS.
4.1 For the purpose of this Article 4, the following terms are defined as
follows:
4.1.1 Lease Year: Each calendar year falling partly or wholly within
the Term.
4.1.2 Direct Expenses: All direct costs of operation, maintenance,
repair and management of the Building and any parking areas including the
following costs by way of illustration, but not limitation: water and sewer
charges; insurance charges of or relating to all insurance policies and
endorsements deemed by Landlord to be reasonably necessary or desirable and
relating in any manner to the protection, preservation, or operation of the
Building or any part thereof; utility costs for the common areas including, but
not limited to, the cost of heat, light, electricity, power, steam, gas, and
waste disposal; the cost of janitorial services for the common areas; the cost
of capital improvements to the extent either required by applicable laws enacted
after the Rent Commencement Date or changes enacted after the Rent Commencement
Date in laws in existence on the Rent Commencement Date, or which are reasonably
anticipated to reduce Direct Expenses to the extent of savings reasonably
anticipated; the cost of security and alarm services; window cleaning costs;
labor costs; costs and expenses of managing the Building including management
fees; air conditioning and electrical system maintenance costs; elevator
maintenance fees and supplies; material costs; the cost of maintenance, repair
and service agreements; purchase costs of equipment other than capital items;
tool costs; licenses, permits and inspection fees; wages and salaries; employee
benefits and payroll taxes; accounting and legal fees (except legal fees in
connection with specific tenant leases); any sales, use or service taxes
incurred in connection therewith; and vault charges. Direct Expenses for each
Lease Year shall be grossed up as if the Building were 95% leased and occupied.
Notwithstanding anything to the contrary set forth in this Lease, Direct
Expenses shall not include the following:
(1) Ground or underlying lease rental;
(2) Amounts incurred in connection with selling, syndicating,
financing, mortgaging or hypothecating any interest in the Building, the
Property or any improvements or equipment therein, including, but not
limited to, closing costs, title insurance premiums, transfer taxes,
recordation taxes, brokers' commissions and advertising expenses;
(3) Amounts incurred in connection with the defense of Landlord's
title to or interest in the Building, the Property or any portion thereof;
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<PAGE>
(4) Bad debt expenses and interest, principal, points and fees on
debts or amortization on any financing;
(5) Amounts payable pursuant to leases and/or other documents recorded
against all or any portion of the Building or the Property;
(6) Capital expenditures, including, without limitation, capital
repairs, capital improvement and capital equipment; except for those (A)
acquired to reduce Direct Expenses (amortized at an annual rate reasonably
calculated to equal the amount of Direct Expenses to be saved in each
calendar year throughout the term of this Lease, as determined at the time
Landlord elected to proceed with the capital improvement or acquired the
capital equipment to reduce Direct Expenses), together with interest at the
actual but reasonable interest rate incurred by Landlord, to the extent of
the savings reasonably anticipated, or (B) incurred after the Rent
Commencement Date in order to comply with any Law that was not enacted
prior to the Rent Commencement Date or changes enacted after the Rent
Commencement Date in Laws in existence on the Rent Commencement Date,
provided that such capital costs shall be amortized over their useful life
as reasonably determined, together with interest at the actual but
reasonable interest rate incurred by Landlord. All other capital
expenditures and improvements shall be excluded from Direct Expenses;
(7) Rentals for items (except when needed in connection with normal
repairs and maintenance of permanent systems) which if purchased, rather
than rented, would constitute a capital improvement which is specifically
excluded in Subsection (6) above;
--------------
(8) Depreciation, amortization and interest payments, except as
permitted herein or except on equipment, materials, tools, supplies and
vendor-type equipment purchased by Landlord to enable Landlord to supply
services Landlord might otherwise contract for with a third party where
such depreciation, amortization and interest payments would otherwise have
been included in the charge for such third party's services, all as
determined in accordance with generally accepted accounting principles,
consistently applied, and when depreciation or amortization is permitted or
required, the item shall be amortized over its reasonably anticipated
useful life;
(9) Tap fees and one-time lump sum sewer or water connection fees for
the Building or the Property payable in connection with the initial
construction or redevelopment of the Building or any other portion of the
Property;
(10) Amounts incurred in order to satisfy the requirements for the
procurement of a certificate of occupancy for the Building or any portion
of the Property;
(11) Amounts incurred in connection with the initial construction or
redevelopment and fit-up of the Building and other improvements on the
Property;
(12) Amounts incurred in connection with repairs or replacements to
the Building or any other improvements located on the Property, to the
extent such amounts are either (a) reimbursable to Landlord by virtue of
warranties, service contracts or other agreements, or (b) result from
deficiency in design, construction, workmanship or materials;
(13) Reserves;
(14) Costs of signs in or on the Building or the Property identifying
the owner of the Building or the Property or other tenants' signs;
(15) Marketing costs, including leasing commissions, attorneys' fees
(in connection with the negotiation and preparation of letters, deal memos,
letters of intent, leases, subleases and/or assignments), space planning
costs, and other amounts incurred in connection with lease, sublease and/or
assignment negotiations and transactions with present or prospective
tenants or other occupants of the Building or the Property;
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<PAGE>
(16) Amounts incurred in connection with promotions, kiosks, displays,
filming, photography, private events or ceremonies at the Property;
(17) Amounts, including permit, license and inspection costs, incurred
with respect to the installation of improvements made for tenants or other
occupants in the Building or the Property or incurred in renovating or
otherwise improving, decorating, painting or redecorating vacant space for
tenants or other occupants of the Building or the Property;
(18) Amounts incurred to the extent reimbursable by insurance policies
carried or required to be carried by Landlord under this Lease;
(19) Premiums for insurance carried by Landlord to the extent such
insurance coverage exceeds that carried by landlords of buildings
comparable to the Building unless required by Landlord's mortgagee;
(20) Amounts incurred in connection with a casualty or the exercise by
governmental authorities of the right of eminent domain;
(21) Increases in insurance premiums resulting from any act or
omission of Landlord or any other tenant or occupant of the Building or the
Property;
(22) Amounts incurred in connection with services or other benefits
which are not offered to Tenant or which Tenant is charged directly but
which are provided to another tenant or occupant of the Building or the
Property without charge;
(23) Amounts incurred due to the violation by Landlord or any tenant
of the terms and conditions of any lease of space in the Building or the
Property;
(24) Such portion of the management fee paid or charged by Landlord in
connection with the management of the Building or the Property which is in
excess of management fees customarily paid to owners or their affiliates
for management services rendered in connection with buildings comparable to
the Building;
(25) Salaries, wages, fees, benefits and other compensation paid to
employees of Landlord or the manager for the Building to the extent
customarily included in or covered by a management fee paid or charged by
landlords of comparable buildings in connection with the management of such
properties, provided that in no event shall Direct Expenses include
salaries and/or benefits attributable to personnel above the level of
Building manager, and in the event any employee of the Building or the
Property also provides labor or services with respect to other buildings,
the salary and other benefits of such employee shall be equitably allocated
among the buildings for which such employee provides labor or services;
(26) Rent and other amounts paid for any space occupied by Building
management or leasing personnel, or any other office space occupied by
Landlord or any affiliate of Landlord;
(27) Except for management fees otherwise properly chargeable as
Direct Expenses, amounts paid to Landlord or to subsidiaries or affiliates
of Landlord for goods and/or services in the Building or the Property to
the extent the same exceed the costs of such goods and/or services rendered
by unaffiliated third parties on a competitive basis;
(28) Landlord's general corporate overhead and general and
administrative expenses;
(29) Compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord other than one (1) attendant in
the Parking Area;
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<PAGE>
(30) Services provided to, taxes attributable to, and amounts incurred
in connection with the operation of retail and restaurant operations in the
Building or the Property;
(31) Amounts incurred in connection with a violation of any agreement
to which Landlord is a party or in connection with any violation of
applicable Laws;
(32) Amounts incurred in connection with upgrading the Building or the
Property to comply with Laws in effect prior to the Rent Commencement Date;
(33) Interest, penalties, fees, fines or any other amounts incurred by
reason of Landlord's failure to timely pay any Direct Expenses;
(34) All assessments and premiums which are not specifically charged
to Tenant because of what Tenant has done, which can be paid by Landlord in
installments, shall be paid by Landlord in the maximum number of
installments permitted by Law and not included as Direct Expenses except in
the year in which the assessment or premium installment is actually paid,
unless Landlord can obtain a discount by paying such assessments and
premiums earlier than as installments of the same are required by Law, in
which event Tenant shall not pay as Direct Expenses any portion of the same
attributable to periods beyond the Term of this Lease;
(35) Amounts arising from the negligence or willful misconduct of
Landlord or other tenants or occupants of the Building or the Property or
their respective agents, employees, licensees, vendors or contractors;
(36) Amounts arising from charitable or political contributions
exceeding $5,000 per year;
(37) Premiums paid for earthquake insurance, unless required by
Landlord's mortgagee and generally required by lenders within the same
geographical area of the Property;
(38) Amounts paid for sculpture, paintings or other objects of art;
(39) Amounts (including in connection therewith all attorneys' fees
and costs of settlement judgments and payments in lieu thereof) incurred in
connection with negotiations, claims, potential claims, disputes, potential
disputes, litigation or arbitrations pertaining to Landlord and/or the
Building and/or the Property;
(40) Amounts payable by Landlord to any Mortgagee, tenant of the
Property or other person or entity in connection with any indemnity
obligation or for damages;
(41) Amounts incurred in connection with the operation of the business
of the entity which constitutes Landlord as the same are distinguished from
the costs of operation of the Building or the Property, including
partnership accounting and legal matters, costs of defending any lawsuits
with any mortgagee (except as the actions of Tenant may be in issue);
(42) Legal fees except as otherwise expressly permitted hereunder;
(43) Amounts incurred by Landlord in connection with any audits
performed for a particular tenant;
(44) Amounts expressly excluded from Direct Expenses elsewhere in this
Lease;
(45) Taxes;
(46) Amounts or taxes expressly excluded from "Taxes" in this Lease;
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<PAGE>
(47) Amounts incurred in connection with modifications or upgrades to
computer hardware or software or other systems used in connection with the
operation of the Building or the Property required for the proper
functioning of such computer hardware or software or other systems through
the calendar year 2000 and thereafter, and amounts incurred in connection
with the failure of such computer hardware or software or other systems to
be "Year 2000 compliant"; and
(49) Other expenses which, in accordance with generally accepted
accounting principles, consistently applied, would not normally be treated
as Direct Expenses by landlords of comparable buildings in the vicinity of
the Building.
4.1.3 Taxes: Real estate taxes, vault taxes and any other taxes,
charges and assessments which are levied with respect to the Property, or with
respect to any improvements, fixtures and equipment or other property of
Landlord, real or personal, located at the Property and used in connection with
the operation of the Property or the Building; any payments to any ground lessor
in reimbursement of tax payments made by such lessor; and all reasonable fees,
expenses and costs, including reasonable legal fees, incurred by Landlord in
investigating, protesting, contesting or in any way seeking to reduce or avoid
increase in any assessments, levies or the tax rate pertaining to any Taxes to
be paid by Landlord in any Lease Year. Notwithstanding anything to the contrary
set forth in this Lease, Taxes shall not include: (i) any profits or excess
profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and
succession taxes, estate taxes, transfer taxes, recordation taxes, federal,
state or local income taxes, gross receipts taxes, capital gains taxes,
franchise taxes, corporate or unincorporated business taxes, or other taxes to
the extent applicable to Landlord's general or net income (as opposed to rents
or receipts), (ii) business entity fees; (iii) any items included in Direct
Expenses; (iv) any item, other than Taxes, expressly excluded from Direct
Expenses pursuant to this Lease; (v) any taxes imposed in connection with
personal property owned, leased or used by any other tenant or other occupant in
the Building or the Property; (vi) penalties incurred as a result of Landlord's
negligence, inability (unless proximately caused by Tenant's failure to make any
payment of Tenant's Proportionate Share of Taxes as and when due hereunder) or
unwillingness to make payments of, and/or to file any tax or informational
returns with respect to, any Taxes, when due; (vii) taxes, assessments or
charges imposed or levied to the extent allocable to development or renovation
of or damage to the Building or the Property or any new construction; or (viii)
any other taxes or assessments charged or levied against Landlord which are not
directly incurred as a result of the operation of the Building or the Property.
Landlord shall use reasonable efforts to contest and diligently pursue a
reduction and/or elimination of any such taxes if Landlord reasonably determines
to initiate efforts to obtain any such reduction or elimination. If at any time
during the Term of this Lease the present system of ad valorem taxation of real
property shall be changed or supplemented so that in lieu of or in addition to
the ad valorem tax on real property there shall be assessed on Landlord or in
respect of the Building any tax of any nature which is imposed in whole or in
part, in substitution for, addition to, or in lieu of any tax which would
otherwise constitute a real estate tax, such tax shall be included as taxes
payable by Tenant under this Section 4.1.3, but only to the extent that the same
would be payable if the Building were the only property of Landlord. Such tax
may include, but shall not be limited to, a capital levy or other tax on the
gross rents or gross receipts with respect to the Building, or a federal, state,
county, municipal or other local income, franchise, profit, excise or similar
tax, assessment, levy or charge measured by or based, in whole or in part, upon
any such gross rents or gross receipts.
4.1.4 Calculation Requirements. Direct Expenses and Taxes shall be
------------------------
calculated based on an accrual method of accounting. When depreciation or
amortization is permitted to be included in Direct Expenses, the subject item
shall be amortized on a straight line basis over its reasonably anticipated
useful life in accordance with generally accepted accounting principles.
Landlord agrees that: (i) Landlord will not collect or be entitled to collect
from Tenant with respect to increases in Direct Expenses or Taxes for any Lease
Year, an amount greater than Tenant's Proportionate Share of Direct Expenses or
Taxes, respectively, actually paid by Landlord for the subject Lease Year;
(ii) Landlord shall make no profit from Landlord's collections of Direct
Expenses or Taxes; and (iii) Landlord shall promptly pay to Tenant Tenant's
Proportionate Share of any refund Landlord receives, net of Landlord's costs of
collection of the same, in connection with any amounts previously included in
Direct Expenses;
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and (iv) Landlord shall promptly pay to Tenant, net of Landlord's costs of
collection of the same, Tenant's Proportionate Share of any refund Landlord
receives of any amounts previously included in Taxes. To the extent that an
expense or other amount is not specifically included or excluded as a component
of Direct Expenses or Taxes in the definition of Direct Expenses or Taxes,
whether such expense or other amount shall be treated as a Direct Expense or
component of Taxes shall be determined in accordance with generally accepted
accounting principles, consistently applied. To the extent an expense or other
amount is included in the definition of Direct Expenses or Taxes, but the method
for the treatment or calculation of such expense or other amount is not
specifically set forth herein, then the treatment and calculation of such
expense or other amount shall be done in accordance with generally accepted
accounting principles, consistently applied.
4.2 Tenant shall pay as additional rent for each Lease Year Tenant's
Proportionate Share of all Direct Expenses and Taxes incurred for such Lease
Year, as hereinafter set forth.
4.3 The annual determination of Direct Expenses and Taxes for each Lease
Year shall be made and certified by Landlord. Tenant shall have the right, to
inspect, photocopy and audit Landlord's accounting records at Landlord's office
at Tenant's sole cost and expense. If an inspection or audit reveals that there
was an overpayment by Tenant, Landlord shall credit such overpayment to the next
monthly rent due or refund the same within thirty (30) days after Landlord's
receipt of Tenant's request if the Term has expired or this Lease is earlier
terminated, together with interest at the Interest Rate accruing for a period in
length equal to six months plus the period beginning on January 1 following the
subject Lease Year and ending on the date fully credited against amounts payable
by Tenant under this Lease or otherwise paid by Landlord to Tenant. If an audit
shows that there was an error in favor of Landlord which exceeds Tenant's cost
of the audit, Landlord shall reimburse to Tenant both the costs of the audit and
the amount of any such error, together with interest at the Interest Rate on
both, with interest to accrue on the cost of the audit from the date incurred
until credited or reimbursed by Landlord, and with interest to accrue on the
overpayment by Tenant at the Interest Rate from July 1 of the Lease Year for
which Tenant was overcharged through the date credited or reimbursed by
Landlord. For purposes hereof, the "cost of the audit" shall be computed as the
standard hourly rate for such an audit in the Washington D.C. area regardless of
how the audit fee is actually calculated. Any audit to be performed must be
performed by accountants reasonably acceptable to both Landlord and Tenant,
which may include any accountants whose fee may be contingent upon the amount of
any discrepancy shown by any such audit. The payment by Tenant of any amounts
with respect to Tenant's Proportionate Share of Direct Expenses or Taxes shall
not preclude Tenant from questioning the correctness of any statement for the
same provided by Landlord.
