<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 2000
Commission file number 000-27441
XM SATELLITE RADIO HOLDINGS INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 54-1878819
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 23/RD/ STREET NW, SUITE 57
WASHINGTON DC 20037
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(Address of principal executive offices)
(Zip code)
202-969-7100
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS A COMMON STOCK, $0.01 PAR VALUE 32,179,581 SHARES
CLASS B COMMON STOCK, $0.01 PAR VALUE 16,557,262 SHARES
- -----------------------------------------------
(Class) (Outstanding as of March 31, 2000)
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information
Page
<S> <C>
Unaudited Condensed Consolidated Statements of Operations for the three
months ended March 31, 1999 and 2000 and for the
period December 15, 1992 (date of inception) to March 31, 2000 1
Condensed Consolidated Balance Sheets as of December 31, 1999 and March 31,
2000 (unaudited) 2
Unaudited Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 2000 and for the period December 15,
1992 (date of inception) to March 31, 2000. 3
Notes to Unaudited Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Part II - Other Information
Signatures
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Month Period ended March 31, 1999 and 2000,
and for the period
from December 15, 1992 (date of inception) to March 31, 2000
<TABLE>
<CAPTION>
Three Months ended December 15, 1992
March 31, (date of inception)
1999 2000 to March 31, 2000
---------- ----------- ------------------
(in thousands, except share data)
<S> <C> <C> <C>
Revenue...................................................... $-- $-- $--
--- --- ---
Operating expenses:
Research and development................................... 748 4,519 15,735
Professional fees.......................................... 1,297 5,594 21,894
General and administrative................................. 2,376 6,775 27,253
---------- ----------- --------
Total operating expenses.................................. 4,421 16,888 64,882
---------- ----------- --------
Operating loss............................................ (4,421) (16,888) (64,882)
Other expense--interest income
(expense), net.............................................. 54 4,148 (2,580)
---------- ----------- --------
Net loss.................................................. $ (4,367) $ (12,740) $(67,462)
---------- ----------- ========
Preferred stock dividend accrual............................ -- (1,472)
Net loss attributable to common stockholders ............... $ (4,367) $ (14,212)
========== ===========
Net loss per share:
Basic and diluted.......................................... $(0.65) $(0.30)
========== ===========
Weighted average shares used in
computing net loss per share-basic
and diluted 6,689,250 47,195,963
========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
1
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1999 and March 31, 2000
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---- ----
(unaudited)
(in thousands, except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................................. $ 50,698 448,037
Short-term investments.................................................................... 69,472 --
Restricted investments.................................................................... -- 58,817
Prepaid and other current assets.......................................................... 1,077 1,200
-------- ----------
Total current assets..................................................................... 121,247 508,054
Other assets:
Restricted investments, net of current portion............................................. -- 79,599
System under construction................................................................. 362,358 437,274
Property and equipment, net ............................................................... 2,551 7,949
Goodwill and intangibles, net ............................................................. 25,380 25,037
Other assets, net.......................................................................... 3,653 14,233
-------- ----------
Total assets............................................................................. $515,189 $1,072,146
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................... 23,338 $ 36,599
Accrued expenses.......................................................................... 1,514 1,116
Due to related parties.................................................................... 62 62
Accrued interest on senior secured notes................................................... -- 1,896
Royalty payable........................................................................... 1,646 1,869
-------- ----------
Total current liabilities................................................................ 26,560 41,542
Senior secured notes........................................................................ -- 259,528
Royalty payable, net of current portion..................................................... 3,400 3,200
Capital lease, net of current portion....................................................... 212 202
-------- ----------
Total liabilities........................................................................ 30,172 304,472
-------- ----------
Stockholders' equity:
Series A convertible preferred stock, par value $0.01; 15,000,000 shares authorized,
10,761,677 shares issued and outstanding at December 31, 1999 and March 31, 2000......... 108 108
Series B convertible redeemable preferred stock, par value $0.01 (liquidation preference
of $100,000,000); 3,000,000 shares authorized, no shares and 2,000,000 shares issued
and outstanding at December 31, 1999 and March 31, 2000, respectively.................... -- 20
Class A common stock, par value $0.01; 180,000,000 shares authorized,
26,465,333 shares and 32,179,581 shares issued and outstanding at December 31, 1999,
and March 31, 2000, respectively......................................................... 265 322
Class B common stock, par value $0.01; 30,000,000 shares authorized,
17,872,176 and 16,557,262 shares issued and outstanding at December 31, 1999 and
March 31, 2000, respectively............................................................. 179 166
Class C common stock, par value $0.01; 30,000,000 shares authorized, no shares
issued and outstanding at December 31, 1999 and March 31, 2000, respectively........... -- --
Additional paid-in capital................................................................. 539,187 834,520
Deficit accumulated during development stage............................................... (54,722) (67,462)
-------- ----------
Total stockholders' equity............................................................... 485,017 767,674
-------- ----------
Commitments and contingencies
Total liabilities and stockholders' equity............................................... $515,189 $1,072,146
======== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE>
PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Month Period ended March 31, 1999 and 2000, and for the period from
December 15, 1992 (date of inception) to March 31, 2000
<TABLE>
<CAPTION>
Three Months ended December 15, 1992
March 31, (date of inception) to
1999 2000 March 31, 2000
---- ---- --------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................................... $( 4,367) $ (12,740) $ (67,462)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Depreciation and amortization................................................ 57 503 2,070
Amortization of deferred financing fees...................................... -- -- 509
Non-cash stock compensation.................................................. -- 658 4,868
Non-cash charge for beneficial conversion feature of note
issued to Parent............................................................. -- -- 5,520
Changes in operating assets and liabilities:
(Increase) decrease in prepaid and other current assets................... 15 (123) (1,200)
(Increase) decrease in other assets....................................... 21 -- (374)
Increase in accounts payable and
accrued expenses......................................................... 864 4,527 18,716
Increase (decrease) in amounts due to related
parties.................................................................. (136) (1) 62
Increase (decrease) in accrued interest................................... -- (36) --
-------- --------- ---------
Net cash used in
operating activities................................................... (3,546) (7,212) (37,291)
-------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment........................................... (206) (4,929) (7,443)
Additions to system under construction.......................................... (15,827) (62,422) (358,791)
Net Purchase/Maturity of short-term investments.............................. -- 69,472 --
Purchase of restricted investments.............................................. -- (123,416) (123,416)
Other investing activities...................................................... -- (18,493) (18,493)
-------- --------- ---------
Net cash used in investing
activities............................................................. (16,033) (139,788) (508,143)
-------- --------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock and
capital contribution......................................................... -- 132,594 256,173
Proceeds from issuance of Series B convertible redeemable
preferred stock.............................................................. -- 96,499 96,499
Proceeds from issuance of convertible notes payable to
related party................................................................ 22,967 -- 148,939
Proceeds from issuance of options.............................................. -- 1,500
Proceeds from issuance of Series A convertible notes ......................... -- -- 250,000
Proceeds from issuance of 14% Senior Secured Notes
and Warrants................................................................. -- 325,000 325,000
Repayments of loans payable to related party................................... -- -- (75,000)
Payments for deferred financing costs.......................................... (249) (9,754) (9,640)
Other net financing activities................................................. (7) -- --
-------- --------- ---------
Net cash provided by financing
activities............................................................. 22,711 544,339 993,471
-------- --------- ---------
Net increase in cash and cash
equivalents............................................................ 3,132 397,339 448,037
-------- --------- ---------
Cash and cash equivalents at beginning of
period........................................................................ 310 50,698 --
Cash and cash equivalents at end of period...................................... $ 3,442 $448,037 $448,037
======== ======== ========
</TABLE>
3
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months ended March 31, 1999 and 2000, and for the period from
December 15, 1992 (date of inception) to March 31, 2000
<TABLE>
<CAPTION>
Three Months ended December 15, 1992
March 31, (date of inception) to
1999 2000 March 31, 2000
---- ---- --------------
(in thousands)
<S> <C> <C> <C>
Supplemental cash flow disclosure:
Increase in FCC license, goodwill and intangibles......................... $ -- $ -- $ 51,624
Liabilities exchanged for convertible note to Parent...................... -- -- 81,676
Non-cash interest capitalized............................................. 4,236 2,247 31,134
Accrued system milestone payments......................................... 45,396 23,854 23,854
Property acquired through capital lease..................................... -- -- 470
Conversion of debt to equity ............................................. -- -- 363,815
Use of deposit for terrestrial repeater contract.......................... -- 3,422 --
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Business
XM Satellite Radio Inc. ("XMSR") was incorporated on December 15, 1992 in
the State of Delaware as a wholly owned subsidiary of Motient Corporation
("Motient" or "Parent"), formerly American Mobile Satellite Corporation, for
the purpose of procuring a digital audio radio service ("DARS") license.
Business activity for the period from December 15, 1992 through December 31,
1996 was insignificant. Pursuant to various financing agreements entered into in
1997 between Motient, XMSR and WorldSpace, Inc. ("WSI"), WSI acquired a 20
percent interest in XMSR.
On May 16, 1997, Motient and WSI formed XM Satellite Radio Holdings Inc.
(the "Company") 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. Motient 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.
On July 7, 1999, Motient acquired WSI's 20 percent interest in the Company.
(2) Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of XM
Satellite Radio Holdings Inc. and its subsidiaries, XM Satellite Radio Inc. and
XM 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, obtaining its DARS license, 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. The Company has not
generated any revenues and planned principal operations have not commenced.
Accordingly, the Company's financial statements are presented as those of a
development stage enterprise, as prescribed by Statement of Financial Accounting
Standards ("SFAS") No. 7, Accounting and Reporting by Development Stage
Enterprises.
In the opinion of management, the accompanying unaudited condensed
consolidated 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 subsidiaries, a
development stage entity, as of March 31, 2000, and the results of operations
and cash flows for the three months ended March 31, 1999 and 2000, and the
period from December 15, 1992 (date of inception) through March 31, 2000. The
results of operations for the three months ended March 31, 1999 and 2000 are not
necessarily indicative of the results that may be expected for the full year.
These condensed consolidated financial statements are unaudited, and do not
include all related footnote disclosures. The interim unaudited condensed
consolidated financial statements should be read in conjunction with the audited
financial statements of the Company included in the Company's filings with the
Securities and Exchange Commission.
(3) Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with SFAS
No. 128, Earnings Per Share and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic net income (loss) per
share is computed by dividing the net income (loss) available to common
stockholders (after deducting preferred dividend requirements) for the period by
the weighted average number of common shares outstanding during the period.
Diluted net income (loss) available per share is computed by dividing the net
income (loss) available to common stockholders for the period by the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. The Company has presented historical basic and diluted net
income (loss) per share in accordance with SFAS No. 128. As the Company had a
net loss in each of the periods presented, basic and diluted net income (loss)
per share is the same.
(4) Restricted Investments
Restricted investments consist of fixed income securities and are stated at
amortized costs plus accrued interest income. The securities included in
restricted investments are $123.4 million of US Treasury strips restricted to
provide for the first six scheduled interest payments on the Company's 14%
Senior Secured Notes due 2010, which are classified as held-to-maturity
securities under the provision of SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, and $15.0 million in money market
funds for scheduled milestone payments under the Hughes Electronics Corporation
contract.
5
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(5) Secondary Offering of Class A Common Stock and Sale of Series B Convertible
Redeemable Preferred Stock
On January 31, 2000, the Company closed on a secondary offering of its
Class A common stock and newly designated Series B convertible redeemable
preferred stock. The Company sold 4,000,000 shares of its Class A common stock
for $32.00 per share, which yielded net proceeds of approximately $120,900,000.
The Company concurrently sold 2,000,000 shares of its Series B convertible
redeemable preferred stock for $50.00 per share, which yielded net proceeds of
approximately $96,500,000. The Series B convertible redeemable preferred stock
provides for 8.25% cumulative dividends that may be paid in Class A common stock
or cash at the Company's option. The Series B convertible redeemable preferred
stock is convertible into Class A common stock at a conversion price of $40 per
share and is mandatorily redeemable in Class A common stock on February 1, 2012.
The Company has the right to redeem the Series B convertible redeemable
preferred stock in Class A common stock or cash commencing on February 3, 2003.
The Company does not currently intend to exercise this right.
On February 9, 2000, the underwriters exercised a portion of the over-
allotment option for 370,000 shares of Class A common stock, which yielded net
proceeds of approximately $11,233,000.
(6) Conversion of Class B Common Stock to Class A Common Stock
On March 8, 2000, at the request of the Company, one of the Class B common
stockholders converted 1,314,914 shares of the Company's Class B common stock
into Class A common stock on a one-for-one basis. As of March 31, 2000, Motient
held all of the Company's outstanding Class B common stock.