4.4 Prior to the actual determination thereof for a Lease Year, Landlord
shall estimate Tenant's Proportionate Share of Direct Expenses and Taxes under
Section 4.2 for the Lease Year or portion thereof. Landlord will give Tenant
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written notification of the amount of such estimate and Tenant agrees that it
will pay, by increase of its Monthly Installments of Rent due in such Lease
Year, additional rent in the amount of one-twelfth (1/12) of such estimate. Any
such increased rate of Monthly Installments of Rent pursuant to this Section 4.4
-----------
shall remain in effect until further written notification to Tenant pursuant
hereto. Landlord may not send more than one such notice to Tenant during any
Lease Year. Notwithstanding anything to the contrary contained in this Lease,
in no event shall Landlord's estimate of the Direct Expenses for any Lease Year
be more than one hundred three percent (103%) of the Direct Expenses actually
incurred by Landlord for the immediately preceding Lease Year (the "Operating
Expense Estimate Cap"), unless Landlord can reasonably demonstrate that the
Direct Expenses for the subject Lease Year are expected to exceed the Operating
Expense Estimate Cap for the subject Lease Year, in which case Landlord shall
have the right to increase the estimate for the Direct Expenses for the subject
Lease Year above the Operating Expense Estimate Cap for the subject Lease Year
to reflect such anticipated increased expenses. Notwithstanding anything to the
contrary contained in this Lease, in no event shall Landlord's estimate of the
Taxes for any Lease Year be more than one hundred three percent (103%) of the
Taxes actually incurred by Landlord and allocable to the immediately preceding
Lease Year (the "Tax Estimate Cap"), unless Landlord can reasonably demonstrate
that the Taxes for the subject Lease Year are expected to exceed the Tax
Estimate Cap for the subject Lease Year, in which case Landlord shall have the
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right to increase the estimate for the Taxes for the subject Lease Year above
the Tax Estimate Cap for the subject Lease Year to reflect such anticipated
increased amount.
4.5 When the above mentioned actual determination of Tenant's liability
for Direct Expenses and Taxes is made for any Lease Year and when Tenant is so
notified in writing, then:
4.5.1 If the total additional rent Tenant actually paid pursuant to
Section 4.4 on account of Direct Expenses and Taxes for the Lease Year is less
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than Tenant's liability for Direct Expenses and Taxes, then Tenant shall pay
such deficiency to Landlord as additional rent in one lump sum within thirty
(30) days of receipt of Landlord's bill therefor together with interest on such
deficiency at the Interest Rate accruing for a period in length equal to six
months plus the period beginning on January 1 following the subject Lease Year
and ending on the date fully paid to Landlord; and
4.5.2 If the total additional rent Tenant actually paid pursuant to
Section 4.4 on account of Direct Expenses and Taxes for the Lease Year is more
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than Tenant's liability for Direct Expenses and Taxes, then Landlord shall
credit the difference against the then next due payments of rent, or, if the
Term has ended, shall be paid to Tenant within thirty (30) days after the date
Landlord makes any such determination, in either case together with interest on
the subject overpayment at the Interest Rate accruing for a period in length
equal to six months plus the period beginning on January 1 following the subject
Lease Year and ending on the date fully credited against amounts payable by
Tenant under this Lease or otherwise paid by Landlord to Tenant.
4.6 If the Rent Commencement Date is other than January 1 or if the
Termination Date is other than December 31, Tenant's liability for Direct
Expenses and Taxes for the Lease Year in which said Date occurs shall be
prorated based upon a three hundred sixty-five (365) day year.
4.7 Each time Landlord provides Tenant with an actual and/or estimated
statement of Direct Expenses or Taxes for a Lease Year, such statement shall be
itemized on a line item by line item basis, showing the applicable expense or
tax for the subject Lease Year and the year prior to the subject Lease Year.
5. SECURITY DEPOSIT. Upon the execution hereof, Tenant shall at its sole
cost and expense cause a financial institution acceptable to Landlord in its
sole but reasonable discretion, but in any event a money center financial
institution located in the District of Columbia area with a rating of at least
_________, to issue to Landlord an irrevocable stand-by letter of credit in the
form attached hereto as Exhibit or otherwise in a form acceptable to
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Landlord in its reasonable discretion (the "Letter of Credit"), in an amount
equal to the product of (i) $28.00 multiplied by (ii) the Premises Rentable
Area, as the same may be increased or decreased from time to time. In the event
said financial institution's rating is downgraded below the minimum rating set
forth above, or in the event Landlord's lender so requests, Tenant shall cause
to be issued to Landlord within fifteen (15) days following written notice
thereof, a replacement Letter of Credit which complies with all of the terms of
this Section 5. At the end of the second year following the Rent Commencement
---------
Date, provided that there exists no Event of Default or Material Breach by
Tenant, the Letter of Credit shall be reduced by fifty percent (50%) of the then
required amount thereof. At such time, if any, as Tenant provides Landlord with
financial statements audited, prepared and certified by an independent certified
public accountant indicating that Tenant's EBITDA, determined in accordance with
generally accepted accounting principles (excluding extraordinary items) less
any cash expense for interest, has been positive for at least one (1) year, but
in no event prior to the end of the second year following the Rent Commencement
Date and provided that there exists no Event of Default or Material Breach by
Tenant, the Letter of Credit shall be terminated and returned by Landlord to
Tenant. Said Letter of Credit shall be held by Landlord as security for the
faithful performance by Tenant of all the terms, covenants and conditions of
this Lease to be kept and performed by Tenant and not as an advance rental
deposit or as a measure of Landlord's damage in case of Tenant's default. If
Tenant defaults with respect to any provision of this Lease, Landlord may draw
upon the Letter of Credit in amounts sufficient for the payment of any rent or
any other sum in default, or for the payment of any amount which Landlord may
spend or become obligated to spend by reason of Tenant's default,
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or to compensate Landlord for any other loss or damage which Landlord may suffer
by reason of Tenant's default. If any portion is so used, Tenant shall within
ten (10) days after written demand therefor, cause the financial institution
issuing the Letter of Credit to increase the amount thereof to its then required
amount and Tenant's failure to do so shall be a Material Breach. In the event
Landlord wrongfully draws upon the Letter of Credit in violation of the terms
and conditions set forth in this Section 5 Landlord shall be liable for all
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actual costs and expenses incurred or suffered by Tenant as a result
thereof. In addition to the foregoing, if at such time or times Tenant is
entitled to a reduction in the amount of the Letter of Credit pursuant to this
Section 5, Landlord fails to timely present to the issuer of the Letter
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of Credit the certification required to effectuate such reduction (the
"Reduction Certification"), then Landlord shall be liable to Tenant for the
amount of any Letter of Credit fees incurred by Tenant which would not otherwise
have been incurred by Tenant but for Landlord's failure to timely present the
Reduction Certificate. In the event Tenant is entitled to a reduction in the
amount of or the return of the Letter of Credit pursuant to the terms of this
Lease but for the existence of an uncured Event of Default or Material Breach by
Tenant then existing, and as a result of the existence of such uncured Event of
Default or Material Breach by Tenant Landlord refuses to reduce the amount of or
return the Letter of Credit, as the case may be, Tenant shall be entitled to the
subject reduction in the amount of the Letter of Credit or the return of the
Letter of Credit, as the case may be, upon the date the subject Event of Default
or Material Breach by Tenant has been fully cured.
6. ALTERATIONS.
6.1 Tenant shall not make or suffer to be made any alterations, additions,
or improvements in, on, or to the Premises, the Building or any part thereof
("Alterations"), without the prior written consent of Landlord, which consent
shall not be unreasonably withheld, conditioned or delayed. Within ten (10)
business days after Landlord's receipt of Tenant's request for Landlord's
consent to any proposed Alterations, Landlord shall deliver notice of its
approval or disapproval of the same to Tenant. In the event Landlord
disapproves of any Alterations proposed by Tenant and Tenant revises its plans
for the same and resubmits them to Landlord for approval, Landlord shall deliver
to Tenant notice of Landlord's approval or disapproval of the same within five
(5) business days after its receipt of such revised plans. This process shall
continue until Landlord approves of the subject Alterations. Any notice of
disapproval delivered by Landlord shall set forth with reasonable particularity
the reason for disapproval and all modifications requested by Landlord to the
plans for the subject Alterations. Landlord's failure to reply to Tenant's
request for Landlord's approval of Alterations within the above-referenced ten
(10) business day period or five (5) business day period, as the case may be,
shall be deemed Landlord's approval thereof. Except as specified in any notice
of disapproval timely and properly delivered by Landlord in accordance with the
foregoing, all matters set forth in plans for Alterations delivered by Tenant to
Landlord shall be deemed approved by Landlord. Tenant shall not be required to
provide Landlord with any completion or performance bond in connection with any
proposed Alterations. Notwithstanding anything to the contrary set forth in
this Lease, Landlord's consent shall not be required with respect to any
Alterations that will (i) not have an effect on any structural aspect of the
Building, (ii) not affect the exterior appearance of the Building, and (iii) not
have an effect on any roofing, plumbing, air conditioning, heating, ventilation
or electrical or other system installed by Landlord in the Building. Landlord
shall reasonably cooperate with Tenant with respect to the preparation of all
plans and specifications for Alterations or other work and the procurement of
all permits, approvals and certificates required in connection therewith, and
Tenant shall reimburse Landlord for Landlord's third-party out-of-pocket
expenses incurred in connection therewith, provided that Tenant shall have no
obligation to reimburse Landlord for such third party out-of-pocket expenses to
the extent the same exceed Ten Thousand Dollars ($10,000) with respect to the
Initial Alterations. Tenant shall not be required to provide Landlord with any
completion or performance bond in connection with the Alterations or any other
work performed by, or at the direction of, Tenant. Landlord shall receive no
fee for supervision, profit, overhead or general conditions in connection with
Alterations or other work performed by, or at the direction of, Tenant. When
applying for consent, Tenant shall furnish complete plans and specifications for
such Alterations.
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<PAGE>
6.2 In the event Landlord consents to the making of any such Alterations
by Tenant, the same shall be made at Tenant's sole cost and expense and
otherwise in accordance with the UNION labor requirements set forth in Section
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38.8 hereof.
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6.3 All Alterations proposed by Tenant shall be constructed in a good and
workmanlike manner and in accordance with the approved plans and specifications
and all Laws, shall not impair the structural soundness of the Premises or the
Building, and Tenant shall, prior to construction, provide to Landlord copies of
all required permits, licenses and approvals, all of which shall be obtained by
Tenant at Tenant's sole cost and expense, any additional insurance required
under Article 11 in such case.
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6.4 All Alterations, Specialty Equipment, other equipment, signs and other
work made or installed by Tenant in the Premises or the Property, shall be and
remain the property of Tenant during the Term. All HVAC, electrical
distribution, plumbing, sprinkler and conduits related to the foregoing, and all
Alterations consistent with the improvement of the Premises for general office
use shall become a part of the realty and belong to Landlord without
compensation to Tenant upon the expiration or sooner termination of the Term, at
which time title thereto shall pass to Landlord under this Lease by a bill of
sale. As a condition of Landlord's approval of Tenant's plans for the making of
any Alterations or installation of any fixtures, equipment, signs and other work
which is not consistent with the improvement of the Premises for use for general
office purposes, Landlord may require Tenant to remove any of the same that
Tenant is not otherwise required to leave at the Premises or in the Building
pursuant to this Section 6.4, at the expiration or sooner termination of the
-----------
Lease, at Tenant's sole cost and expense. Notwithstanding the foregoing, Tenant
may remove from the Premises and the Property prior to the expiration or within
sixty (60) days after the earlier termination of the Term, at its cost and
expense, (i) all Specialty Equipment Alterations, fixtures, equipment, signs and
other work made or installed by Tenant, in each instance to the extent that
Tenant is not required to leave the same at the Premises or in the Building
pursuant to the operation of this Section 6.4, which in either case if not
-----------
removed shall be deemed abandoned. Upon Tenant's removal of any items from the
Premises or the Building, Tenant shall, at Tenant's sole cost and expense,
repair any damage to the Building or Premises shell resulting from such removal.
If Tenant shall fail to remove any of its personal property from the Premises or
the Building upon the expiration or within sixty (60) days following the sooner
termination of the Term, Landlord may, at its option, at any time after ten (10)
business days written notice to Tenant of its intention to remove such property,
remove and store the same, without liability to Tenant for any loss thereof, and
Tenant shall pay Landlord upon demand all costs incurred in such removal,
including storage costs, if any, incurred during any length of time that same
shall be in Landlord's possession.
7. REPAIR.
7.1 Landlord shall have no obligation to alter, remodel, improve, repair,
decorate or paint the Premises or the Building, except as otherwise provided in
this Lease, and except that Landlord shall repair and maintain the structural
portions of the Building, including the roof and the basic plumbing, air
conditioning, heating, ventilating, electrical and other systems installed or
furnished by Landlord, all common areas of the Building, and (subject to
Tenant's and other tenants' obligations with respect to their respective
premises, the Building and the Property) all other portions of the Property.
Landlord shall keep the Building and all systems therein not otherwise required
to be maintained by Tenant in compliance with all Laws. Subject to Tenant's
obligations under this Lease and the obligations of other tenants under their
respective leases with respect to their respective premises, Landlord shall
cause the Building and the Property to comply with all applicable Laws during
the Term of this Lease. Landlord shall maintain and operate the Building and
the Property in good condition and repair and shall operate, and provide
services and security to, the Building and the Property in a first-class manner
comparable to comparable buildings.
7.2 Subject to the terms of Articles 22 and 23 below and Landlord's
----------- --
obligations under this Lease, Tenant shall at its own cost and expense keep and
maintain all parts of the Premises and improvements therein as well as all
Specialty Equipment (as hereinafter defined) in good condition, promptly making
all necessary repairs and replacements, whether ordinary or extraordinary.
Tenant as part of its obligations hereunder shall keep the Premises in a clean
and
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<PAGE>
sanitary condition. Upon the termination or sooner expiration of this Lease,
Tenant will deliver the Premises to Landlord in good condition and repair, loss
by fire or other casualty and ordinary wear and tear excepted. Tenant shall, at
its sole cost and expense, maintain Tenant's equipment located in the Premises
and elsewhere in the Building in good and working order, condition and repair.
Except as otherwise provided in Section 38.8 of this Lease, Tenant shall use
------------
UNION labor for all Alterations. Tenant, at its own cost and expense, following
any damage to the Premises, shall repair and restore the Premises to a condition
that complies with all Laws, and shall remedy or abate any conditions in the
Premises that pose a risk or hazard to human health or safety, the Property or
the Building, or which otherwise constitute a nuisance to other tenants of the
Building.
7.3 In the event all or any portion of the Premises is rendered
untenantable for its then-current use for two (2) consecutive days after
Tenant's delivery of notice thereof to Landlord or four (4) days in any twelve
(12) month period after Tenant's delivery of notice thereof to Landlord (the
"Eligibility Period") as a proximate result of an act or omission of Landlord or
any of its employees, agents, contractors, licensees or invitees, then Tenant's
rent shall be abated or reduced, as the case may be, after expiration of the
Eligibility Period for the period of such untenantability in the proportion that
the rentable area of the untenantable portion of the Premises bears to the total
rentable area of the Premises. However, in the event that any portion of the
Premises is rendered untenantable for its then-current use as a result of an act
or omission of Landlord or any of its employees, agents, contractors, licensees
or invitees, for a period of time in excess of the Eligibility Period, and the
remaining portion of the Premises is not sufficient to allow Tenant to
effectively conduct its business therein, and if Tenant does not conduct its
business from such remaining portion, then for such time after expiration of the
Eligibility Period during which Tenant is so prevented from effectively
conducting its business therein, the rent for the entire Premises shall be
abated; provided, however, if Tenant is able to reoccupy and conduct its
business from any portion of the Premises during such period, the rent allocable
to such reoccupied portion, based on the proportion that the rentable area of
such reoccupied portion of the Premises bears to the total rentable area of the
Premises, shall be payable by Tenant from the date such business operations
commence. Notwithstanding the foregoing, but subject to the terms of Article
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12 (Waiver of Subrogation) of this Lease, the Eligibility Period shall not be
- --
applicable to the extent that the abatement of Tenant's rent during the
Eligibility Period is covered by insurance obtained by Tenant, or by Landlord
and chargeable to Tenant as part of Direct Expenses. If Tenant's right to
abatement occurs during a free rent period which arises after the Commencement
Date, Tenant's free rent period shall be extended for the number of days that
the abatement period overlapped the free rent period. Upon the occurrence of
any such act or omission of Landlord, and as a precondition to the commencement
of the Eligibility Period or any period of rent abatement, Tenant shall provide
Landlord with same-day verbal notice of such act or omission, followed by
written notice by the end of the next day of such act or omission, including a
description of such act or omission and the extent of such untenantability.
7.4 Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
selected by Tenant and reasonably approved by Landlord, or shall provide the
services of such maintenance/service contract by its own qualified employees,
for servicing all heating, air conditioning, sprinkler and electrical systems
and equipment serving the Premises (and in the instance of a service contract, a
copy thereof shall be furnished to Landlord). The services to be performed
shall at a minimum constitute all services suggested by the equipment
manufacturers in the various operation/maintenance manuals.