(7) 14% Senior Secured Notes and Warrants
On March 15, 2000, the Company closed a $325.0 million private debt
placement consisting of 325,000 units, each unit consisting of $1,000 principal
amount of 14% senior secured notes due 2010 of its subsidiary XM Satellite Radio
Inc. and one warrant to purchase 8.024815 shares of the Company's Class A common
stock at a price of $49.50 per share. The Company realized net proceeds of
$191.3 million, excluding $123.0 million used to acquire securities which will
be used to make interest payments due under the notes for the first three years.
(8) FCC Approval for Reduction of Motient Voting Stock
Motient is the Company's controlling stockholder. Motient has certain
rights regarding the election of persons to serve on the Company's board of
directors and as of the date of this report, holds 61.0% of the voting power of
XM Satellite Radio Holdings, or 50.5% giving effect to the conversion of all of
XM Satellite Radio Holdings' outstanding common stock equivalents. Motient
cannot relinquish its position as the Company's controlling shareholder without
obtaining the prior approval of the FCC. Accordingly, prior to obtaining FCC
approval of the transfer of control from Motient, the Company will only have
been able to issue a limited amount of voting securities or securities
convertible into voting securities unless certain of the Company's stockholders
holding nonvoting convertible securities agree not to convert them into voting
securities or the Company takes other steps to permit voting securities on a
basis consistent with FCC rules. On March 30, 2000, the FCC approved the
Company's application to allow Motient to reduce its ownership of the voting
stock of XM Satellite Radio Holdings to a minimum of 40%, provided that Motient
retain its right to elect a majority of the directors of the Company's board of
directors.
(9) Reclassifications
Certain amounts in the prior period's financial statements have been
reclassified to conform to the current period presentation.
6
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(10) 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.
(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 WSI had 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 as WSI is no longer a
stockholder in the Company, no prediction of the outcome of this challenge can
be made with any certainty.
(c) Technical Services
Effective January 1, 1998, the Company entered into agreements with Motient
and WorldSpace Management Corporation ("WorldSpace MC"), an affiliate of WSI, in
which Motient and WorldSpace MC would provide technical support in areas related
to the development of a DARS system. Payments for services provided under these
agreements are made based on negotiated hourly rates. These agreements may be
terminated by the parties on or after the date of the commencement of commercial
operation following the launch of the Company's first satellite. There are no
minimum services purchase requirements. The Company incurred costs of $62,000
and $45,000 under its agreement with Motient and no costs were incurred under
its agreement with WorldSpace MC during the quarter ended March 31, 2000 and
1999, respectively.
(d) Technology Licenses
Effective January 1, 1998, XMSR entered into a technology licensing
agreement with Motient 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 to WorldSpace MC over a ten-year period.
As of March 31, 2000, XMSR incurred costs of $6,696,000 payable to WorldSpace
MC. 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 Motient or WorldSpace MC should such developments prove
unsuccessful. The Company maintains an accrual of $5,069,000 payable to
WorldSpace MC, for quarterly royalty payments to be made. In addition, XMSR
agreed to pay 1.2 percent of quarterly net revenues to WorldSpace MC and a
royalty of $0.30 per chipset, payable to WorldSpace MC, for equipment
manufactured using certain source encoding and decoding signals technology.
(e) Satellite Contract
During the first half of 1999, the Company and Hughes Space and
Communications, Inc. ("Hughes") amended the satellite contract to construct and
launch the Company's satellites to implement a revised work timetable, payment
schedule to reflect the timing of the receipt of additional funding, and
technical modifications. The Company expects to incur total payment obligations
under this contract of approximately $541,300,000, 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 March 31, 2000, the Company had paid $242,765,000 under the
Satellite contract with Hughes and had accrued $8,200,000, which was
subsequently paid.
(f) Terrestrial Repeater System Contracts
In August 1999, the Company signed a contract with LCC International, Inc.,
a related party, calling for payments of approximately $115,000,000 for
engineering and site preparation. As of March 31, 2000, the Company has paid
$10,387,000 under this contract, and accrued an additional $2,900,000 which was
subsequently paid. The Company also entered into a contract effective October
22, 1999, with Hughes Electronics Corporation for the design, development and
manufacture of the terrestrial repeaters. Payments under this contract are
expected to be approximately $128,000,000. As of March 31, 2000, the Company had
paid $6,000,000 under this contract, and accrued an additional $3,000,000 which
was subsequently paid.
7
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(g) Joint Development Agreement
On February 16, 2000, the Company signed an agreement with Sirius Satellite
Radio ("Sirius Radio"), a competitor of the Company, to develop a unified
standard for satellite radios to facilitate the ability of consumers to purchase
one radio capable of receiving both the Company's and Sirius Radio's services.
The technology relating to the unified standard will be jointly developed,
funded and owned by the two companies. As part of the agreement, each company
has licensed to the other its intellectual property relating to its system; the
value of this license will be considered part of its contribution toward the
joint development. In addition, each company has agreed to license its non-core
technology, including non-essential features of its system, to the other at
commercially reasonable rates.
(h) 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 $35,000,000 in the aggregate during this period. Additional annual
fixed payment obligations beyond the initial four years of the contract term
range from less than $35,000,000 to approximately $130,000,000 through 2009,
aggregating approximately $400,000,000. 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 systems. The agreement is subject to renegotiations at any time based
upon the installation of radios that are compatible with a unified standard or
capable of receiving Sirius Satellite Radio's service. The agreement is subject
to renegotiations 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 1,240,000 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.
(i) Sony Warrant
In February 2000, the Company issued a warrant to Sony exercisable for
shares of the Company's Class A common stock. The warrant will vest at the time
that the Company attains its millionth customer, and the number of shares
underlying the warrant will be determined by the percentage of XM Radios that
have a Sony brand name as of the vesting date. If Sony achieves its maximum
performance target, it will receive 2% of the total number of shares of the
Company's Class A common stock on a fully-diluted basis upon exercise of the
warrant. The exercise price of the Sony warrant will equal 105% of fair market
value of the Class A common stock on the vesting date, determined based upon the
20-day trailing average.
8
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(j) Prior Litigation
On January 12, 1999, Sirius Radio, the other holder of an FCC satellite
radio license, commenced an action against the Company in the United States
District Court for the Southern District of New York, alleging that the Company
was infringing or would infringe three patents assigned to Sirius Radio. In its
complaint, Sirius Radio sought money damages to the extent the Company
manufactured, used or sold any product or method claimed in their patents and
injunctive relief. On February 16, 2000, this suit was resolved in accordance
with the terms of a joint development agreement between the Company and Sirius
Radio and both companies agreed to cross-license their respective property (see
note 10(g)). However, if this agreement is terminated before the value of the
license has been determined due to the Company's failure to perform a material
covenant or obligation, then this suit could be refiled.