8. LIENS. Tenant shall keep the Premises, the Building and appurtenant
land and Tenant's leasehold interest in the Premises free from any liens arising
out of any services, work or materials performed, furnished or contracted for by
or on behalf of Tenant, or obligations incurred by or on behalf of Tenant.
Notice is hereby given that Landlord shall not be liable for any work performed
or to be performed on the Premises, or for any materials furnished or to be
furnished at or to the Premises, or any building or improvements thereon,
contracted for by or on behalf of Tenant or any subtenant of Tenant, and that no
mechanic's or other lien for such work or materials shall attach to the interest
of Landlord. The foregoing two sentences shall not apply to services, work or
materials performed, furnished or contracted for by or on behalf of Landlord.
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<PAGE>
This Lease specifically prohibits the subjecting of the Premises, or any part of
it, to any liens for improvements Tenant makes or causes to be made or for which
Tenant is directly or indirectly responsible for payment. Tenant hereby
covenants and agrees to provide all persons dealing with Tenant with a copy of
this Article 8. If, in connection with any work being performed by Tenant or
---------
any subtenant of Tenant or in connection with any materials contracted for by
Tenant or any subtenant of Tenant, any mechanic's lien or other lien or charge
shall be filed or made against the Premises or the Building or any part thereof,
or if any such lien or charge shall be filed or made against Landlord as owner,
then Tenant, at Tenant's cost and expense, within thirty (30) days after such
lien or charge shall have been filed or made (but in any event prior to
foreclosure), shall cause the same to be canceled and discharged of record by
payment thereof or filing a bond or otherwise, and shall also defend any action,
suit or proceeding which may be brought for the enforcement of such lien or
charge, and shall pay any damages, costs and expenses, including reasonable
attorneys' fees, suffered or incurred therein by Landlord. Without limiting any
other remedies available to Landlord, in the event of the failure of Tenant to
discharge within the above-mentioned thirty (30)-day period, any lien, charge or
judgment herein required to be paid or discharged by Tenant, Landlord may remove
the same of record by bond only, except that if Landlord's mortgagee so
requires, Landlord may discharge such liability by payment, and Tenant will
repay to Landlord, upon demand, any and all amounts paid by Landlord therefor,
or by reason of any liability on any such bond, and also any and all incidental
expenses, including reasonable attorneys' fees and costs, incurred by Landlord
in connection therewith.
9. ASSIGNMENT AND SUBLETTING.
9.1. Without the prior written consent of Landlord, not to be unreasonably
withheld, conditioned or delayed and except as may be otherwise specifically set
forth herein, Tenant will not sublet the Premises or any part thereof or
transfer possession or occupancy thereof to any person, firm or entity, or
transfer or assign this Lease, and no subletting or assignment hereof shall be
effected by operation of law or in any other manner, such as the transfer of all
or substantially all of Tenant's assets or voting control of Tenant's stock,
partnership interest or other equity. Within ten (10) days after Landlord's
receipt of Tenant's written request and all supporting documentation for
Landlord's consent to any action proposed by Tenant under this Article, Landlord
shall deliver to Tenant notice of Landlord's approval or disapproval of the
same. Any notice of disapproval shall set forth with reasonable particularity
the reasons for Landlord's disapproval of the subject action. Except as
specified in any notice of disapproval timely and properly delivered by Landlord
in accordance with the foregoing, the subject action proposed by Tenant shall be
deemed approved by Landlord. Landlord's failure to reply to Tenant's request
for Landlord's approval of the subject action within the above-referenced ten
(10) day period shall be deemed Landlord's approval thereof. If Tenant is a
corporation, then dissolution of Tenant without reformation within thirty (30)
days thereafter shall be deemed a voluntary assignment of this Lease. All
permitted sublettings and assignments of the Premises and this Lease shall be
subject to the provisions of this Lease, including but not limited to Section
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9.3. Tenant shall provide to Landlord, prior to the execution thereof, the
- ---
written document to be executed by Tenant and the assignee or sublessee, the
terms of which document shall not violate the terms of this Lease. Consent by
Landlord to any assignment or subletting by Tenant shall not operate as a waiver
of the necessity for obtaining Landlord's consent in writing to any subsequent
assignment of subletting. The collection and acceptance of rent from any such
assignee, subtenant or other occupant shall not constitute a waiver of or
release of Tenant from any covenant or obligation contained in this Lease, nor
shall such acceptance of rent be deemed to create any right to the Premises in
such assignee, subtenant or other occupant, nor any legal or other relationship
between the Landlord any such assignee, subtenant or other occupant. Landlord's
acceptance of any name for listing on the Building directory shall not be
deemed, nor will it substitute for, Landlord's consent as required by this
Lease, to each sublease, assignment and any other occupancy of the Premises.
During the existence of any Material Breach or monetary Event of Default, Tenant
hereby authorizes each such subtenant, assignee and other occupant to pay said
rent and other sums directly to Landlord upon demand, and Landlord shall credit
all such sums received by it against rent and other amounts then due from Tenant
to Landlord in the order of their maturity. Any transfer of this Lease or the
Premises, or any transfer of any interest in Tenant restricted pursuant to this
Section 9.1, without the prior written consent of Landlord pursuant to this
- -----------
Section 9.1 shall be void. By taking a transfer of this Lease by assignment,
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the transferee shall be bound by all provisions of this Lease, which shall be
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<PAGE>
binding upon the transferee as if the transferee had signed this Lease in lieu
of the original Tenant named herein. Any Sublessee shall be subject to the
terms of this Lease. Notwithstanding anything to the contrary set forth in this
Lease, Landlord shall not have the right to recapture the Premises or any
portion thereof or to terminate this Lease in the event of any assignment or
proposed assignment of Tenant's interest in this Lease or any sublease or
proposed sublease of all or a portion of the Premises.
9.2. Notwithstanding anything to the contrary set forth in this Lease,
Landlord's consent shall not be required for any assignment of Tenant's interest
in this Lease or a subletting of all or any portion of the Premises to (i) a
corporation, partnership or other entity which controls or is controlled by
Tenant or Tenant's parent, (ii) the owner of a controlling interest in Tenant,
(iii) the owner of twenty-five percent (25%) or more of the interests in Tenant,
(iv) any other company conducting business in the radio production and/or
broadcasting industries with which Tenant conducts business; (v) an entity with
which Tenant merges or consolidates; or (vi) a purchaser of all or substantially
all of Tenant's stock or assets. The term "controls" "controlled" or
"controlling," as used in this Section 9.2, shall mean the ownership, directly
-----------
or indirectly, of the power to direct or cause the direction of the management
and policies of a person or entity, whether through the ownership of voting
securities, by contract or otherwise. Notwithstanding anything to the contrary
set forth in this Lease, Tenant may, without Landlord's consent, permit any
individuals who are employees of business partners of Tenant to occupy a portion
of the Premises during the course of their business relationship with Tenant, so
long as such occupation is not a subterfuge to avoid compliance with the
provisions of this Article 9 and is for a use consistent with the then-current
use of Tenant.
9.3 With respect to any assignment of Tenant's interest in this Lease or a
sublease of all of any portion of the Premises which requires Landlord's
consent, Landlord shall be entitled to receive fifty percent (50%) of the
"Profits" (as defined below) actually received by Tenant pursuant to such
approved assignment or sublease. The term "Profits" as used in this Section
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9.3 shall mean the gross revenue received from the assignee or sublessee during
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the assignment or sublease term, less: (a) the gross revenue paid to Landlord
by Tenant with respect to the subject portion of the Premises during the period
of the assignment or sublease term; (b) improvement allowances or other
economic concessions granted by Tenant to the assignee or sublessee; (c) all
amounts paid by Tenant to advertise the subject portion of the Premises for
assignment or sublease; (d) brokerage commissions paid by Tenant in connection
with the assignment of sublease; (e) reasonable legal fees paid by Tenant in
connection with the assignment or sublease; and (f) all other reasonable costs
and amounts incurred by Tenant in connection with the assignment or sublease.
9.4 In the event of any subletting of the Premises or assignment of this
Lease by Tenant or transfer of an interest in this Lease or in Tenant, Tenant
shall remain liable to Landlord for payment of all amounts due by operation of
this Lease and all other covenants and conditions contained herein. No
subletting of the Premises or assignment of this Lease or transfer of an
interest in this Lease or in Tenant shall operate to release, discharge or
otherwise affect the liability of any guarantors, co-signers or other parties
liable to Landlord pursuant to the terms of any guaranty or otherwise for the
obligations of Tenant under this Lease.
9.5 Tenant acknowledges that Landlord, in considering whether to grant or
withhold consent required of Landlord pursuant to this Section 9, shall be
entitled to apply any or all of the following criteria:
(a) The net worth of the proposed subtenant/assignee/transferee must
be at least five (5) times greater than the aggregate liability for Annual Net
Rent allocable to the portion of the Premises so subleased, assigned or
transferred based on adequate current information provided to Landlord by
Tenant. Failure to provide such financial information shall be a ground for
Landlord to withhold, condition or deny consent; and
(b) The proposed subtenant/assignee/transferee shall have no right to
further assign this Lease or sublet the subleased premises, as the case may be,
under Section 9.2 item (iii) above.
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<PAGE>
9.6 Notwithstanding anything to the contrary set forth in this Lease,
Tenant shall have the right, without Landlord's consent, from time to time to
grant a security interest in its interest in this Lease and its property to its
lenders in connection with Tenant's financing arrangements. Any such security
interest in any Alterations, fixtures, installations, equipment or other items
Tenant is required to leave at the Premises pursuant to Section of this
------------
Lease at the expiration or sooner termination of the Term shall be subject to
Tenant's obligation to leave the same at the Premises in accordance with Section
___ of this Lease. Tenant agrees to provide Landlord with both notice of its
intention to record UCC financing statements and copies of any such filings in
connection with such financing. Landlord agrees to execute at Tenant's cost and
expense such confirmation, certificates and other documents as Tenant's lenders
may reasonably request in connection with any such financing provided, however,
that no such confirmation, certificate or other document shall either (i)
subject any of Landlord's right, title or interest in the Building or the
Property to any such financing or (ii) be inconsistent with Landlord's rights
under this Lease. Notwithstanding anything contained in this Lease to the
contrary, Landlord hereby agrees to waive and does hereby waive any and all
rights granted by or under any present or future Laws to levy any lien or
security interest on any goods, merchandise, equipment, fixtures, furniture or
other personal property of Tenant.
9.7 If this Lease is terminated as a result of a Material Breach, in
addition to the rights and remedies of Landlord outlined elsewhere herein,
Landlord, at its option, may elect to recognize any sublease between Tenant any
subtenant, or any agreement by which Tenant has granted any leasehold estate or
interest in the Premises, as a direct lease or agreement between Landlord and
such subtenant or other grantee, upon written notice to Tenant and such
subtenant or other grantee, without releasing or affecting the liability of
Tenant to Landlord under this Lease, and Tenant shall be deemed to have assigned
its interest in such sublease or other agreement to Landlord (without the need
for executing any further documentation evidencing same) and such subtenant or
other grantee shall attorn to and recognize the rights of Landlord under such
sublease or other agreement, as the case may be. Notwithstanding a termination
of this Lease and/or Tenant's voluntary surrender of the Premises (or any
portion thereof), Landlord may consider any sublease or other agreement
transferring a leasehold estate or interest in the Premises (or any portion
thereof) by any subtenant or other grantee, terminated as of the date the Lease
is terminated, it being the intention of the parties that any leasehold estate
or other interest in the Premises shall be subject to the terms and conditions
of this Lease, including all rights and remedies of Landlord outlined herein,
notwithstanding anything to the contrary contained in such sublease or other
agreement.
10. INDEMNIFICATION.
10.1 None of the Landlord Entities shall be liable and Tenant hereby
waives all claims against them for any damage to any property in or about the
Premises or the Property by or from any cause whatsoever. Tenant shall protect,
indemnify and hold the Landlord Entities harmless from and against any and all
loss, claims, liability or costs (including court costs and attorney's fees)
incurred by reason of (a) any damage to any property (including but not limited
to property of any Landlord Entity) or any injury (including but not limited to
death) to any person occurring in, on or about the Premises or the Building to
the extent that such injury or damage shall be caused by or arise from any act
or omission of Tenant, its agents, servants, employees, invitees, contractors,
or visitors; (b) the conduct or management of any work or thing whatsoever done
by Tenant, or any collocator or other party given access the Premises or the
Building by Tenant, in or about the Premises or the Building; or (c) the failure
by Tenant, or any collocator or other party given access to the Premises or the
Building by Tenant, to comply with any and all governmental laws, ordinances and
regulations applicable to the condition or use of the Premises or its occupancy
which are Tenant's responsibility under the Lease. Except in relation to
Hazardous Materials, which shall survive the termination of this Lease
indefinitely, the provisions of this Article shall survive the termination of
this Lease for five (5) years after the termination of this Lease with respect
to any claim or liability accruing prior to such termination.
10.2 None of the Tenant Entities shall be liable and Landlord hereby waives
all claims against them for any damage to any property in or about the Premises
or the Property by or from any cause whatsoever. Landlord shall protect,
indemnify, and hold Tenant harmless from and against any and all loss, claims,
damages, awards, liability or costs (including court costs and
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<PAGE>
attorney's fees) incurred by reason of or arising out of (a) any damage to any
property (including but not limited to the property of Tenant) or any injury
(including but not limited to death) to any person occurring in, on or about the
Premises or the Building, to the extent that such injury or damage shall be
caused by or arise from any act or omission of Landlord, its agents, servants,
employees, invitees, contractors or visitors; (b) the conduct or management of
any work or thing whatsoever done by Landlord, or any other party (excluding
other tenants) given access to the Premises or the Building by Landlord, in or
about the Premises or Building; (c) the failure by Landlord or any other party
(excluding other tenants) given access to the Premises or the Building by
Landlord, or any other party (excluding other tenants) given access to the
Premises or the Building by Landlord to comply with any and all governmental
laws, ordinances and regulations applicable to the condition or use of the
Building or its occupancy which are Landlord's obligation under this Lease.
Except in relation to Hazardous Materials, which shall survive the termination
of this Lease indefinitely, the provisions of this Article shall survive the
termination of this Lease for five (5) years after the termination of this Lease
with respect to any claim or liability accruing prior to such termination.
10.3 Notwithstanding anything to the contrary set forth in Sections 10.1
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and 10.2 above or elsewhere in this Lease, in the event of any claims regarding
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which Landlord and Tenant are required to indemnify the other are covered by
insurance carried by one party and not covered by insurance carried by the other
party, the insured party shall use its commercially reasonable efforts to obtain
recovery for such claims from its applicable insurer and the uninsured party
shall not be obligated to reimburse, indemnify, protect, defend or hold harmless
the insured party to the extent that the claims are covered by the applicable
insurance carried by the insured party.
11. INSURANCE.
11.1 Tenant's Insurance.
11.1.1 Tenant shall keep in force throughout the Term: (a) a
Commercial General Liability insurance policy or policies with a limit of not
less than $2,000,000.00 per occurrence and not less than $5,000,000.00 in the
annual aggregate (not less than $25,000 deductible for liability), or such
reasonable and customary larger amount as Landlord may prudently require from
time to time, covering bodily injury and property damage liability, and
$1,000,000 products/completed operations aggregate; (b) Business Auto Liability
covering owned, non-owned and hired vehicles with a limit of not less than
$1,000,000 per accident; (c) insurance protecting against liability under
Worker's Compensation Laws with limits at least as required by statute; (d)
Employers Liability with limits of $500,000 each accident, $500,000 disease
policy limit, $500,000 disease-each employee; and (e) All Risk or Special Form
coverage protecting Tenant against loss of or damage to Tenant's alterations,
additions, improvements, carpeting, floor coverings, paneling, decorations,
fixtures, inventory and other business personal property situated in or about
the Premises to the full replacement value of the property so insured ($100,000
deductible).
11.1.2 Tenant shall have the right to self-insure for its All Risk
or Special Form coverage to be carried by Tenant under this Lease as long as
Tenant's net worth exceeds $200,000,000.00 determined in accordance with GAAP.
Whenever Tenant elects to so self-insure, Tenant shall, for all purposes of this
Lease, be deemed to be carrying such insurance. Tenant shall notify Landlord in
writing when Tenant elects to self-insure pursuant to this Section 11.1.2 and,
--------------
if Tenant shall have made such election, Tenant shall notify Landlord when
Tenant is not self-insuring at any time thereafter. If Tenant is self insuring
and its net worth falls below $200,000,000, Tenant shall obtain the All Risk or
Special Form insurance required under Section 11.1 within 15 business days
------------
thereafter.
11.1.3 Each of the aforesaid policies shall (a) be provided at
Tenant's expense; (b) name Landlord and the building management company, if any,
as additional insureds as their interests may appear; (c) be issued by an
insurance company with a minimum Best's rating of "A-IX" during the Term; and
(d) provide that said insurance shall not be canceled, reduced or materially
modified, unless thirty (30) days prior written notice (ten days for non-payment
of premium) shall have been given to Landlord; and said policy or policies or
certificates thereof
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shall be delivered to Landlord by Tenant upon the Commencement Date and at least
thirty (30) days prior to each renewal of said insurance.