(k) Preferred Stock Dividend
On March 28, 2000, the Company announced its regular quarterly dividend on
its 8.25% Series B convertible redeemable preferred stock, which will be paid on
May 1, 2000. The dividend will be paid in shares of Class A common stock; 62,318
shares of Class A common stock will be issued to the holders of record on April
12, 2000. The net loss attributable to common stockholders reflects the accrual
of the dividend to the preferred stockholders which was accrued through March
31, 2000.
9
<PAGE>
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other sections herein,
including statements regarding the development of our business, the markets for
our services, our anticipated capital expenditures, and other similar statements
are forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) which can be identified as any
statement that does not relate strictly to historical or current facts. Forward-
looking statements use such words as "plans", "expects", "will", "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project", "believes", "anticipates", "intends", "may", "should", "continue",
"seek", "could" and other similar reasonable expressions. Although we believe
that our expectations are based on reasonable assumptions, we can give no
assurance that our expectations will be achieved. The important factors that
could cause actual results to differ materially from those in the forward-
looking statements herein (the "Cautionary Statements") include, without
limitation, the key factors that have a direct bearing on our future results of
operations. These are the potential risk of delay in implementing our business
plan; possible increased costs of construction and launch of necessary
satellites; dependence on Hughes Space and Communications, Inc., LCC
International, and consumer electronics manufacturers; the availability of
receivers and antennas; risk of launch failure; unproven market for our proposed
service; unproven application of existing technology; difficulties in developing
with Sirius Radio a unified standard for satellite radio; our need for
additional financing, as well as other risks referenced from time to time in our
filings with the SEC, including our Form 8-K dated February 25, 2000. All
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
Cautionary Statements. We do not undertake any obligation to release publicly
any revisions to such forward-looking statements to reflect the occurrence of
unanticipated events.
The following discussion and analysis should be read in conjunction with
our Condensed Consolidated Financial Statements and Notes thereto included
herewith, and with our Management's Discussion and Analysis of Financial
Condition and Results of Operations and audited consolidated financial
statements and notes thereto for the three year period ended December 31, 1999,
and for the period from December 15, 1992 (date of inception) to December 31,
1999, included in our Annual Report on Form 10-K.
OVERVIEW
XM Satellite Radio Inc. was incorporated in Delaware in 1992 as a wholly-
owned subsidiary of Motient Corporation ("Motient"), formerly American Mobile
Satellite Corporation. XM Satellite Radio Holdings Inc. became a holding company
for XM Satellite Radio Inc. in early 1997.
In October 1999, we completed an initial public offering which yielded net
proceeds of $114.1 million. Concurrent with the closing of our initial public
offering, $250.0 million of our Series A subordinated convertible notes,
together with associated accrued interest, converted into shares of Series A
convertible preferred stock and shares of Class A common stock. Additionally,
$103.1 million of convertible notes issued to Motient, together with associated
accrued interest, converted into shares of our Class B common stock.
In the first quarter of 2000, we completed:
. a follow-on offering of 4,370,000 shares of Class A common stock, which
yielded net proceeds of $132.1 million;
. a concurrent offering of 2,000,000 shares of Series B convertible
redeemable preferred stock, which yielded net proceeds of $96.5
million; and
. a private placement of 325,000 units, each consisting of $1,000
principal amount of 14% senior secured notes due 2010 and one warrant
to purchase 8.024815 shares of Class A common stock at $49.50 per
share which yielded net proceeds of $191.3 million excluding $123.0
million for an interest reserve.
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
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. 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
Three Months Ended March 31, 2000 Compared With Three Months Ended March 31,
1999
Research and Development. Research and development expenses increased to
approximately $4.5 million for the three months ended March 31, 2000, compared
with approximately $0.7 million for the three months ended March 31, 1999. The
increase in the research and development expenses primarily resulted from the
accelerated development of some of our system technology during the first
quarter of 2000.
Professional Fees. Professional fees increased to approximately $5.6
million for the three months ended March 31, 2000, compared with $1.3 million
for the three months ended March 31, 1999. The increase primarily reflects
additional legal, regulatory and marketing expenses as we engaged more
consultants, including incurring $2.4 million for enterprise information
technology consultants. We expect the professional fees to trend upward as we
continue to evaluate the system alternatives and develop market strategies.
General and Administrative. General and administrative expenses increased
to $6.8 million for the three months ended March 31, 2000, compared with $2.3
million for the three months ended March 31, 1999. The increase reflects
increased headcount and facilities expenses. We have granted certain key
executives stock options and incurred a non-cash compensation charge of
approximately $0.7 million in the first quarter of 2000 primarily for
performance-based stock options. We will continue to incur quarterly non-cash
compensation charges over the vesting period depending on the market value of
our Class A common stock at the end of the quarter. We also continued the
amortization of goodwill and other intangibles during the first quarter of 2000.
We anticipate general and administrative expenses to continue to increase
through commercial operations.
Interest Income. Interest income increased to $4.2 million for the three
months ended March 31, 2000, compared with $0.1 million for the three months
ended March 31, 1999, which was insignificant. The increase was the result of
higher average balances of cash and short-term investments during the three
months ended March 31, 2000 due to the proceeds from the private placement of
14% senior secured notes and warrants and the public offering of Class A common
stock and Series B convertible redeemable preferred stock, both in the first
quarter of 2000, which exceeded expenditures for satellite and launch vehicle
construction, other capital expenditures and operating expenses.
Interest Expense. We capitalized interest costs of $2.2 million and $4.2
million associated with its FCC license and the XM Radio system during the three
months ended March 31, 2000 and 1999, respectively. The decrease was the result
of the conversion of previously outstanding debt, offset by the incurrence of
new debt during the quarter.
Net Loss. The net loss for the three-month periods ended March 31, 2000 and
1999 was $12.7 million and $4.4 million, respectively. The increase in net
losses for the three months ended March 31, 2000, compared with the three months
ended March 31, 1999, reflects an increase in research and development expenses
and additional general and administration expenses, primarily due to increased
headcount and facility expenses in preparation for commercial operations and the
amortization of goodwill and intangibles.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, we had a total of cash and cash equivalents of $448.0
million and working capital of $466.5 million, compared with cash, cash
equivalents and short-term investments of $120.2 million and working capital of
$94.7 million at December 31, 1999. The increases in the respective balances are
due primarily to the proceeds from the issuance of Series B convertible
redeemable preferred stock, which yielded net proceeds of $96.5 million, a
concurrent follow-on offering of Class A common stock, which yielded net
proceeds of $132.1 million, and a private placement of 14% senior secured notes
and warrants, which yielded net proceeds of $191.3 million, which in the
aggregate, exceeded capital expenditures and operating expenses for the first
quarter of 2000.
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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 inception through the commencement of
commercial operations, targeted for the second quarter of 2001. Since inception,
we have raised an aggregate of $865.0 million, net of expenses, interest reserve
and repayment of debt. These funds are expected to be sufficient, in the absence
of additional financing, to cover funding needs into the fourth quarter of 2000.
We will require substantial additional funding of approximately $235.0 million
to finish building the XM Radio system and to provide working capital until we
commence commercial operations.
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. 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 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.
Sources of Funds
To date, we have raised approximately $865.0 million of net proceeds, net
of expenses, interest reserve and repayment of debt. These funds have been used
to acquire our FCC license, make required payments for our system; including the
satellites, terrestrial repeater system, and ground networks, and for working
capital and operating expenses.
In the first quarter of 2000, we completed:
. a follow-on offering of 4,370,000 shares of Class A common stock,
yielding net proceeds of $132.1 million;
. a concurrent offering of 2,000,000 shares of our Series B convertible
redeemable preferred stock, which yielded net proceeds of $96.5
million; and
. a private placement of 325,000 units, each consisting of $1,000
principal amount of 14% senior secured notes due 2010 and one warrant
to purchase 8.024815 shares of Class A common stock at $49.50 per
share that provided net proceeds of $191.3 million excluding $123.0
million for an interest reserve.
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 inception to
March 31, 2000 totaled $366.2 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 March 31, 2000, we had paid approximately $242.8 million
under our satellite contract and have recognized an additional $8.2 million in
accrued milestone payments which were paid subsequently.
Launch Insurance. Based on current industry estimates, we expect that
launch insurance for both satellites will cost approximately $50.0 million. As
of March 31, 2000, 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
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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 March 31, 2000, we had
incurred costs with respect to the terrestrial repeater buildout of $24.2
million which we paid. In August 1999, we signed a contract with LCC
International, Inc., related party, calling for payments of approximately $115.0
million for engineering and site preparation. As of March 31, 2000, we had paid
$10.4 million under this contract and accrued an additional $2.9 million which
was subsequently paid. We also entered into a contract effective October 22,
1999, with Hughes Electronics Corporation for the design, development and
manufacture of the terrestrial repeaters. Payments under this contract are
expected to be approximately $128.0 million. As of March 31, 2000, we had paid
$6.0 million under this contract, and accrued an additional $3.0 million which
was subsequently paid.
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 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 March 31, 2000, we had
incurred $13.8 million 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. There are no further payments required
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 targeted commercial launch in the second quarter of 2001. From
inception through March 31, 2000, we have incurred total expenses of $67.5
million. Total cash used in operating activities was $37.3 million. The
difference between the loss incurred to date and cash used in operations is
principally due to $5.5 million beneficial conversion charge, $4.9 million non-
cash stock compensation charge and $18.7 million in accounts payable and accrued
expenses.
Joint Development Agreement Funding Requirements. In addition to the above
capital needs, we may require funds to pay license fees or make contributions
towards the development of the technologies used to develop a unified standard
for satellite radios under our joint development agreement with Sirius Radio.
Each party is obligated to fund one half of the development cost for such
technologies. Each party will be entitled to license fees or a credit towards
its one half of the cost based upon the validity, value, use, importance and
available alternatives of the technology it contributes. The amounts of these
fees or credits will be determined over time by agreement of the parties or by
arbitration. We cannot predict at this time the amount of license fees or
contribution payable by us or Sirius Radio or the size of the credits to us and
Sirius Radio from the use of the other's technology. This may require
significant additional capital.
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. Marketing and distribution expenses are
expected to include joint advertising and joint development with and
manufacturing subsidies of certain costs of some of our manufacturers and
distribution partners. We cannot estimate accurately the total amount of these
operational, promotional, subscriber acquisition, joint development and
manufacturing costs and expenses, but they are expected to be substantial.
We will have significant payment obligations after commencement of
operations under our distribution agreement with General Motors. We will pay an
aggregate of approximately $35 million in the first four years following
commencement of commercial service. After that, through 2009, we will have
additional fixed 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, 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. 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.
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.
Recent Accounting Pronouncement
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation ("FIN 44"). FIN 44 further defines the accounting consequence of
various modifications to the terms of a previously fixed stock option or award
under APB Opinion No. 25, Accounting for Stock Issued to Employees. FIN 44
becomes effective on July 1, 2000, but certain conclusions in FIN 44 cover
specific events that occur after either December 15, 1998 or January 12, 2000.
In July 1999, the Company repriced 818,339 options and FIN 44 requires that
these options be accounted for as variable from July 1, 2000 until the date the
award is exercised, is forfeited, or expires unexercised. For those options that
have vested as of July 1, 2000, compensation cost is recognized only to the
extent that the exercise price exceeds the stock price on July 1, 2000. For
those options that have not vested as of July 1, 2000, the portion of the
award's intrinsic value measured at July 1, 2000 is recognized over the
remaining vesting period. Additional compensation cost is measured for the full
amount of any increases in stock price after the effective date and is
recognized over the remaining vesting period. Any adjustment to compensation
cost for further changes in the stock price after the award vests is recognized
immediately. The effects of implementing FIN 44 may require the Company to
recognize additional non-cash compensation commencing in the third quarter of
2000.
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Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2000, we do not have any derivative financial instruments
and do not intend to use derivatives. We invest our cash in short-term
commercial paper, investment-grade corporate and government obligations and
money market funds. Our long-term debt includes a fixed interest rate and the
fair market value of the debt is sensitive to changes in interest rates. We run
the risk that market rates will decline and the required payments will exceed
those based on current market rates. Under our current policies, we do not use
interest rate derivative instruments to manage our exposure to interest rate
fluctuations. Additionally, we believe that our exposure to interest rate risk
is not material to our results of operations.
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PART II: OTHER INFORMATION
Item 1: Legal Proceedings
On January 12, 1999, Sirius 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
were infringing or would infringe three patents assigned to Sirius
Radio. In its complaint, Sirius Radio sought money damages to the
extent we manufactured, used or sold any product or method claimed in
their patents and injunctive relief. This suit was dismissed without
prejudice in February 2000 in accordance with the terms of a joint
development agreement between us and Sirius Radio in which both
companies agreed to develop a unified standard for satellite radios and
license our respective intellectual property, including the patents
that were the subject of the suit, for use in this joint development.