11.1.4 In the event Landlord or Tenant shall have been named as an
additional insured in the other's insurance policies, Landlord or Tenant,
however applicable, shall promptly endorse to the order of the other, without
recourse, any check, draft or order for the payment of money representing the
proceeds of any such policy or any other payment growing out of or connected
with said policy, except to the extent such proceeds are payable in connection
with any unsatisfied indemnification obligation from the insured to the
additional insured.
11.2 Landlord's Insurance.
11.2.1 At all times during the term of this Lease, Landlord will
carry and maintain All Risk, physical damage property insurance covering the
Building, its equipment and common area furnishings (excluding any of Tenant's
property or equipment) and all of its other personal property in amounts not
less than their full replacement cost. Landlord shall also carry commercial
general liability insurance. The insurance coverages and amounts in this
section will be reasonably determined by Landlord based on coverages carried by
prudent owners of comparable buildings in the vicinity of the Building.
11.2.3 Each of the aforesaid policies shall (a) be provided at
Landlord's expense; (b) name Tenant and each of its subtenants, if any, as
additional insureds; (c) be issued by an insurance company with a minimum
Best's rating of "A-IX" during the Term; and (d) provide that said insurance
shall not be canceled, reduced or materially modified, unless thirty (30) days
prior written notice (ten days for non-payment of premium) shall have been given
to Tenant; and said policy or policies or certificates thereof shall be
delivered to Tenant by Landlord upon the Commencement Date and at least thirty
(30) days prior to each renewal of said insurance.
11.3 Alterations. Whenever Landlord or Tenant shall undertake any
alterations in, to or about the Premises or the Building, the subject party's
insurance must include Builders' Risk coverage covering injuries to persons and
damage to property arising in connection with such alternations, without
limitation including liability under any applicable structural work act, and
such other insurance as is usual and customary for similarly situated commercial
buildings undergoing similar work as Landlord or Tenant shall reasonably
require; and the policies of or certificates evidencing such insurance must be
delivered to the other party prior to the commencement of any such alterations.
12. WAIVER OF SUBROGATION. Tenant and Landlord hereby mutually waive their
respective rights of recovery against each other for any loss insured by fire,
extended coverage, All Risks or other insurance now or hereafter existing for
the benefit of the respective party but only to the extent of the net insurance
proceeds payable under such policies. Each party shall obtain any special
endorsements required by their insurer to evidence compliance with the
aforementioned waiver. Failure of any party to carry the required insurance
shall not invalidate the provision, which waiver in such an event shall be to
the extent of the proceeds that would be available if such insurance was
carried.
13. SERVICES AND UTILITIES.
13.1 Landlord agrees to furnish the following services and utilities: (a)
water to the common area restrooms, to the Premises and for all heating,
ventilating, air conditioning and fire suppression systems serving the Premises,
24 hours each day, 7 days a week, suitable for normal office use of the
Premises; (b) heat and air conditioning required in Landlord's reasonable
judgment for the use of the common areas of the Building during ordinary
business hours (but exclusive in any event of Saturdays, Sundays and legal
holidays); (c) cleaning and janitorial service for common areas typical of other
comparable and similarly situated buildings; (d) elevator service by nonattended
automatic elevators, with at least one (1) elevator in operation at all times
and with Landlord using its best efforts keep at least two (2) elevators in
operation during ordinary business hours; (e) such window washing as may from
time to time in Landlord's judgment be reasonably required; and (f) trash bins
with adequate capacity for the deposit of
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<PAGE>
refuse generated in the Premises (excluding refuse generated from Tenant's Food
Concession, as defined in Article 46 hereof), which trash bins shall be located
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adjacent to the Building, and which refuse Landlord shall remove from the
Property periodically.
13.2 The provision of electricity to the Building shall be governed by
Exhibit to this Lease.
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13.3 Should Tenant require any service in addition to that described in
Section 13.1, Landlord may, upon terms to be agreed and upon reasonable advance
- ------------
notice by Tenant, furnish such additional service, and Tenant agrees to pay
Landlord such charges as may be agreed upon, including any tax imposed thereon,
but in no event at a charge less than Landlord's actual cost for such additional
service and, where appropriate, a reasonable allowance for depreciation of any
systems being used to provide such service.
13.4 Wherever heat-generating machines or equipment are used by Tenant in
the Premises which affect the temperature in the common areas or other portions
of the Building otherwise maintained by Landlord's air conditioning system,
Landlord reserves the right to require Tenant to install additional air
conditioning units in or for the benefit of the Premises and the cost thereof,
including the cost of installation and the cost of operations and maintenance,
shall be paid by Tenant.
13.5 Tenant shall cause water flow and electric current check meters to be
installed at Landlord's main feed panels which serve the Building so as to
measure the amount of water and electric current used by Tenant. Tenant shall
be responsible for the costs of such installation up to a maximum of $10,000,
with any costs in excess thereof being borne by Landlord. Tenant shall in
addition to the aforementioned $10,000, be responsible for payment of any
deposits, assessments, connection fees, tap fees or similar charges required to
be paid in connection therewith to the extent the same are not otherwise
required to be paid, or are in amounts greater than that required to be paid, in
connection with Landlord's Base Building Improvements due to Tenant's particular
use of the Premises (i.e. to the extent required in connection with the use of
the Premises for other than general office purposes). Tenant shall be
responsible at its cost and expense for installation of plumbing and electrical
service from Landlord's main feed panels to the Premises, the plans for which
must be submitted to and approved by Landlord in advance. Tenant agrees to pay
as additional rent to Landlord, within ten (10) business days after Tenant's
receipt of Landlord's request together with bills issued by the local public
utility or agency which provided the same, the cost of all such water and
electric current consumed at the rates charged for such services by the local
public utility or agency, as the case may be, furnishing the same. Nothing
permitted in this Section shall permit Tenant to interfere with other tenants'
use of the main feed panels or to adversely affect the Building structure or any
Building systems.
13.6 Landlord may interrupt the main feed of water, electricity, heating,
air conditioning, ventilation, elevator, plumbing, electrical systems, and or
any other utilities or services to the Building which may serve the Premises,
for reason of emergency or to comply with any Law. In the case of an
interruption necessitated by an emergency, Landlord agrees to provide Tenant
with notice (which may be oral notice) of such interruption as soon as
reasonably practicable under the circumstances. In the case of interruption
necessitated in order to comply with Laws, Landlord agrees to provide Tenant ten
(10) business days prior notice of such interruption, unless such Laws require
that such interruption occur in a shorter period of time, in which case Landlord
shall so indicate in its notice to Tenant which shall be provided to Tenant as
soon as possible.
13.7 Landlord shall provide security services for the Property twenty-four
(24) hours per day, seven (7) days per week, in accordance with the
specifications identified in Exhibit attached to this Lease. The hours of
----------
operation of the Building shall be 8:00 a.m. to 6:00 p.m. Monday thru Friday and
8:00 a.m. to 6:00 p.m. on Saturday, excepting Federal holidays. After-hours
access to the Building shall be by an electronic access control system. Tenant
shall have access to the Building, the Special Equipment Areas and the Parking
Area twenty-four (24) hours a day, seven (7) days a week. Landlord shall
maintain a card key access system at the main entrance of the Building and the
Parking Area. Such access system for the Building shall lock-off elevator
access to the floors on which any portion of the Premises is located after the
normal
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<PAGE>
hours of operation of the Building, and shall permit access to such floors by
Tenant and its personnel which hold access key cards. Prior to the Rent
Commencement Date, Landlord shall provide to Tenant, at Landlord's expense, an
adequate number of access key cards for use by Tenant and its personnel.
Landlord shall also provide additional and replacement key cards upon request of
Tenant during the term of this Lease, provided that Tenant shall reimburse
Landlord for Landlord's actual costs of providing such additional or replacement
key cards. Tenant shall be entitled, at its sole cost, to install its own
security systems for the Premises.
14. HOLDING OVER. Tenant shall pay Landlord for any period Tenant retains
possession of the Premises or part thereof after termination of this Lease by
lapse of time or otherwise at the rate ("Holdover Rate") which shall be the sum
of the amount of the Annual Net Rent for the last period prior to the date of
such termination and all Rent Adjustments under Article 4 for the first sixty
(60) days, and thereafter the sum of the amount of the Annual Net Rent for the
last period prior to the date of such termination multiplied by 150% plus all
Rent Adjustments under Article 4. In any event, no provision of this Article 14
shall be deemed to waive Landlord's right of reentry or any other right under
this Lease or at law.
15. SUBORDINATION. This Lease shall be subject and subordinate at all times
to ground or underlying leases and to the lien of any mortgage or deed of trust
now or hereafter placed against the Building or the Property; provided, however,
that Tenant receives a non-disturbance agreement in the form attached hereto as
Exhibit or in such other form as Landlord, Tenant and Landlord's ground
- -------------
lessor, mortgagee, trustee or holder of any such mortgage or deed of trust may
reasonably approve in connection with such subordination; and if the ground
lessor, mortgagee, trustee or holder of any such mortgage or deed of trust
elects to have this Lease be superior to any such instrument, then, by notice to
Tenant, this Lease shall be deemed superior, whether this Lease was executed
before or after said instrument. Said non-disturbance agreement shall be in
recordable form and may be recorded at Tenant's election and expense. The
subordination of this Lease in accordance with the foregoing terms is subject to
the condition that Tenant shall not be named or joined in any action or
proceeding to foreclose any such ground lease, mortgage or deed of trust except
as may be required by law. Tenant is irrevocably authorized to rely upon and
comply with any notice received by Tenant from any holder of any such ground
lease, mortgage or deed of trust of the Property or any portion thereof
requiring payment to it of any rental or other sum which is due and payable by
Tenant under this Lease, or with respect to the performance of any of Tenant's
other obligations under this Lease. Tenant shall have no duty to inquire as to
whether the subject holder of any such ground lease, mortgage or deed of trust
was authorized or entitled to deliver the subject notice.
16. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with
all the rules and regulations as set forth in Exhibit to this Lease and all
-----------
reasonable modifications of and additions to them from time to time put into
effect by Landlord. Landlord agrees that, except to the extent required by or
in response to any governmental rules, statutes or regulations, the Rules and
Regulations shall not be changed, revised or enforced: (i) in any unreasonable
or discriminatory manner by Landlord; (ii) in a manner as to interfere with
Tenant's permitted use of the Premises; or (iii) in a manner that increases
Tenant's cost of operations or Tenant's monetary obligations under this Lease
beyond de minimus increases. In the event of a conflict between the provisions
of this Lease and the provisions of the Rules and Regulations, the provisions of
this Lease shall control. In the event any other tenant or occupant of the
Building fails to comply with the Rules and Regulations, and such non-compliance
interferes with Tenant's use of, or operations in, the Premises, Landlord shall
use commercially reasonable efforts to cause such other tenants and/or occupants
to comply with the Rules and Regulations.
17. REENTRY BY LANDLORD.
17.1 Landlord reserves and shall at all times have the right upon three (3)
business days prior written notice, to re-enter the Premises with escort of
Tenant (provided no notice or escort shall be required in the event of any
emergency) to inspect the same, to perform any Building maintenance or repairs
that must be performed from within the Premises, to show said Premises to
prospective purchasers, mortgagees or, during the last twelve (12) months of the
then-current Term, tenants, and may for that purpose erect, use and maintain
scaffolding, pipes, conduits and
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<PAGE>
enclosures and open any wall, ceiling or floor in and through the Building and
Premises where reasonably required by the character of the work to be performed,
provided entrance to the Premises shall not be blocked thereby, and further
provided that the business of Tenant shall not be interfered with. Tenant may
designate certain areas of the Premises as "Secured Areas" should Tenant require
such areas for the purpose of securing certain valuable property or confidential
information or protecting computer broadcasting or communications equipment or
operations or other sensitive equipment or operations. Such designation to be
effective must be in writing to Landlord and must contain a floor plan or
similar exhibit clearly marking and identifying with specificity the areas so
designated. Notwithstanding anything to the contrary set forth in this Lease,
Landlord may not enter such Secured Areas except (i) in the case of emergency or
(ii) for the purposes set forth in this Section 17.1. Any such entry into the
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Secured Areas shall require Tenant's prior approval, which approval shall not be
unreasonably withheld, conditioned or delayed, and shall require Landlord to be
accompanied by a Building security officer, the Building engineer or such other
previously designated person. If Landlord desires access to the Secured Areas
for the purposes set forth in this Section 17.1, Landlord shall provide Tenant
------------
with ten (10) days' prior written notice of the specific date, time and purpose
of such entry, which are subject to Tenant's reasonable approval; provided,
however, that (i) no such notice shall be required in the case of an emergency
and (ii) in no event, except in the event of emergency, shall Landlord be
permitted to enter any Secured Areas at any time during which the same are used
for live broadcasting or recording. In any event, each entry to the Premises by
Landlord or any of its employees, agents or contractors shall be accomplished as
expeditiously as reasonably possible and in a manner so as to cause as little
interference with Tenant's operations as possible. Landlord shall not be liable
for any re-entry to any Secured Area in violation of the terms of this Section
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17.1 if such portion of the Premises is not properly identified as a Secured
- ----
Area in a notice delivered to Landlord.
17.2 Landlord shall have the right, upon notice to Tenant, to change the
arrangement and/or locations of entrances, passageways, doors, doorways,
corridors, windows, elevators, stairs, toilets or other public parts of the
Building and to change the name, number or designation by which the Building is
commonly known. Notwithstanding the foregoing or any other provision of this
Lease, no such change shall: (a) affect access to or visibility of the
Premises; (b) alter the size or dimensions of the Premises; (c) adversely affect
the use of the Premises or the conduct of operations therein; (d) reduce
Tenant's parking privileges; (e) adversely affect the use of the Specialty
Equipment; or (f) result in any increase in costs incurred by Tenant in
connection with its business operations in the Premises or the operation of the
Specialty Equipment beyond de minimus increases. Upon the completion of any
such work, Landlord shall diligently proceed to restore the areas of the
Premises and the Property affected by such work as nearly as possible to the
condition that existed immediately prior to the commencement of the subject
work. All such installations by Landlord shall be undertaken in such a manner
so as to interfere as little as possible with operations in the Premises. In
the event of an address or name change for the Building or Property effected at
Landlord's direction, Landlord shall promptly reimburse Tenant for reasonable
actual out-of-pocket costs incurred by Tenant as a result thereof for
replacement of letterhead and business cards, cancellation and replacement of
Tenant's phone and address listings in any telephone or professional
directories, and the mailing of announcements and postage thereon.
17.3 For each of the aforesaid purposes, Landlord shall at all times have
and retain a key with which to unlock all of the doors in the Premises,
excluding the Secured Areas except as required by law, and Landlord shall have
the right to use any and all means which Landlord may deem proper to open said
doors in an emergency to obtain entry to any portion of the Premises. As to any
portion to which access in an emergency cannot be had by means of a key or keys
in Landlord's possession, Landlord is authorized to gain access by such means as
Landlord shall reasonably elect and the cost of repairing any damage occurring
in doing so shall be borne by Tenant.
18. DEFAULTS.
18.1 By Tenant.
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<PAGE>
18.1.1 The following events shall be deemed to be "Material
Breaches" under this Lease:
18.1.1.1 (i) Tenant shall fail to pay any amount due and
payable by Tenant under this Lease, which amount exceeds one-half ( 1/2) of the
sum of the then-current monthly installment of Annual Net Rent plus Tenant's
Proportionate Share of Direct Expenses and Taxes, (ii) such failure shall
continue for ten (10) days after Tenant's receipt of written notice that such
payment was not made when due, and (iii) if such payment is not made within such
ten (10) day period, such failure shall continue for the "Applicable Second
Notice Period" (as hereafter defined) after Tenant's receipt of a second written
notice that such payment was not made as directed by the first notice. The
"Applicable Second Notice Period" shall be thirty (30) days if at the time of
such second notice the Letter of Credit is being held by Landlord (or its
Lender) in the then required amounts, or ten (10) days if at the time of such
second notice the Letter of Credit either has been returned to Tenant or is not
maintained in the then required amounts. Such second notice shall state in 12-
point, bold-faced type (a) "Second Notice," (b) that it is being sent pursuant
to Section 18.1 of this Lease, and (c) that if Tenant fails to pay the subject
------------
amount within such ten (10) or thirty (30) day period, as applicable, after
Tenant's receipt of the subject notice, Landlord may exercise its right to
terminate this Lease; provided further, in addition to being sent pursuant to
the notice provisions of this Lease, such second notice shall be sent both first
class mail and certified mail - return receipt requested - to the Premises
addressed to the attention of the President and the General Counsel of Tenant,
specific names for which shall not be required in such notice, and to such other
persons as Tenant may designate in writing to Landlord from time to time.
18.1.1.2 Tenant shall fail to comply with any order, injunction
or other mandate of any court with respect to any failure by Tenant to perform
or observe any matter required to be performed or observed by it under this
Lease within thirty (30) days of the date of such order, injunction or other
mandate, which failure to comply (i) materially adversely interferes with any
other tenant's business operations, or (ii) subjects Landlord to potential
criminal liability.
18.1.2. The following events shall be deemed to be "Events of
Default" under this Lease:
18.1.2.1 Tenant shall fail to pay any sum becoming due to
Landlord required by this Lease, which failure does not otherwise constitute a
Material Breach, and such failure shall continue for a period of ten (10) days
after Tenant's receipt of written notice that such payment was not made when
due.
18.1.2.2 Tenant shall fail to perform or observe any matter
required to be performed or observed by it under this Lease which is not
provided for in another Section of this Article within thirty (30) days after
Tenant's receipt of notice from Landlord specifying Tenant's failure to perform;
provided, however, that if the nature of Tenant's obligation is such that more
than thirty (30) days are required for its performance, then an Event of Default
shall not be deemed to have occurred so long as Tenant shall commence such
performance promptly after its receipt of notice from Landlord and thereafter
diligently pursue the same to completion.
18.2 By Landlord. A "Landlord Default" shall occur under this Lease in the
-----------
event Landlord fails to perform or observe any matter required to be performed
or observed by it under this Lease within thirty (30) days after Landlord's
receipt of notice from Tenant specifying Landlord's failure to perform;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for its performance, then a Landlord Default
shall not be deemed to have occurred so long as Landlord shall commence such
performance promptly after its receipt of notice from Tenant and thereafter
diligently pursues the same to completion.
19. REMEDIES.
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19.1 Landlord's Remedies.
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<PAGE>
19.1.1 Upon the occurrence of a Material Breach described or
referred to in Section 18.1.1., Landlord shall have the option to pursue any one
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or more of the following remedies without any notice or demand whatsoever,
concurrently or consecutively and not alternatively:
19.1.1.1 For a Material Breach set forth in Section 18.1.1.1,
----------------
Landlord may terminate the Lease by sending a written notice (a "Termination
Notice") to Tenant notifying Tenant that Landlord is terminating the Lease and
file an action for repossession of the Premises. Notwithstanding the foregoing,
Tenant shall have the right, not to be exercised more than two (2) times in any
Lease Year or more than five (5) times during any ten (10) year period of the
Term, as the same may be extended, at any time following either Tenant's receipt
of a Termination Notice or Landlord's filing of its action for repossession of
the Premises as a result thereof, to reinstate the Lease by paying to Landlord
all sums giving rise to or resulting from said Material Breach as well as any
then-existing monetary Event of Default, together with interest at the Interest
Rate, court costs and reasonable attorney's fees. The right of Tenant to
reinstate the Lease set forth in this Section 19.1.1.1 is in lieu of and not in
----------------
addition to any and all other rights to so reinstate the Lease in connection
with a default by Tenant which rights may exist at any time under any applicable
law or in equity, and Tenant, except as provided above, hereby waives any and
all rights to reinstate the Lease or redeem the Premises in connection with a
default by Tenant which rights may exist at any time under any applicable law or
in equity.
19.1.1.2 For a Material Breach set forth in Section 18.1.1.2
----------------
above, Landlord may terminate the Lease by delivering a Termination Notice to
Tenant and file an action for repossession of the Premises.
19.1.1.3 Subject to Tenant's right to reinstate this Lease in
accordance with the terms of Section 19.1.1.1, upon any termination of this
----------------
Lease as a result of a Material Breach, Landlord shall be entitled to pursue all
legal and equitable remedies for repossession of the Premises. Subject to
Tenant's right to reinstate this Lease in accordance with the terms of Section
-------
19.1.1.1, on the date set by any court, arbitrator, sheriff or constable for
- --------
Landlord's repossession of the Premises, Tenant shall surrender possession of
and vacate the Premises and deliver possession thereof to Landlord, and Tenant
hereby grants to Landlord full and free license to enter into and upon the
Premises on such date and to repossess Landlord of the Premises as of Landlord's
former estate and to expel or remove Tenant and any others who may be occupying
or be within the Premises and to remove Tenant's signs and other evidence of
tenancy and all other property of Tenant therefrom without being deemed in any
manner guilty of trespass, eviction or forcible entry or detailed, and without
incurring any liability for any damage resulting therefrom, Tenant waiving any
right to claim damages for such re-entry and expulsion, and without
relinquishing Landlord's right to rent or any other right given to Landlord
under this Lease or by operation of law.
19.1.1.4 Subject to Tenant's right to reinstate this Lease in
accordance with the terms of Section 19.1.1.1, upon Landlord's termination of
----------------
this Lease pursuant to Section 19.1.1, Landlord shall be entitled to recover as
--------------
damages, all rent, including any amounts treated as additional rent under this
Lease, and other sums due and payable by Tenant on the date of termination
including but not limited to interest at the Interest Rate, court costs and
reasonably attorney's fees, plus as liquidated damages and not as a penalty, an
amount equal to the sum of (a) an amount equal to the then present value of the
rent reserved in this Lease for the residue of the stated Term of this Lease
including any amounts treated as additional rent under this Lease and all other
sums provided in this Lease to be paid by Tenant, minus the fair rental value of
the Premises for such residue; (b) the estimated expenses incurred in recovery
of the Premises, preparation for reletting and for the reletting itself; and (c)
the cost of performing any other covenants which Tenant would have otherwise
been required to perform prior to or in connection with the termination or
expiration of this Lease.
19.1.2 Upon the occurrence of an Event of Default described or
referred to in Article 18 that otherwise does not result in a Material Breach,
Landlord shall not have the right to terminate this Lease or file an action for
possession of the Premises, but shall be entitled to pursue any and all other
legal or equitable remedies without any notice or demand whatsoever,
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<PAGE>
concurrently or consecutively and not alternatively, to recover damages arising
out of the Event of Default and/or assert its rights for specific performance,
to the extent permitted by Law. Any award rendered in favor of Landlord in
connection with a Material Breach or an Event of Default shall bear interest at
the Interest Rate accruing from the date of such award until said award is paid
by Tenant to Landlord.
19.1.3 Upon the occurrence of an Event of Default under Section
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18.1.2.2 above or a Material Breach under Section 18.1.1.2 above, Landlord may,
- -------- ----------------
at Landlord's option, enter into and upon the Premises or any portion of the
Property containing any of Tenant's Alterations or Special Equipment, and cure
the same, without being deemed in any manner guilty of trespass, eviction or
forcible entry and detainer and without incurring any liability for any damage
or interruption of Tenant's business resulting therefrom, and Landlord shall be
entitled to prompt reimbursement of all costs incurred by Landlord in curing
such matter, plus interest at the Interest Rate accrued from the date incurred
by Landlord until paid by Tenant to Landlord. Notwithstanding the foregoing or
any other provision in this Lease, if the subject failure by Tenant to observe
or perform any matter required to be performed or observed by it under this
Lease would constitute an emergency or would materially adversely affect the
Property, regardless of whether the subject matter has ripened into an Event of
Default or a Material Breach, then Landlord shall promptly notify Tenant of such
circumstance and, unless Tenant shall diligently and promptly undertake action
to cure the subject failure on an expedited basis, Landlord may, in addition to
all other rights available to Landlord under this Lease, at law or in equity,
cure the subject matter at Tenant's cost by taking whatever action is reasonably
necessary to cure the same and Landlord shall be entitled to prompt
reimbursement of all costs incurred by Landlord in curing such matter, plus
interest at the Interest Rate accrued from the date incurred by Landlord until
paid by Tenant to Landlord.
19.1.4 If at any time a dispute shall arise as to any amount to be
paid by Tenant to Landlord under the provisions of this Lease, Tenant shall have
the right to make payment "under protest," such payment not being regarded as a
voluntary payment, and there shall survive the right on the part of Tenant to
institute suit for recovery of such sum. If it shall be adjudged or determined
that there was no legal obligation on the part of Tenant to pay such sum or any
portion thereof, Tenant shall be entitled to recover the sum or so much thereof
as it was not required to pay, together with interest thereon at the Interest
Rate. If at any time a dispute arises between the parties hereto as to the
performance by Tenant of any other matter which Landlord claims is required to
be performed by Tenant under the provisions of this Lease, then Tenant may
perform the subject matter and pay the cost thereof "under protest," the
performance of the subject matter in no event being regarded as voluntary
performance, and there shall survive the right on the part of Tenant to
institute suit for recovery of the cost of the subject matter. If it shall be
adjudged that there was no obligation on the part of Tenant to perform the
subject matter or any portion thereof, Tenant shall be entitled to recover from
Landlord all costs incurred in connection with the subject matter or so much
thereof as Tenant was not required to perform under this Lease, together with
interest thereon accrued at the Interest Rate.
19.1.5 Any and all property which may be removed from the Premises
by Landlord pursuant to the authority of this Lease or of law, to which Tenant
is or may be entitled, may be handled, removed and/or stored, as the case may
be, by or at the direction of Landlord but at the risk, cost and expense of
Tenant, and Landlord shall in no event be responsible for the value,
preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand,
any and all expenses incurred in such removal and all storage charges against
such property so long as the same shall be in Landlord's possession or under
Landlord's control.
19.2 Tenant's Remedies. Upon the occurrence of a Landlord Default, Tenant
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may, in addition to all other rights available to Tenant under this Lease, at
law or in equity, elect to exercise any one or more of the following remedies
without any notice or demand whatsoever, concurrently or consecutively and not
alternatively:
19.2.1 Tenant may cure the Landlord Default at Landlord's cost by
taking whatever action is reasonably necessary to cure said Landlord Default.
Notwithstanding the foregoing or any other provision in this Lease, if the
subject failure by Landlord to observe or perform any matter required to be
performed or observed by it under this Lease would constitute
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an emergency or would materially impair Tenant's ability to conduct its business
operations in all or any portion of the Premises, regardless of whether the
subject matter has ripened into a Landlord Default, then Tenant shall promptly
notify Landlord of such circumstance and, unless Landlord shall diligently and
promptly undertake action to cure the subject failure on a expedited basis,
Tenant may, in addition to all other rights available to Tenant under this
Lease, at law or in equity, cure the subject matter at Landlord's cost by taking
whatever action is reasonably necessary to cure the same and Tenant shall be
entitled to prompt reimbursement of all costs incurred by Tenant in curing such
matter, plus interest at the Interest Rate accrued from the date incurred by
Tenant until paid by Landlord to Tenant.
19.2.2 Tenant may recover damages caused by the Landlord Default
and/or assert its rights for specific performance, to the extent permitted by
Law. In addition, Tenant may, after five (5) days written notice to Landlord,
offset against any amounts due from Tenant to Landlord under this Lease, all or
any portion of any final, non-appealable court or arbitration judgment against
Landlord. Any award rendered in favor of Tenant in connection with a Landlord
Default shall bear interest at the Interest Rate accruing from the date of such
award until said award is paid by Landlord to Tenant or until Tenant has fully
offset such award against amounts due from Tenant to Landlord under this Lease.
19.2.3 If at any time a dispute shall arise as to any amount to be
paid by Landlord to Tenant under the provisions of this Lease, Landlord shall
have the right to make payment "under protest," such payment not being regarded
as a voluntary payment, and there shall survive the right on the part of
Landlord to institute suit for recovery of such sum. If it shall be adjudged or
determined that there was no legal obligation on the part of Landlord to pay
such sum or any portion thereof, Landlord shall be entitled to recover the sum
or so much thereof as it was not required to pay, together with interest thereon
at the Interest Rate. If at any time a dispute arises between the parties
hereto as to the performance by Landlord of any other matter which Tenant claims
is required to be performed by Landlord under the provisions of this Lease, then
Landlord may perform the subject matter and pay the cost thereof "under
protest," the performance of the subject matter in no event being regarded as
voluntary performance, and there shall survive the right on the part of Landlord
to institute suit for recovery of the cost of the subject matter. If it shall
be adjudged that there was no obligation on the part of Landlord to perform the
subject matter or any portion thereof, Landlord shall be entitled to recover
from Tenant all costs incurred in connection with the subject matter or so much
thereof as Landlord was not required to perform under this Lease, together with
interest thereon accrued at the Interest Rate.
19.3 General.
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19.3.1 If, on account of any breach or default by Tenant or
Landlord in its respective obligations under the terms and conditions of this
Lease, it shall become necessary or appropriate for the other party to employ or
consult with an attorney concerning or to enforce or defend any of its rights or
remedies arising under this Lease, the breaching or defaulting party agrees to
pay to the other all reasonable attorney's fees and costs so incurred. Landlord
and Tenant each expressly waive any right to: (a) trial by jury; and (b) service
of any notice required by any present or future law or ordinance applicable to
landlords or tenants but not required by the terms of this Lease.
19.3.2 Pursuit by either party of any of the foregoing remedies
shall not preclude pursuit of any of the other remedies provided in this Lease
or any other remedies provided by law or equity (all such remedies being
cumulative), nor shall pursuit of any remedy provided in this Lease constitute a
forfeiture or waiver of any sums due to Landlord or Tenant under this Lease or
of any damages accruing to Landlord or Tenant by reason of the violation of any
of the terms, provisions and covenants contained in this Lease by the other
party.
19.3.2 No act or thing done by Landlord or Tenant or their
respective agents during the Term shall be deemed a termination of this Lease or
a surrender or an acceptance of the surrender of the Premises, and except as
expressly provided for in this Lease, no agreement to terminate this Lease or
surrender or accept a surrender of said Premises shall be valid, unless in
writing signed by Landlord. No waiver by Landlord or Tenant of any violation or
breach of any of the terms, provisions and covenants contained in this Lease
shall be deemed or construed to
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constitute a waiver of any other violation or breach of any of the terms,
provisions and covenants contained in this Lease. Either party's acceptance of
any payment required under the terms of this Lease after the occurrence of a
Material Breach, Event of Default or Landlord Default, as applicable, shall not
be construed as a waiver of such breach or default, unless such party accepting
such payment so notifies the other in writing. Forbearance by Landlord or Tenant
in enforcing one or more of the remedies provided in this Lease upon a Material
Breach, Event of Default or Landlord Default, as applicable, shall not be deemed
or construed to constitute a waiver of such Material Breach, Event of Default or
Landlord Default, as applicable, or of Landlord's or Tenant's right, as the case
may be, to enforce any such remedies with respect to such Material Breach, Event
of Default or Landlord Default or any subsequent Material Breach, Event of
Default or Landlord Default.
19.3.3. Each party shall use its reasonable efforts to mitigate
damages incurred in connection with any default or breach by the other party
under this Lease.
20. TENANT'S BANKRUPTCY OR INSOLVENCY.
20.1 Tenant's Bankruptcy. If at any time and for so long as Tenant
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shall be subjected to the provisions of the United States Bankruptcy Code or
other law of the United States or any state thereof for the protection of
debtors as in effect at such time (each a "Debtor's Law"):
20.1.1 Tenant, Tenant as debtor-in-possession, and any trustee or
receiver of Tenant's assets (each a "Tenant's Representative") shall have no
greater right to assume or assign this Lease or any interest in this Lease, or
to sublease any of the Premises than accorded to Tenant in Article 9, except to
the extent Landlord shall be required to permit such assumption, assignment or
sublease by the provisions of such Debtor's Law. Without limitation of the
generality of the foregoing, any right of any Tenant's Representative to assume
or assign this Lease or to sublease any of the Premises shall be subject to the
conditions that:
20.1.1.1. Such Debtor's Law shall provide to Tenant's
Representative a right of assumption of this Lease which Tenant's Representative
shall have timely exercised and Tenant's Representative shall have fully cured
any default of Tenant under this Lease.
20.1.1.2 Tenant's Representative or the proposed assignee, as
the case shall be, shall have deposited with Landlord as security for the timely
payment of rent an amount equal to the larger of: (a) three months' rent and
other monetary charges accruing under this Lease; and (b) the required amount,
if any, of the security deposit specified in Article 5; and shall have provided
Landlord with adequate other assurance of the future performance of the
obligations of the Tenant under this Lease as required by the Debtor's Law.
Without limitation, such assurances shall include, at least, in the case of
assumption of this Lease, demonstration to the satisfaction of the Landlord that
Tenant's Representative has and will continue to have sufficient unencumbered
assets after the payment of all secured obligations and administrative expenses
to assure Landlord that Tenant's Representative will have sufficient funds to
fulfill the obligations of Tenant under this Lease; and, in the case of
assignment, submission of current financial statements of the proposed assignee,
audited by an independent certified public accountant reasonably acceptable to
Landlord and showing a net worth and working capital in amounts sufficient to
assure the future performance by such assignee of all of the Tenant's
obligations under this Lease.
20.1.1.3 The assumption or any contemplated assignment of this
Lease or subleasing any part of the Premises, as shall be the case, will not
breach any provision of this Lease.
20.1.1.4 Landlord shall have, or would have had absent the
Debtor's Law, no right under Article 9 to refuse consent to the proposed
assignment or sublease by reason of the identity or nature of the proposed
assignee or sublessee or the proposed use of the Premises concerned.