If this agreement is terminated before the value of the licenses has
been determined due to our failure to perform a material covenant or
obligation, then this suit could be refiled.
Item 2: Changes in Securities and Use of Proceeds
On February 9, 2000, we issued a warrant to Sony Electronics, Inc.
exercisable for shares of Class A common stock. The warrant will vest
at the time that we attain our millionth customer, and the number of
shares underlying the warrant will be determined by the percentage of
XM Radios that have a Sony brand name as of the vesting date. If Sony
achieves its maximum performance target, it will have the right to
purchase 2% of the total number of outstanding shares of Class A common
stock on a fully-diluted basis upon exercise of the warrant. The
exercise price of the Sony warrant will equal 105% of fair market value
of the Class A common stock on the vesting date, determined based upon
the 20-day trailing average. The issuance of this warrant to Sony was
exempt from registration under Section 4(2) of the Securities Act of
1933 and Regulation D thereunder.
On March 15, 2000, we completed a private placement of 325,000 units,
each consisting of $1,000 principal amount of 14% senior secured notes
due 2010 and one warrant to purchase 8.024815 shares of Class A common
stock at $49.50 per share, which resulted in gross proceeds of $325.0
million, or net proceeds of $191.3 million after deducting interest
reserve of approximately $123.0 million, underwriting discounts and
commissions of approximately $9.7 million and expenses of approximately
$1.0 million. The warrants are exercisable at any time on or after
September 16, 2000 until they expire on March 15, 2010. The
underwriters of the private placement were Bear, Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette, Salomon Smith Barney and Lehman Brothers.
This sale was exempt from registration under Rule 144A under the
Securities Act of 1933.
Item 4: Submission of Matters to a Vote of Security Holders.
None.
Item 5 Other information.
Motient Corporation (formerly American Mobile Satellite Corporation) is
our controlling stockholder. Motient has certain rights regarding the
election of persons to serve on our board of directors and as of the
date of this report, holds 61.0% of the voting power of XM Satellite
Radio Holdings, or 50.5% giving effect to the conversion of all of XM
Satellite Radio Holdings' outstanding common stock equivalents. Motient
cannot relinquish its position as our controlling shareholder without
obtaining the prior approval of the FCC. Accordingly, prior to our
obtaining FCC approval of the transfer of control from Motient, we will
only have been able to issue a limited amount of voting securities or
securities convertible into voting securities unless certain of our
stockholders holding nonvoting convertible securities agree not to
convert them into voting securities or we take other steps to permit
voting securities on a basis consistent with FCC rules. On March 30,
2000, the FCC approved our application to allow Motient to reduce its
ownership of the voting stock of XM Satellite Radio Holdings to a
minimum of 40%, provided that Motient retain its right to elect a
majority of the directors of our board of directors.
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Item 6: Exhibits and Reports on Form 8-K.
Exhibits:
Exhibit No. Description
- ----------- -----------
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).
4.2/\/\ Form of Certificate for our 8.25% Series B Convertible Redeemable
Preferred Stock.
4.3/\/\/\ Certificate of Designation Establishing the Voting Powers,
Designations, Preferences, Limitations, Restrictions and Relative
Rights of 8.25% Series B Convertible Redeemable Preferred Stock due
2012.
4.4 Warrant to purchase shares of XM Satellite Radio Holdings Inc.'s
Class A common stock, dated February 9, 2000, issued to Sony
Electronics, Inc.
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 Communication, Inc.
10.11/\* Operational Assistance Agreement, dated as of June 7, 1999, between
XM Satellite Radio Inc. and TCM, LLC.
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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 dated 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 (incorporated by reference to the
Registrant's Registration Statement on Form S-8, File No. 333-
92049).
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 (Incorporated by reference to the
Registrant's Registration Statement on Form S-8, File No. 333-
92049).
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/\ Lease between Consortium One Eckington, L.L.C. and XM Satellite
Radio Inc., dated September 29, 1999
10.27/\/\ Letter Agreement with Stephen Cook dated January 12, 1999
10.28/\/\/\** Contract for the Design, Development and Purchase of Terrestrial
Repeater Equipment by and between XM Satellite Radio Inc. and
Hughes Electronics Corporation, dated February 14, 2000.
10.29** Joint Development Agreement , dated February 16, 2000, between XM
Satellite Radio Inc. and Sirius Satellite Radio Inc.
21.1/\/\ Subsidiaries of XM Satellite Radio Holdings Inc.
27.1 Financial Data Schedule.
________________
/\ Incorporated by reference to the Registrant's Registration Statement on
Form S-1, File No. 333-83619.
/\/\ Incorporated by reference to the Registrant's Registration Statement on
Form S-1, File No. 333-93529.
/\/\/\ Incorporated by reference to the Registrant's Annual Report on Form 10-
K for the fiscal year ended December 31, 1999, File No. 0-27441.
* Pursuant to the Commission's Order Granting Confidential Treatment
under Rule 406 of the Securities Act of 1933, certain confidential
portions of this Exhibit were omitted by means of redacting a portion
of the text.
** Certain 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 with such text pursuant to our Application
Requesting Confidential Treatment under Rule 24(b)-2 under the
Securities Exchange Act of 1934.
(b) Reports on Form 8-K.
On February 25, 2000, we filed a Current Report on Form 8-K that
contained audited, consolidated financial statements substantially the
same as those contained in our Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 (File No. 000-27441). The Company
also filed certain other information with respect to its business and
financial condition that the Company deemed of importance to its
stockholders.
(c) Exhibits:
Exhibit 4.4 Warrant to purchase shares of XM Satellite Radio
Holdings Inc.'s Class A common stock, dated February
[16], 2000, issued to Sony Electronics, Inc.
Exhibit 10.29 Joint Development Agreement , dated February 16, 2000,
between XM Satellite Radio Inc. and Sirius Satellite
Radio Inc.
Exhibit 27.1 Financial Data Schedule
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XM SATELLITE RADIO HOLDINGS INC.
(Registrant)
May __, 2000 By: /s/ Heinz Stubblefield
--------------------------------------------
Heinz Stubblefield
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)
18
<PAGE>
Exhibit 4.4
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND ANY SECURITIES ACQUIRED UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER THIS WARRANT NOR SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT (A) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR (B) UPON
RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL, WHICH OPINION SHALL BE
REASONABLY SATISFACTORY TO ISSUER THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER SUCH ACT AND SUCH LAWS.
_____________________________
XM SATELLITE RADIO HOLDINGS INC.
COMMON STOCK PURCHASE WARRANT
_____________________________
This certifies that, for good and valuable consideration, XM Satellite
Radio Holdings Inc., a Delaware corporation (the "Company"), grants to Sony
Electronics, Inc., a Delaware corporation ("Sony"), and other Warrantholders the
right to subscribe for and purchase from the Company the number of shares
determined as set forth below (the "Warrant Shares") of the Company's Class A
common stock, par value $0.01 per share (the "Common Stock"), subject to the
terms, conditions and adjustments herein set forth.
Certain capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in Section 11.
Certificate No. 1
Name of Warrantholder: Sony Electronics, Inc.
Number of Shares:
<PAGE>
1. Number of Warrant Shares; Exercise Price.
----------------------------------------
1.1. Number of Warrant Shares.
------------------------
(a) Subject to adjustment as provided in Section 7.1, the number of
Warrant Shares which the Warrantholder shall have the right to
purchase shall be equal to the nearest whole number that is less
than or equal to the product of the number of Fully-Diluted
Shares multiplied by the percentage that is opposite the range
set forth below that includes the percentage of the XM Satellite
Installed Base that are Sony Devices at the time of the Vesting
Date. The percentage of shares which Sony will be entitled to
acquire shall be based on the Fully-Diluted Shares of the
Company.
<TABLE>
<CAPTION>
Percentage of XM Satellite Installed Base Percentage of Number of
that are Sony Devices as of Vesting Date Fully-Diluted Shares
- ---------------------------------------- ------------------------
<S> <C>
0 - 19.99% 0%
20 - 29.99% 0.5%
30 - 39.99% 1.0%
40 - 49.99% 1.5%
50 - 100% 2.0%
</TABLE>
(b) As soon as is reasonably practicable after the occurrence of the
Vesting Date, the Company shall provide the Warrantholder with
written notice thereof.
1.2 Exercise Price. This Warrant shall, at the time of the Vesting Date,
--------------
entitle the Warrantholder, subject to the terms, conditions and
adjustments set forth herein, to purchase the Warrant Shares at a
purchase price per share (the "Exercise Price") equal to 105% of the
--------------
Fair Market Value as of the Vesting Date, subject to adjustment as
provided in Section 7.1(g). The Exercise Price may be payable by the
Warrantholder in cash, in shares of common stock of the Company or by
the surrender of warrants or other securities of the Company having a
net value, at the time of the surrender, equal to the Exercise Price.
2. Duration and Exercise Of Warrant; Limitations on Exercise; Payment of Taxes
---------------------------------------------------------------------------
2.1 Exercisability of Warrant. Subject to the terms and conditions set
-------------------------
forth herein, the right to exercise this Warrant shall vest, and this
Warrant shall become exercisable for the number of Warrant Shares set
forth in Section 1.1, as of the Vesting Date. The Warrantholder
shall have no right to exercise this Warrant prior to the Vesting
Date.
2
<PAGE>
2.2 Duration and Exercise of Warrant. Subject to the terms and
--------------------------------
conditions set forth herein, including Section 1.1, the Warrant may
be exercised, in whole or in part, at any time prior to the
Expiration Date, by the Warrantholder by:
(a) the surrender of this Warrant to the Company, with a duly
executed Exercise Form specifying the number of Warrant Shares to
be purchased, during normal business hours on any Business Day
prior to the Expiration Date; and
(b) the delivery of payment to the Company, for the account of the
Company, by cash, by certified or bank cashier's check or by wire
transfer of immediately available funds in accordance with wire
instructions that shall be provided by the Company upon request,
of the Exercise Price for the number of Warrant Shares specified
in the Exercise Form in lawful money of the United States of
America.
The Company agrees that such Warrant Shares shall be deemed to be
issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for the Warrant Shares
as aforesaid.
2.3 Limitations on Exercise. Notwithstanding anything to the contrary
-----------------------
herein, this Warrant may be exercised only upon (i) the delivery to
the Company of any certificates, legal opinions, and other documents
reasonably requested by the Company to satisfy the Company that the
proposed exercise of this Warrant may be effected without
registration under the Securities Act, and (ii) receipt by the
Company of approval of any applicable Governmental Authority (other
than the FCC) of the proposed exercise. The Warrantholder shall not
be entitled to exercise this Warrant, or any part thereof, unless and
until such approvals, certificates, legal opinions or other documents
are reasonably acceptable to the Company. The cost of such
approvals, certificates, legal opinions and other documents, if
required, shall be borne by the Warrantholder. In the event that the
FCC shall object to the proposed exercise of the Warrant, then the
Company, at its expense, shall be solely responsible for taking any
and all action required to obtain FCC approval to permit such
exercise as promptly as practicable. In the event that on the date
that Sony is permitted to exercise the Warrant in full without
3
<PAGE>
restriction (the "Approval Date") the Fair Market Value of the common
stock underlying the Warrant is less than the value of the underlying
common stock on the date on which Sony initially proposed to exercise
the Warrant (the "Proposed Exercise Date"), then the Company shall,
within ten days of Sony's request, pay to Sony an amount equal to the
difference between Fair Market Value of the common stock on the
Approval Date and the Proposed Exercise Date. The Company may make
such payment in the form of cash or common stock of the Company, at
the option of the Company. In addition, any and all transfer
restrictions set forth in Section 3 shall terminate immediately after
the Proposed Exercise Date.
2.4 Warrant Shares Certificate. A stock certificate or certificates for
--------------------------
the Warrant Shares specified in the Exercise Form shall be delivered
to the Warrantholder within five Business Days after receipt of the
Exercise Form and receipt of payment of the purchase price. If this
Warrant shall have been exercised only in part, the Company shall, at
the time of delivery of the stock certificate or certificates,
deliver to the Warrantholder a new Warrant evidencing the rights to
purchase the remaining Warrant Shares, which new Warrant shall in all
other respects be identical with this Warrant.
2.5 Payment of Taxes. The issuance of certificates for Warrant Shares
----------------
shall be made without charge to the Warrantholder for any
documentary, stamp or similar stock transfer or other issuance tax in
respect thereto; provided, however, that the Warrantholder shall be
required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Warrantholder as reflected upon
the books of the Company.