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20.2 Landlord's Bankruptcy. In the event the obligations of Landlord under
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this Lease are not performed during the pendency of a bankruptcy, insolvency or
similar proceeding involving Landlord or following the rejection of this Lease
in accordance with a bankruptcy, insolvency or similar proceeding involving
Landlord as the debtor, then notwithstanding any provision of this Lease to the
contrary, Tenant shall have the right to set off against all amounts next due
and owing by Tenant under this Lease (a) any and all losses, liabilities,
damages, costs and expenses suffered or incurred by Tenant and all amounts
payable by Landlord to Tenant in connection with the non-performance of
Landlord's obligations under this Lease; and (b) any and all losses,
liabilities, damages, costs and expenses suffered or incurred by Tenant and all
amounts payable by Landlord to Tenant in connection with the non-performance of
Landlord's obligations under this Lease following any rejection of this Lease in
any such proceeding.
21. QUIET ENJOYMENT. Landlord represents and warrants that it has full right
and authority to enter into this Lease and that Tenant, subject to the covenants
and agreements contained in this Lease, shall peaceably and quietly have, hold
and enjoy the Premises for the Term without hindrance or molestation from
Landlord or anyone claiming through Landlord. Landlord shall not be liable for
any interference or disturbance proximately caused by other tenants, or third
parties not within Landlord's control; provided, however, the foregoing shall
not relieve Landlord from any liability, obligation or duty Landlord has under
this Lease, at law or in equity and in no event shall the foregoing relieve
Landlord in the event of Landlord's negligence or wilful misconduct.
22. DAMAGE BY FIRE, ETC.
22.1 In the event the Base Building Improvements, the Base Premises
Improvements and/or any other portion of the Building or the Property which
Landlord is obligated to maintain or repair pursuant to this Lease are damaged
by fire or other cause, subject to the terms of this Article, Landlord shall
forthwith diligently repair the same and this Lease shall remain in full force
and effect. Within sixty (60) days from the date of such damage, Landlord shall
notify Tenant, in writing, of Landlord's reasonable estimation of the length of
time within which material restoration can be made. For purposes of this Lease,
the Building or Premises shall be deemed "materially restored" if they are in
such condition as would allow Tenant to use the Premises and the Property for
the purpose for which it was being used immediately before such damage.
22.2 If such repairs, in the reasonable estimation of Skidmore Owings &
Merrill or such other independent architect or engineer as to which Landlord and
Tenant shall agree, cannot be made within two hundred seventy (270) days from
the date of the damage, Landlord and Tenant shall each have the option of giving
the other, at any time within thirty (30) days after receipt of such independent
architect's or engineer's estimation, notice terminating this Lease. In the
event that neither Landlord nor Tenant exercises its option to terminate this
Lease, then Landlord shall diligently repair or restore such damage, this Lease
continuing in full force and effect and the rent and additional payments due
hereunder shall be proportionately abated as provided in Section 22.10.
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Notwithstanding anything to the contrary set forth in this Article, Landlord may
not terminate this Lease pursuant to this Article unless Landlord similarly
terminates all other leases for space in the Building (but excluding any rights
of any tenants in the separate warehouse building located on the Property).
Further, notwithstanding anything to the contrary set forth in this Article,
Landlord may only terminate this Lease pursuant to this Article in connection
with damage to the Base Premises Improvements or the Base Building Improvements.
22.3 Landlord shall not be required to repair or replace any damage or loss
by or from fire or other cause to any paneling, decorations, partitions,
additions, railings, ceilings, floor coverings, equipment, office fixtures,
Specialty Equipment, Alterations or any other property or improvements installed
on the Premises or elsewhere in the Building by or on behalf of Tenant or
otherwise belonging to Tenant. Subject to the terms of Article 11, any
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insurance which may be carried by Landlord or Tenant against loss or damage to
the Building or Premises shall be for the sole benefit of the party carrying
such insurance and under its sole control.
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22.4 In the event the Alterations are damaged by fire or other cause, and
in the reasonable estimation of Skidmore Owings & Merrill or such other
independent architect or engineer as to which Landlord and Tenant shall agree,
repair of the same cannot be completed within two hundred seventy (270) days
from the date of the damage, Tenant shall have the right to terminate this Lease
by delivering notice to Landlord at any time within thirty (30) days after
receipt of such independent architect's or engineer's estimate. In no event
will Landlord be obligated to restore the Building and or Premises unless Tenant
has waived its right to terminate the Lease under this Section 22.4.
22.5 Subject to the terms of this Article, if: (i) the Premises is damaged
or destroyed or any other portion of the Building or the Property is damaged or
destroyed, such that Tenant's access to the Premises or the use of the Premises
or the Building systems serving the Premises, the Specialty Equipment or the
parking rights under the Lease is substantially impaired; and (ii) in the
reasonable determination of Landlord or Tenant the remaining term of this Lease
following the restoration of the same shall be less than the greater of (a) one
(1) year, or (b) three (3) times as long as the reasonably estimated restoration
period, Landlord or Tenant may, at its option, elect to terminate this Lease by
delivering notice to the other within sixty (60) days following the notified
party's receipt of such determination (or within sixty (60) days following the
thirtieth (30th) day after the date of the casualty, in the event that such
determination is not timely delivered). Termination by Landlord in connection
with the occurrence of damage near the end of the term of this Lease as set
forth above shall not be effective in the event that (1) Tenant then has, or
would with the passage of time have, the right to extend the term of this Lease,
and (2) Tenant notifies Landlord in writing, within sixty (60) days following
Tenant's receipt of Landlord's termination notice, that Tenant is exercising
such extension right, in which case Landlord shall be obligated to diligently
repair and restore the Building subject to the terms of this Article.
22.6 In the event that, for any reason, all damage required to be restored
by Landlord is not restored on or before the two hundred seventieth (270th) day
following its occurrence and as a result thereof Tenant's use and enjoyment of
the Premises, the Specialty Equipment and/or Tenants parking privileges is
materially adversely affected, Tenant shall have the right upon, thirty (30)
days notice thereof to Landlord, to terminate this Lease; and Tenant shall
thereafter have the same right to terminate this Lease upon thirty (30) days
notice following the expiration of every thirty (30) day period thereafter if
all damage required to be restored by Landlord is not then restored. The above
referenced two hundred seventy (270) day period shall be tolled one (1) day for
each day that Landlord's repair of any such damage is delayed as a result of an
act or omission of Tenant or any of its agents, employees, contractors or
invitees.
22.7 The effective date of any termination by Landlord or Tenant under this
Article shall be the date on which Tenant reasonably ceased, or ceases, to use
the Premises for its ordinary business operations as a result of the casualty.
In the event that Tenant is still so using the Premises at the time of the
notice of termination, such effective date shall be the date mutually agreed to
by Landlord and Tenant for Tenant to find, negotiate for, build-out and relocate
to, substitute space.
22.8 Reserved.
22.9 In the event of any damage or destruction to the Building or Premises
by any peril covered by the provisions of this Article 22, subject to Landlord's
security obligation set forth in Section of this Lease, it shall be Tenant's
-----------
responsibility to properly secure the Premises and Tenant shall, promptly
following notice from Landlord, remove any property from the Premises, at its
sole cost and expense, remove such property belonging to Tenant or its licensees
from such portion or all of the Building or Premises to allow Landlord to
perform its restoration obligations hereunder.
22.10 In the event the Premises or any portion thereof, or any other
portion of the Building or the Property, is damaged, and such damage renders the
Premises or any portion thereof untenantable for its then-current use, then
Tenant's rent shall be abated during the time of such untenantability, in the
proportion that the rentable area of the untenantable portion of the Premises
bears to the total rentable area of the Premises. However, in the event that
any portion
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of the Premises is untenantable and the remaining portion of the Premises is not
sufficient to allow Tenant to effectively conduct its business therein, and if
Tenant does not conduct its business from such remaining portion, then for such
time during which Tenant is so prevented from effectively conducting its
business therein, the rent for the entire Premises shall be abated; provided,
however, that when Tenant is able to reoccupy and conduct its business from any
portion of the Premises during such period, the rent allocable to such
reoccupied portion, based on the proportion that the rentable area of such
reoccupied portion of the Premises bears to the total rentable area of the
Premises, shall be payable by Tenant from the date Tenant is able to reoccupy
such portion of the Premises. If Tenant's right to abatement occurs during a
free rent period which arises after the Commencement Date, Tenant's free rent
period shall be extended for the number of days that the abatement period
overlapped the free rent period. Tenant's abatement period shall continue until
Tenant has been given sufficient time, and sufficient access to the Premises, to
rebuild the portion of the Premises damaged, to install its property, furniture,
fixtures, and equipment and to move in over one week.
23. EMINENT DOMAIN.
23.1 If the Premises or any portion thereof are taken under the power of
eminent domain ("condemnation"), this Lease shall terminate as to the part so
taken as of the date the condemning authority takes title or possession,
whichever first occurs, and rent shall be proportionally reduced, subject to the
remaining terms of this Section 23.1. If (i) a portion of the Building or
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Property is taken so that the Premises are permanently deprived of access and
Landlord is unable to provide reasonable alternate access to the Premises within
a time period which is reasonable under the circumstances, or (ii) more than
thirty percent (30%) of either the Premises or the area in which Tenant was
granted parking privileges under this Lease is taken by condemnation and
Landlord is unable to provide reasonable alternate parking as provided below,
Tenant may, at Tenant's option, terminate this Lease as of the date set forth in
Tenant's notice of termination to Landlord. In the event any portion of the
Property taken contains areas within which Tenant is provided its parking
privileges pursuant to this Lease, and provided this Lease is not terminated,
Landlord shall promptly provide Tenant with substitute parking privileges on or
within one-half ( 1/2) mile of the Building and, if such parking is greater than
one hundred (100) yards from the Building, Landlord shall provide shuttle bus
service to such parking. Landlord shall not treat Tenant less favorably than
any other tenant of the Building or Property with respect to the substitution of
parking privileges in connection with the subject condemnation.
23.2 Any award for the taking of all or any part of the Property or any
portion thereof under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Landlord;
provided, however, Tenant shall be entitled to that portion of such award that
is made for and/or allocable to, and Tenant shall be entitled to accept an award
for: (i) the diminution in value of Tenant's leasehold interest; (ii) the
taking of Tenant's personal property, and/or trade fixtures and/or equipment;
(iii) interruption of or damage to Tenant's business; (iv) the unamortized cost
of improvements and equipment made to and/or installed by Tenant; (v) valuation
expenses; and (vi) moving expenses. Tenant shall be entitled to any
compensation separately awarded to Tenant for the matters set out in (i) through
(vi) above. In the event this Lease is not terminated by reason of such
condemnation, and provided that Landlord has been reimbursed therefor by the
condemning authority, Landlord shall promptly repair any damage to the Building
and the Property caused by such condemnation, provided, however, that Landlord
shall have no obligation to repair or restore any Alterations or Specialty
Equipment.
24. SALE BY LANDLORD. In event of a sale or conveyance by Landlord of the
Property, the same shall operate to release Landlord from any liability upon any
of the covenants or conditions, expressed or implied, contained in this Lease to
the extent accruing after the date of sale, and in such event Tenant agrees to
look solely to the successor in interest of Landlord in and to this Lease.
Except as set forth in this Article 24, this Lease shall not be affected by any
such sale and Tenant agrees to attorn to the purchaser or assignee. If any
security has been given by Tenant to secure the faithful performance of any of
the covenants of this Lease, Landlord shall transfer or deliver said security,
as such, to Landlord's successor in interest and thereupon Landlord shall be
discharged from any further liability with regard to said security. As a
condition to Tenant's duty to attorn to any transferee of the Property and
Landlord's relief from
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liability for its obligations under this Lease accruing after the date of
transfer, the transferee of the Property shall execute a written agreement
pursuant to which it unconditionally assumes all obligations under this Lease
accruing from and after the date of such transfer. As to any claim Tenant may
have against Landlord arising from any matter occurring prior to the transfer of
the Property, Tenant shall have the right pursuant to applicable law to enforce
its claim against the proceeds to which Landlord is entitled from the sale of
the Property or payable to Landlord under any insurance policy.
25. ESTOPPEL CERTIFICATES. Within ten (10) days following any written request
which Landlord or Tenant may make from time to time, the other party shall
execute and deliver, in case Landlord so requests, to its ground lessor,
mortgage lender or prospective ground lessor, mortgagee or lender, or a
purchaser or prospective purchaser of the Building, and in the case Tenant so
requests, to any purchaser or prospective purchaser, of all or a substantial
portion of Tenant's assets or an entity with which Tenant proposes to merge or
consolidate or any subtenant or prospective subtenant of all or any portion of
the Premises or any assignee or prospective assignee of Tenant's interest in
this Lease, a sworn statement in such form as may be reasonably requested by
Landlord or Tenant, or any such other party, certifying: (a) the date of
commencement of this Lease; (b) the fact that this Lease is unmodified and in
full force and effect (or, if there have been modifications to this Lease, that
this lease is in full force and effect, as modified, and stating the date and
nature of such modifications); (c) the date to which the rent and other sums
payable under this Lease have been paid; (d) the fact that there are no current
defaults under this Lease by either Landlord or Tenant except as specified in
such statement or any set-off rights in favor of Tenant; and (e) subject to
Section 15 of this Lease, that this Lease is subordinate to the lien of any
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current or subsequent mortgagee of the building; and (f) such other matters as
may be requested by the requesting party. Landlord and Tenant intend that any
statement delivered pursuant to this Article 25 may be relied upon by any party
described above for whom Landlord or Tenant may request the same pursuant to the
foregoing terms of this Article 25. In the event Landlord or Tenant shall make
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any material misstatement contained in such sworn statement or fail to execute
and deliver to the requesting party such sworn statement within the prescribed
time period, such failure shall be a default under this Lease, and in addition
to any other damages as a result of such default under this Lease, the
responding party shall be liable for any loss, cost or expense resulting from
such failure.
26. SURRENDER OF PREMISES.
26.1 Landlord shall, at least thirty (30) days before the last day of the
Term, arrange to meet Tenant for a joint inspection of the Premises.
26.2 At the end of the Term or any renewal of the Term or within a
reasonable period after any early termination of this Lease, Tenant will
peaceably deliver up to Landlord possession of the Premises in the manner and
condition required by Sections 6.3 hereof.
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26.3 All obligations of Landlord and Tenant under this Lease not fully
performed as of the expiration or earlier termination of the Term shall survive
the expiration or earlier termination of the Term.
27. NOTICES. Any notice or document required or permitted to be delivered
under this Lease shall be addressed to the intended recipient, shall be
transmitted, by fully prepaid registered or certified United States Mail return
receipt requested, or by nationally recognized independent contract delivery
service furnishing a written record of attempted or actual delivery, and shall
be deemed to be delivered when tendered for delivery on a business day to the
addressee at its address set forth on the Reference Page, or at such other
address as it has then last specified by written notice delivered in accordance
with this Article 27.
28. TAXES PAYABLE BY TENANT. Tenant agrees to pay, before delinquency, any and
all taxes levied or assessed against Tenant and which become payable during the
term hereof upon Tenant's equipment, furniture, fixtures and other personal
property of Tenant located in the Premises or elsewhere in the Building or on
the Property.
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29. DEFINED TERMS AND HEADINGS. The Article headings shown in this Lease are
for convenience of reference and shall in no way define, increase, limit or
describe the scope or intent of any provision of this Lease. Any
indemnification of either party shall apply to and inure to the benefit of all
the following "Landlord Entities" or "Tenant Entities", however the case may be,
being the applicable party hereto together with its members, managers, the
trustees, boards of directors, officers, partners, beneficiaries, stockholders,
employees and agents. In any case where this Lease is signed by more than one
person as Tenant, the obligations under this Lease shall be joint and several.
The terms "Tenant" and "Landlord" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their and each of their respective
successors, executors, administrators and permitted assigns, according to the
context hereof.
30. TENANT'S REPRESENTATIONS AND AUTHORITY.
30.1 Tenant represents and warrants that: (i) the financial statements of
Tenant provided to Landlord prior to the execution of this Lease are true and
correct and there has been no material adverse change in Tenant's financial
condition since the date of such statements; and (ii) as of the date of Tenant's
execution of this Lease, Tenant is not in material violation of any governmental
or regulatory license to which it is subject.
30.2 Tenant represents and warrants that Tenant has been and is qualified
to do business in the state in which the Building is located, that the
corporation has full right and authority to enter into this Lease, and that all
persons signing on behalf of the corporation were authorized to do so by
appropriate corporate actions. Landlord and Tenant agree to furnish promptly
upon request of the other a corporate resolution, proof of due authorization by
partners, or other appropriate documentation evidencing the due authorization to
enter into this Lease.
31. COMMISSIONS. Each of the parties represents and warrants to the other that
it has not dealt with any broker or finder in connection with this Lease, except
as described on the Reference Page, whose commission Landlord agrees to pay.
Tenant and Landlord agree to indemnify, defend and hold harmless the other party
hereto against and from all liabilities claims and damages arising from any
claim by any broker (other than said named broker), finder or agent claiming to
have dealt with the indemnifying party in connection with this Lease.
32. TIME AND APPLICABLE LAW. Time is of the essence of this Lease and all of
its provisions. This Lease shall in all respects be governed by the laws of the
District of Columbia, without regard to its conflict of laws principles.
33. SUCCESSORS AND ASSIGNS. Subject to the provisions of Article 9, the terms,
covenants and conditions contained in this Lease shall be binding upon and inure
to the benefit of the heirs, successors, executors, administrators and assigns
of the parties to this Lease.
34. ENTIRE AGREEMENT. This Lease, together with its exhibits, contains all
agreements of the parties to this Lease and supersedes any previous
negotiations. There have been no representations, agreements, warranties,
understandings or promises, either oral or written, with respect to the Lease,
the Building, the Premises, the Property or otherwise, made by Landlord or
Tenant, other than those set forth in this Lease and its exhibits. This Lease
may not be modified except by a written instrument duly executed by the parties
to this Lease.
35. EXAMINATION NOT OPTION. Submission of this Lease shall not be deemed to be
a reservation of the Premises. Neither Tenant nor Landlord shall be bound by
this Lease until each has received a copy of this Lease duly executed and
delivered by Tenant and Landlord, and until such delivery Landlord reserves the
right to exhibit and lease the Premises to other prospective tenants.
Notwithstanding anything to the contrary, Landlord may withhold delivery of
possession of the Premises from Tenant until such time as Tenant has provided to
Landlord the Letter of Credit required by Article 5, the first month's rent as
set forth in Article 3 and any sum owed pursuant to this Lease.
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36. RECORDATION. Tenant, at its sole cost and expense, may record or register
a short form memorandum of this Lease in a form reasonably acceptable to
Landlord which Landlord agrees to execute upon its receipt of Tenant's request.
37. LIMITATION OF LANDLORD'S LIABILITY. Redress for any claim against Landlord
under this Lease shall be limited to and enforceable only against and to the
extent of Landlord's interest in the Property and the proceeds thereof,
including, without limitation, insurance proceeds payable to Landlord. The
obligations of either party under this Lease are not intended to and shall not
be personally binding on, nor shall any resort be had to the private properties
of, any of its members, or its or their trustees or board of directors and
officers, as the case may be, its manager, the partners thereof, or any
beneficiaries, stockholders, employees, or agents of either party, the manager
or any of its members. Except as may be specifically set forth in this Lease,
in no event shall Landlord or any of the Landlord's Entities, or Tenant or any
of the Tenant's Entities, be liable to the other for any consequential right of
damages and Landlord and Tenant hereby waive any right to claim from the other
any such damages. Landlord's approval of any plans and specifications or
Tenant's work under this Lease shall not constitute a representation or warranty
by Landlord as to the sufficiency or any other matter with respect to such
plans, specifications and work, and Landlord shall have no liability therefore.
38. TENANT'S ALTERATIONS AND SPECIALTY EQUIPMENT.
38.1 Subject to the terms of this Section 38, Tenant shall have the right
----------
to install, operate, maintain, repair and replace the following equipment and
improvements dedicated exclusively to Tenant's use (collectively, the "Specialty
Equipment") in the Premises and other portions of the Building and the Property
as indicated:
(a) Two (2) fuel powered generators and associated fuel storage tanks
and one (1) battery-driven UPS Systems (collectively, the "Generator Systems").
The Generator Systems shall be designed to provide electric power to the
Premises and other equipment installed by Tenant on the Property. The Generator
Systems shall be located on the roof of the Building or on that portion of the
Property identified as the "Generator Farm" on Exhibit attached to this
------------
Lease, at Tenant's election, subject to Landlord's approval of the location
selected by Tenant on the roof of the Building or in the Generator Farm, which
approval shall not be unreasonably withheld, conditioned or delayed. Tenant
shall have the right to test the Generator Systems on a periodic basis.
(b) Heating, ventilating and air conditioning units and equipment,
including, without limitation, Liebert units, condensers and cooling towers (the
"HVAC System"), which shall be installed in that area on the roof of the
Building identified as the "Designated Roof Area" on Exhibit attached to
---------------
this Lease;
(c) Fire suppression systems, which may include a FM 200 fire
suppression system, including access to exhaust louvers, shafts and risers in
the Building necessary for the discharge of exhaust from such fire suppression
system and the HVAC System. Tenant shall have the right to install a dry-pipe,
pre-action system for the Premises, which may include the relocation or
encasement of any mains or other pipes running through the Premises and the
removal of any wet sprinkler system existing in the Premises;
(d) Up to nine (9) satellite dishes and multiple antennae
(collectively, the "Satellite Dish System") in the Designated Roof Area;
(e) Reserved;
(f) Reserved;
(g) Security systems in the Premises and for the Specialty Equipment;
(h) Fire alarm systems for the Premises and the Specialty Equipment,
which systems may be connected to the fire alarm system installed by Landlord in
the Building;
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(i) Raised floor systems in the Premises to accommodate Tenant's
computer and other equipment;
(j) A 750 MCm copper insulated ground conductor in 1.5 inch conduit
from the master ground at the lowest point in the Building to the Premises; and
(k) Conduits, pipes and cables as part of the other Specialty
Equipment to connect the same to the Premises, which conduits, pipes and cables
may be located in the basement of the Building, in the risers and shafts in the
Building and in other portions of the Building, including, without limitation,
the vertical riser locations designated on Exhibit attached to this Lease;
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and
The Designated Roof Area and all other areas in, on or about the Building and
the Property on which Tenant installs the Specialty Equipment are hereinafter
referred collectively to as the "Designated Areas." The Specialty Equipment
shall be considered to be "Alterations" for purposes of this Lease. Tenant
shall have the right to install, operate, maintain, repair and replace the
Specialty Equipment in the Designated Areas without obligation for the payment
of additional rent or other charge. Tenant shall have access to the Designated
Areas, the basement of the Building and the risers and shafts of the Building
twenty-four (24) hours per day, three hundred sixty-five (365) days per year.
If Tenant desires access to other areas of the Building which are not otherwise
available to Tenant during normal business hours, Landlord shall, subject to the
rights of other tenants, provide escorted access to Tenant promptly following
its receipt of Tenant's request, provided that Tenant shall have immediate
access to any such areas without escort in the event of an emergency. The
foregoing sentence shall not apply to any portion of the Building to which
Landlord does not have access. Tenant shall have the right to permit its
customers to collocate broadcasting equipment in the Premises.
38.2 (a) All Alterations and Specialty Equipment shall be performed and
installed in compliance with all applicable Laws and shall be undertaken and
completed at Tenant's sole cost and expense except as may otherwise be
specifically set forth herein.
(b) Prior to the commencement of any Alterations or installation of
Specialty Equipment in the Premises and the Building, Tenant shall deliver two
(2) sets of the complete plans and specifications therefore (the "Plans") to
Landlord's architect and one (1) set to Landlord for its written approval, which
approval shall not be unreasonably withheld, conditioned or delayed. Tenant's
Plans must comply with all applicable Laws, impose on Landlord no additional ADA
or other Law compliance requirements within the Building or the Premises unless
Tenant agrees to pay for the same, and be reasonable and compatible with the
existing systems in and structure of the Building. Landlord shall respond to
Tenant's request for approval of Tenant's Plans within ten (10) business days
after receipt thereof.
(c) In the event Landlord shall not approve the Plans, Landlord shall
notify Tenant of its objections thereto. Landlord and Tenant shall thereafter
work cooperatively and in good faith to reach agreement upon mutually acceptable
Plans. Landlord shall be entitled to withhold its approval of the Plans for any
of the following reasons (the "Standards"): i) the location or nature of any
Alterations or Specialty Equipment to be made or installed by Tenant materially
and adversely affects the structure of the Building or materially and adversely
affects the rights of other current tenants in the Building; ii) any Alterations
or Specialty Equipment materially and adversely affect the external appearance
of the Building or any common areas; iii) any equipment or improvements to be
installed by Tenant materially and adversely affect the proper functioning of
any Building systems; iv) the work to be performed pursuant to the Plans would
violate any laws, regulations, or orders; or v) any equipment or improvements to
be installed by Tenant would require material changes to the base Building,
unless such changes are reasonable in Landlord's determination and Tenant agrees
to make such changes at its sole cost and expense.
(d) In the event Landlord fails to deliver notice of approval or
disapproval of Plans submitted by Tenant to Landlord within ten (10) business
days after Landlord's receipt of the same or Landlord delivers notice of
disapproval of plans submitted by Tenant within such ten (10) business day
period but such notice fails to identify in reasonable detail the reasons for
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Landlord's disapproval of the subject plans, then the subject plans shall be
deemed approved by Landlord. In the event Landlord delivers notice of
disapproval of the subject Plans within ten (10) business days after its receipt
of Tenant's request for Landlord's approval of the same, which notice sets forth
in reasonable detail the reasons for Landlord's disapproval of the subject
Plans, Tenant shall have the right, upon written notice to Landlord, to have the
plans submitted for approval by Skidmore Owings & Merrill or such other
independent arbiter as to which Landlord and Tenant agree (the "Independent
Arbiter"). The Independent Arbiter shall determine whether the Plans violate
any of the Standards. In the event that the Independent Arbiter determines that
only a portion of the Plans violate the Standards, the Independent Arbiter shall
inform Tenant of what changes are required to conform to the Standards, the
remainder of the Plans shall be deemed approved, and Tenant shall make the
required revisions, resubmit the Plans to Landlord, and Tenant may proceed with
construction pursuant to the portion of the Plans that were approved or deemed
approved. Within five business days after the date of Tenant's notice requiring
a determination by the Independent Arbiter, the Independent Arbiter shall render
its determination, which shall be binding on both parties. If the Independent
Arbiter approves the Plans in substantially the form as submitted by Tenant,
Landlord shall pay the cost of the Independent Arbiter. Otherwise, Tenant shall
pay the cost.
(e) Tenant shall pay all Landlord's reasonable third party
architectural, engineering, consulting fees and out of pocket expenses relating
to the review of Tenant's plans and specifications related to the Initial
Alterations and the initial installation of the Specialty Equipment, not to
exceed $10,000, provided, however that such monetary limitation shall not apply
to any subsequent Alterations proposed to be performed by Tenant. Tenant at its
sole cost and expense shall obtain any permits, licenses, variances, or other
approvals required with respect to all Alterations and Specialty Equipment.
Landlord shall receive no fee for supervision, profit, overhead or general
conditions in connection with any construction, alteration or improvement work
performed by Tenant or on Tenant's behalf.
(f) Tenant shall deliver true and complete copies of the Plans to
Landlord prior to commencing the subject Alterations. Within thirty (30) days
following the completion of the Alterations, Tenant shall deliver to Landlord
one (1) complete set of Plans marked to show changes for Landlord's use.
Tenant, its contractors and/or agents shall not tie into, disrupt, disengage,
terminate, or violate any building system (fire protection, fire alarm,
security, HVAC, electrical, etc.) installed by Landlord unless coordinated and
scheduled in advanced and approved with the Building manager to assure integrity
with the system and continued applicability of the Building warranties and
guaranties. Any violation of the above shall constitute a default under this
Lease. To the extent that any Alterations or Specialty Equipment require
Landlord to alter or modify the Building or Building design, Tenant shall be
responsible for all costs and expenses in connection with such alteration or
modification.
(g) Except as provided below, any contractor or subcontractor of such
contractor used in connection with the Initial Alterations, Alterations or
Specialty Equipment shall use UNION labor. In the event three (3) UNION
contractors qualified to perform any trade or component of Tenant's Initial
Alterations or any other Alterations are not available, Tenant shall request in
writing from Landlord a list of additional qualified and available UNION
contractors. Landlord shall have three (3) business days within which to provide
to Tenant said list of additional qualified and available UNION contractors. In
the event Landlord fails to provide Tenant with said list of additional
qualified and available UNION contractors within such three (3) business day
period, Tenant may utilize non-union contractors for such trade or component.
Notwithstanding anything to the contrary set forth above or elsewhere in this
Lease, the selection of all consultants, vendors and other professionals,
including architects, engineers, telecommunications consultants, systems
integrations consultants, and studio consultants for work performed in
connection with Alterations shall be at Tenant's sole discretion. Subject to
the foregoing terms of this Section and the terms of Section 38.9 below, the
------------
selection of all contractors, subcontractors and material and equipment
suppliers shall be at Tenant's sole discretion. For purposes of this Section, a
UNION contractor or subcontractor shall be deemed "qualified" to perform work if
the same has performed similar work on similar projects in the Baltimore-
Washington area for at least three (3) years, prior to the bid date.
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38.3 Provided Tenant is not in default of the Lease, Landlord shall provide
Tenant an allowance in the amount of $40.00 per rentable square foot of the
Premises toward costs incurred in connection with Initial Alterations and
Specialty Equipment (the "Tenant Allowance"). The Tenant Allowance may not be
used for removable trade fixtures, furniture or other personal property. All
costs of Initial Alterations and Specialty Equipment that exceed the Tenant
Allowance shall be paid for by Tenant. The Tenant Allowance shall be due and
payable on a monthly basis upon submission to Landlord of invoices for Initial
Alterations and Specialty Equipment together with appropriate lien waivers,
provided, however, that in no event will Landlord be obligated to disburse for
ten (10) business days following receipt by Landlord of the requisition and all
required supporting documentation nor shall Landlord be obligated to disburse
the Tenant Allowance more than once per month. Any excess Tenant Allowance
shall be used as an offset to rent next payable under the Lease. If Landlord
fails to timely make a disbursement of the Tenant Improvement Allowance, such
disbursement shall bear interest at the Interest Rate accruing from the date
payment is required to be made hereunder through the date such payment is made
by Landlord.
38.4 In connection with Initial Alterations, Alterations and Specialty
Equipment under this Lease, Tenant shall:
(A) Complete all Initial Alterations, Alterations and Specialty
Equipment substantially in accordance with the approved Plans
therefor;
(B) Promptly following completion of the Initial Alterations,
Alterations present to Landlord the following:
(i) general contractor's executed and notarized final waiver of
lien/affidavit form listing all subcontractors and material
suppliers and the amounts they were paid for work and
materials supplied for the Premises, in form reasonably
satisfactory to Landlord;
(ii) Executed and notarized final waiver of lien/affidavit form
from any subcontractors and material suppliers, in form
reasonably satisfactory to Landlord; and
(iii) a Certificate of Occupancy.
38.5 No Miscellaneous Charges. Neither Tenant nor the contractor or any
------------------------
subcontractor selected to construct the Alterations or Specialty Equipment shall
be charged for parking or for the use of electricity (except as otherwise
provided herein), water, toilet facilities, security, elevators or hoists during
the construction of the Alterations or Specialty Equipment or during Tenant's
move into the Premises. Tenant and the contractor and subcontractors selected
to construct the Alterations or Specialty Equipment shall have reasonable access
to the Premises, to vertical transportation systems in the Building, and to
those other portions of the Building and Property in or on which Tenant is
permitted to construct or install improvements and/or equipment. Landlord and
Tenant shall coordinate such access to minimize interference with other tenants
in the Building and other contractors who may be performing work in or around
the Building.
38.6 No Fee to Landlord. Landlord shall receive no fee for supervision,
------------------
profit, overhead or general conditions in connection with any construction,
alteration or improvement work performed by Tenant or on Tenant's behalf.
38.7 Bonding. Notwithstanding anything to the contrary set forth in this
-------
Lease, Tenant shall not be required to obtain or provide any completion or
performance bond in connection with any construction, alteration or improvement
work performed by Tenant or on Tenant's behalf.
38.8 Building Codes. In the event that, due to any portion of the Building
--------------
or the Property not complying with any Law as a result of Landlord's breach of
its obligations hereunder, Tenant incurs increased design, construction or other
costs relative to the Alterations
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or Specialty Equipment that it would not have incurred had the Property been in
compliance with the same, then such costs shall be reimbursed by Landlord to
Tenant within ten (10) business days after receipt by Landlord from Tenant of an
invoice documenting and evidencing such increased costs. Such reimbursement
shall be in addition to, and not deducted from, the Tenant Allowance.
38.9 Work Performed by Landlord or Contractors Designated by Landlord.
-----------------------------------------------------------------
In the event Landlord performs any work for Tenant in connection with the
Alterations and/or the Specialty Equipment, Landlord shall be paid an amount
equal to the costs reasonably incurred by Landlord in performing such work plus
a customary profit for such work. Landlord shall require that Tenant use
Landlord's designated roof and life-safety contractors. To the extent the design
or construction of the Initial Alterations and/or the Specialty Equipment is
delayed because of the untimeliness of, or errors or omissions committed by,
such designated contractors, such delay will constitute a Landlord Delay. In the
event of such a delay, Tenant shall promptly give Landlord notice thereof.
Landlord shall have five (5) days from its receipt of such notice to cure the
conditions causing such delay. In the event Landlord fails within such five (5)
day period to cure the conditions causing such delay, Tenant shall have the
right to contract for such roof and/or life-safety work with a contractor of its
choosing. To the extent Tenant incurs increased design, construction or other
costs because of the untimeliness of, or errors or omissions committed by, such
designated contractors or entities, such increased costs shall be reimbursed by
Landlord to Tenant within ten (10) business days following Landlord's receipt of
an invoice from Tenant documenting and evidencing such costs. Such reimbursement
shall be in addition to, and not deducted from, the Tenant Allowance. In no
event shall Tenant be entitled to claim any Landlord Delay arising from the use
of any such designated contractor which is in excess of fourteen (14) days.
38.10 Elevator Lobby Rights. Tenant, at Tenant's sole cost and expense
---------------------
(which may be deducted from the Tenant Allowance), shall have the right to
refinish the 2nd and 3rd floor elevator lobby entry doors to integrate such
doors with the design of the Premises.
38.11 Staging Area. Prior to the Rent Commencement Date, Tenant shall
------------
have the right, without the obligation to pay rent, to use portions of the
Premises mutually agreed to by Landlord and Tenant for the purpose of storing
and staging building materials, furniture and equipment. Landlord shall not be
liable for any theft, destruction or damage to any such building materials,
furniture and equipment.
39. NO THIRD PARTY BENEFICIARIES. Notwithstanding anything to the contrary
contained herein, no provision of this Lease is intended to benefit any party
other than the signatories hereto and their permitted heirs, personal
representatives, successors and assigns, and no provision of this Lease shall be
enforceable by any other party.
40. PARTIAL PAYMENT. No payment by Landlord or Tenant or receipt by the other
of a lesser amount than the correct amounts due under this Lease shall be deemed
to be other than a payment on account, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment be deemed to effect or
evidence an accord and satisfaction, and Landlord or Tenant, however the case
may be, may accept such check or payment without prejudice to its right to
recover the balance or pursue any other remedy in this Lease or at law provided.
41. COUNTERPARTS. This Lease may be executed in one or more counterparts, all
of which together shall constitute the same Lease.
43. RIGHT OF FIRST OFFER. Subject to the prior rights of Qwest Communications
Corporation to lease any space available for rent in the Building following the
initial leasing of space within the Building, Landlord agrees that prior to
entering into a lease for space in the Building, Landlord shall so notify Tenant
in writing of available space. Tenant shall have a period of thirty (30) days
after receipt of such notice (the "Acceptance Period") within which to notify
Landlord, in writing, that it elects to lease such space on terms set forth
below. If Tenant makes such an election within the Acceptance Period, an
appropriate amendment to this Lease shall be entered into by Landlord and Tenant
to add the additional space to the definition of the
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Premises. If Tenant does not make such an election within the Acceptance Period,
Tenant shall be deemed to have waived its rights with respect to the subject
space, and Landlord shall be free to lease such space free of any claim or right
of Tenant on terms not materially more favorable than those offered to Tenant.
For purposes of the preceding sentence, such terms shall be considered
"materially" more favorable than those offered Tenant if the overall terms,
considering all relevant factors, are improved by more than five percent (5%)
over those offered Tenant. If Landlord wishes to offer the subject space on
terms that are materially more favorable than those offered to Tenant, Landlord
must first make such offer to Tenant by delivering another notice to Tenant
setting forth such materially more favorable terms, and Tenant shall have twenty
(20) days from Tenant's receipt of such notice to elect to lease the subject
space upon the terms set forth in such notice. If Tenant does not so timely
elect to lease the space described in such notice, Landlord shall again be free
to lease the subject space to a third party upon terms not materially more
favorable than the terms set forth in the last notice delivered to Tenant.
Notwithstanding anything to the contrary set forth in this Article 43, if
----------
Landlord does not lease the space described in its notice within six (6) months
after Tenant's receipt of such notice, Landlord must again offer the subject
space to Tenant in accordance with the right of first offer granted to Tenant in
this Article 43. In the event Tenant elects to lease the subject space, the base
----------
rent under such lease shall be the lesser of (i) the terms of the accepted
offer, or (ii) if such lease occurs during the two (2) year period beginning on
the Rent Commencement Date, the then escalated Annual Net Rent per square foot
hereunder, and if such lease occurs following the two (2) year period beginning
on the Rent Commencement Date, ninety-five percent (95%) of Market Rate for the
subject space; and otherwise upon same terms and conditions hereunder except as
provided below. Tenant shall be entitled to a Tenant Allowance of $4.00 per
square foot pro rata for each year remaining on the then current term if Tenant
exercises its right to lease any additional space within the first two years
following the Rent Commencement Date. The term of the lease of the subject space
shall be conterminous with the then-current Term of the Lease, as said Term may
be extended.
44. SIGNAGE. Tenant shall have the right to install two (2) signs upon the
exterior of the Building and one (1) sign in the lobby of the Building at its
own expense in locations depicted on Exhibit attached to this Lease. Tenant
-----------
shall maintain any such signage in good order, repair and condition and in a
manner satisfactory to Landlord. With respect to any assignment or sublease for
which Landlord's consent is not required, such assignee or subtenant shall have
the right to exercise Tenant's signage rights in accordance with the terms
hereof, without Landlord's approval. With respect to any assignment or sublease
for which Landlord's consent is required under the terms of this Lease, such
assignee's or sublessee's rights to exercise Tenant's signage rights shall be
subject to Landlord's consent, not to be unreasonably withheld, conditioned or
delayed. Landlord shall not permit any sign to be placed in, on or about the
Building or the Property which identifies any person, company or entity which is
a competitor of Tenant or which conducts business in the radio production, radio
broadcasting or entertainment industry, subject to the rights existing as of the
Effective Date of Qwest Communications Corporation and Nextel Communications of
the Mid-Atlantic, Inc. and their respective successors and assigns as to
placement of signs in, on or about the Building or the Property. Landlord shall
provide to Tenant on a pro-rata basis lobby directory signage, to be maintained
by Landlord. Such lobby directory signage provided by Landlord to Tenant shall
include one (1) line for each one thousand (1,000) rentable square feet in the
Premises.
45. LANDLORD AGREEMENT AS TO NAMING BUILDING. Landlord agrees not to name the
Building or any other portion of the Property after any other radio production,
radio broadcasting or entertainment company or any direct competitor of Tenant.
In the event Landlord elects to change the name of the Building, such election
shall be subject to Tenant's consent, not to be unreasonably withheld,
conditioned or delayed.
46. TENANT'S FOOD CONCESSION. Tenant shall have the right during the term of
this Lease to install and operate in the Premises at its sole cost and expense,
for the exclusive use of Tenant and its employees and invitees, a food
concession, subject to Landlord's reasonable approval of the plans and
specifications therefor under the terms of Section hereof. Such food
------------
concession shall at all times comply with all Laws, and shall be operated and
maintained so as not to cause a nuisance to any current or future tenants in the
Building. Tenant shall be solely liable for any and all increased costs
Landlord incurs as a result of Tenant's operation and use of
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the food concession other than de minimus costs. Tenant shall use its best
efforts to ensure that its operation of the food concession does not cause any
infiltration or infestation of the Premises or the Building with any animals,
pests or vermin. Tenant shall be required to keep refrigerated all refuse
generated from the operation of its food concession prior to its scheduled
removal from the Property.
47. PENTHOUSE SPACE; ROOFTOP SPACE.
47.1 Landlord shall, at its sole cost and expense, as part of the Base
Building Improvements, construct the improvements set forth on Exhibit , in
-----------
that space on the fourth (4th) floor of the Building (the "Penthouse Space")
illustrated on Exhibit .
-------------
47.2 Tenant shall have the right to construct a roof-top terrace (the
"Roof-Top Terrace") in a location, style and size depicted on Exhibit
------------
attached to this Lease and otherwise subject to all of the terms of this Lease.
47.3 The Penthouse Space and the Roof-Top Terrace shall be for Tenant's
sole use, but the construction and use thereof shall be subject at all times to
the conduit and equipment rights of Qwest Communications Corporation and Nextel
Communications of the Mid-Atlantic, Inc. and their respective successors and
assigns, existing as of the Effective Date, which are fully described in
Exhibit attached to this Lease. The Penthouse Space and the Roof-Top
- -----------
Terrace shall be considered as part of the Premises, and shall be subject to all
of the terms hereof, except for determining the rentable square footage of the
Premises. Tenant shall have the right to use the Penthouse Space and the Roof-
Top Terrace without obligation for the payment of rent or other charge.
48. RESERVED.
49. MISCELLANEOUS.
49.1 Confidentiality of Tenant's Financial Information. Landlord covenants
-------------------------------------------------
and agrees that it (a) shall not divulge any of Tenant's financial data
furnished to Landlord except to its investors, a prospective purchaser, any
prospective mortgagee or mortgagee of the Building or as otherwise required by
law, and (b) will use commercially reasonable efforts to require any such
persons or entities keep the same confidential.
49.2. Professional Fees. In the event that either party brings any
-----------------
arbitration or other legal proceeding action against the other: (i) for the
recovery of any sum due under this Lease; (ii) because of the breach of any
provisions of this Lease; (iii) for any other relief against the other party
under this Lease; or (iv) with respect to any other matters arising from or
related to this Lease, then all reasonable costs and expenses, including,
without limitation, reasonable professional fees such as appraisers',
accountants', and attorneys' fees, incurred by the prevailing party therein
shall be paid by the other party. The provisions of this Section shall survive
the expiration of the term of this Lease or earlier termination of this Lease.
49.3. When Payment is Due. Whenever a payment is required to be made
-------------------
by one party to the other under this Lease, but a specific date for payment or a
specific number of days within which payment is to be made is not set forth in
this Lease, or the words "immediately," "promptly" and/or "on demand," or their
equivalent, are used to specify when such payment is due, then such payment
shall be due thirty (30) days after the party which is obligated to make such
payment receives written notice from the other party demanding such payment.
49.4. Months and Notice. All references in this Lease to "month" or
-----------------
"months" shall be deemed to include the actual number of days in such actual
month or months. All references to "notice" shall mean written notice.
49.5. Interest Rate. For purposes of this Lease, the term "Interest
-------------
Rate" shall mean an annual rate of interest equal to the lesser of (a) the rate
publicly announced from time to time, by First Union Bank, N.A., as its prime
rate or reference rate, plus two percent (2%), or (b) the maximum rate permitted
by Law. In the event First Union Bank, N.A. shall no longer publish a
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prime rate or reference rate, for purposes of calculating the Interest Rate, the
parties shall use the prime rate or reference rate published by the largest (as
measured by deposits) chartered bank operating in the District of Columbia.
49.6. Force Majeure. Except as otherwise expressly provided in this
-------------
Lease, any prevention, delay or stoppage in the performance of either party's
obligations under this Lease caused by: fire; earthquake; explosion; flood;
hurricane; the elements; acts of God or the public enemy; actions, restrictions,
limitations or interference of governmental authorities or agents; war;
invasion; insurrection; rebellion; riots; strikes; lockouts; inability to obtain
necessary materials, goods, equipment, services, utilities or labor; or any
other cause beyond the reasonable control of the party from whom performance is
required, or of any of their contractors, subcontractors or agents; shall excuse
the performance of such party's obligations so affected for a period equal to
the duration of such prevention, delay or stoppage, provided, however, in no
event shall financial incapability excuse the performance of either party and in
no event shall any strike, or lockout, or inability to obtain materials, goods,
equipment, services, utilities or labor or any other matter in each instance
resulting from matters pertaining to the use or non-use of union labor and/or
materialmen excuse the performance of Landlord's obligations under this Lease.
49.7. Move-In Priority. Tenant shall have the exclusive right to use
----------------
the freight and passenger elevators of the Building during the weekend Tenant
moves into the Premises for purposes of moving into the Building, but only to
the extent such exclusive use is necessary for Tenant to complete its move into
the Building in an orderly and efficient manner. In all events, Tenant shall
have priority use of the freight and passenger elevators of the Building during
the weekend it moves into the Building. Landlord shall not charge Tenant for
Building services, overtime expenses or other charges in connection with
Tenant's move into the Building.
49.8. Standard for Conduct and Consent. Any time the consent of
--------------------------------
Landlord or Tenant is required, such consent shall not be unreasonably withheld,
conditioned or delayed. Whenever this Lease grants Landlord or Tenant the right
to take action, exercise discretion, establish rules and regulations or make
allocations or other determinations, Landlord and Tenant shall act reasonably
and in good faith.
[signatures on following page]
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<PAGE>
LANDLORD: TENANT:
Consortium One Eckington, L.L.C. XM Satellite Radio, Inc.
By: Consortium One, L.P., its
managing member By:
_________________________________
Name:
_______________________________
By: Millbank Capital Title:
Partners, L.L.C., ______________________________
General Partner Date:
_______________________________
By: Bernstein Millbank
Capital Partners, Witness:
L.L.C., managing member ____________________________
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date:
---------------------------
----------------------------------
Witness
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<PAGE>
EXHIBIT ______
attached to and made a part of Lease bearing the
Lease Reference Date of ________________________ , 1999 between
Consortium One Eckington, L.L.C., as Landlord and
XM Satellite Radio, Inc., as Tenant
RULES AND REGULATIONS
1. Except as otherwise provided for in Section of the Lease, no sign,
-----------
placard, picture, advertisement, name or notice shall be installed or
displayed on any part of the outside of the Building or in the common areas
of the Building, without the prior written consent of the Landlord.
Landlord shall have the right to remove, at Tenant's expense and without
notice, any sign installed or displayed by Tenant in violation of this
rule.
2. No awning shall be permitted on any part of the exterior of the Premises or
in the common areas of the Building. Tenant shall not place anything or
allow anything to be placed against or near any glass partitions or doors
or windows which may appear unsightly, in the reasonable opinion of
Landlord, from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances,
elevators, escalators or stairways of the Building. Landlord shall in all
cases retain the right to control and prevent access to the Building of all
persons whose presence in the judgment of Landlord would be prejudicial to
the safety of the Building and its tenants provided that nothing contained
in this rule shall be construed to prevent such access to persons with whom
any tenant normally deals in its business, unless such persons are engaged
in illegal activities.
4. The directory of the Building will be provided exclusively for the display
of the name and location of tenants and subtenants only and Landlord
reserves the right to exclude any other names therefrom.
5. Tenant shall not place a load upon any floor which exceeds the load per
square foot which such floor was designed to carry and which is allowed by
law. Heavy objects shall stand on such platforms necessary to properly
distribute the weight. Business machines and mechanical equipment
belonging to Tenant which cause noise or vibration that may be transmitted
to the structure of the Building or to any space in the Building to such a
degree as to be objectionable to Landlord or to any tenants shall be placed
and maintained by Tenant, at Tenant's expense, on vibration eliminators or
other devices sufficient to eliminate noise or vibration.
6. Tenant shall keep corridor doors closed.
7. Landlord reserves the right to exclude from the Building between the hours
of 6:00 p.m. and 8:00 a.m. the following day, and on Sundays and legal
holidays, any person unless that person is known to the person or employee
in charge of the Building or has a pass or is properly identified. Tenant
shall be responsible for all persons for whom it requests passes and shall
be liable to Landlord for all acts of such persons.
8. Tenant shall close and lock the doors of its Premises and entirely shut off
all water faucets before Tenant and its employees leave the Premises.
Tenant shall be responsible for any damage or injuries sustained by other
tenants or occupants of the Building or by Landlord for noncompliance with
this rule.
9. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown
into any of them, and the expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by the Tenant who,
or whose employees or invitees, shall have caused it.
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<PAGE>
10. Tenant shall not install any radio or television antenna, satellite dish,
loudspeaker or other device on the roof or exterior walls of the Building
except as provided in Section of this Lease.
-----------
11. Except as approved by Landlord as part of normal interior buildout or
duration, Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises, and
Tenant shall not cut or bore holes for wires. Tenant shall not affix any
floor covering to the floor of the Premises in any manner except as
approved by Landlord. Tenant shall repair any damage resulting from
noncompliance with this rule.
12. Tenant shall not place in any trash box or receptacle provided by Landlord
any material which cannot be disposed of in the ordinary and customary
manner of trash and garbage disposal. All garbage and refuse disposal
shall be made in accordance with reasonable directions issued from time to
time by Landlord.
13. Tenant shall not use in the public halls of the Building any hand trucks
except those equipped with the rubber tires and side guards or such other
material-handling equipment as Landlord may approve. Tenant shall not
bring any other vehicles of any kind into the Building.
14. Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instruction form Landlord, and no
employee of Landlord will admit any person (Tenant or otherwise) to any
office without specific instructions from Tenant.
15. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building. In the
event of any inconsistency between the terms of the Lease of these Rules
and Regulations, the terms of the Lease shall govern and control.
16. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and
guests.
17. Tenant, its contractors and/or agents, shall not exceed the capacity of any
passenger or freight elevator or shall be liable for all costs and damages
which are sustained.
18. Tenant shall furnish Landlord with automobile license numbers of Tenant's
and its agents' vehicles within five (5) days prior to utilizing any such
parking facilities and shall thereafter notify Landlord of any changes
thereto within five (5) days of such changes. Unauthorized vehicles found
in the parking facilities may be towed by Landlord without prior notice at
the vehicle owner's sole cost, risk and expense. Landlord is not
responsible for any loss, theft or damage occurring to any vehicles parked
in the parking facilities.
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<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 29, 1999