3. Restrictions on Transfer; Restrictive Legends
---------------------------------------------
3.1 Divisibility of Warrant; Transfer of Warrant.
--------------------------------------------
(a) Subject to applicable federal and state securities laws, this
Warrant and any Warrant Shares (x) prior to the Vesting Date may
be transferred by the Warrantholder only to the Warrantholder's
affiliates, except with the consent of the Company, and (y) after
the Vesting Date may be transferred at any time by the
Warrantholder. No transfer of the registration rights set forth
in Section 11 hereof shall be made except as permitted pursuant
to Section 11.11 hereof.
4
<PAGE>
(b) Subject to the provisions of this Section, this Warrant may be
divided into warrants for the purchase of one thousand shares or
multiples thereof, upon surrender at the office of the Company
located at 1250 23rd Street, N.W., Suite 57, Washington, D.C.,
20037, without charge to any Warrantholder. Subject to the
provisions of this Section, upon such division, the Warrants may
be transferred of record as the then Warrantholder may specify
without charge to such Warrantholder (other than any applicable
transfer taxes).
(c) Subject to the provisions of this Section, upon surrender of this
Warrant to the Company with a duly executed Assignment Form and
funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants of
like tenor in the name of the assignee named in such Assignment
Form, and this Warrant shall promptly be canceled. Prior to any
proposed transfer (whether as the result of a division or
otherwise) of this Warrant, such Warrantholder shall give written
notice to the Company of such Warrantholder's intention to effect
such transfer. Each such notice shall describe the manner and
circumstances of the proposed transfer in sufficient detail, and,
if requested by the Company, shall be accompanied by a written
opinion of legal counsel, which opinion shall be addressed to the
Company and be reasonably satisfactory in form and substance to
the Company, to the effect that the proposed transfer of this
Warrant may be effected without registration under the Securities
Act. In addition to the restrictions contained in this Section,
the Warrantholder shall not be entitled to transfer this Warrant,
or any part thereof, if such legal opinion is not reasonably
acceptable to the Company. The term "Warrant" as used herein
shall be deemed to include any Warrants issued in substitution or
exchange for this Warrant in accordance with the terms and
conditions herein set forth.
3.2 Restrictive Legends. Except as otherwise permitted by this Section,
-------------------
each Warrant shall (and each Warrant issued upon direct or indirect
transfer or in substitution for any Warrant pursuant to Section 3.1
or Section 5 shall) be stamped or otherwise imprinted with a legend
in substantially the following form:
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND ANY SECURITIES
ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
5
<PAGE>
SECURITIES LAWS AND NEITHER THIS WARRANT NOR SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR (B) UPON
RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL, WHICH OPINION SHALL
BE REASONABLY SATISFACTORY TO ISSUER THAT SUCH TRANSFER IS EXEMPT
FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS.
Except as otherwise permitted by this Section, each stock certificate
for Warrant Shares issued upon the exercise of any Warrant and each
stock certificate issued upon the direct or indirect transfer of any
such Warrant Shares shall be stamped or otherwise imprinted with a
legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN
MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND
SUCH LAWS.
Notwithstanding the foregoing, the Warrantholder may require the
Company to issue a Warrant or a stock certificate for Warrant Shares,
in each case without a legend, if either (i) such Warrant or such
Warrant Shares, as the case may be, have been registered for resale
under the Securities Act or (ii) the Warrantholder has delivered to
the Company an opinion of legal counsel, which opinion shall be
addressed to the Company and be reasonably satisfactory in form and
substance to the Company, to the effect that such registration is not
required with respect to such Warrant or such Warrant Shares, as the
case may be.
By acceptance of this Warrant, the Warrantholder expressly agrees
that it will at all times comply with the restrictions contained in
Rule 144(e) under the Securities Act (as in effect on the date
hereof) when selling, transferring or otherwise disposing Warrant
Shares, even if such restrictions would not then be applicable to the
Warrantholder.
6
<PAGE>
4. Reservation and Registration of Shares, Etc.
--------------------------------------------
The Company covenants and agrees as follows:
(a) all Warrant Shares which are issued upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid, and
nonassessable, not subject to any preemptive rights, and free
from all taxes, liens, security interests, charges, and other
encumbrances with respect to the issue thereof;
(b) during the period within which this Warrant may be exercised, the
Company will at all times have authorized and reserved, and keep
available free from preemptive rights and any liens and
encumbrances, a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this
Warrant; and
(c) the Company will, from time to time, take all such action as may
be required to assure that the par value per share of the Warrant
Shares is at all times equal to or less than the then effective
Exercise Price.
5. Loss or Destruction of Warrant.
------------------------------
Subject to the terms and conditions hereof, upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, of
such bond or indemnification as the Company may reasonably require, and, in the
case of such mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver a new Warrant of like tenor.
6. Ownership of Warrant.
--------------------
The Company may deem and treat the Person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
7. Certain Adjustments
-------------------
7.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as
follows:
7
<PAGE>
(a) Stock Dividends. If at any time after the date of the issuance
---------------
of this Warrant (i) the Company shall fix a record date for the
issuance of any stock dividend payable in shares of Common Stock;
or (ii) the number of shares of Common Stock shall have been
increased by a subdivision or split-up of shares of Common Stock,
then, on the record date fixed for the determination of holders
of Common Stock entitled to receive such dividend or immediately
after the effective date of such subdivision or split-up, as the
case may be, the number of shares to be delivered upon exercise
of this Warrant will be increased so that the Warrantholder will
be entitled to receive the number of shares of Common Stock that
such Warrantholder would have owned immediately following such
action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in
paragraph (g).
(b) Combination of Stock. If the number of shares of Common Stock
--------------------
outstanding at any time after the date of the issuance of this
Warrant shall have been decreased by a combination of the
outstanding shares of Common Stock, then, immediately after the
effective date of such combination, the number of shares of
Common Stock to be delivered upon exercise of this Warrant will
be decreased so that the Warrantholder thereafter will be
entitled to receive the number of shares of Common Stock that
such Warrantholder would have owned immediately following such
action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in
paragraph (g).
(c) Reorganization, etc. If any capital reorganization of the
-------------------
Company, any reclassification of the Common Stock, any
consolidation of the Company with or merger of the Company with
or into any other Person, or any sale or lease or other transfer
of all or substantially all of the assets of the Company to any
other Person, shall be effected in such a way that the holders of
Common Stock shall be entitled to receive stock, other securities
or assets (whether such stock, other securities or assets are
issued or distributed by the Company or another Person) with
respect to or in exchange for Common Stock, then, upon exercise
of this Warrant, the Warrantholder shall have the right to
receive the kind and amount of stock, other securities or assets
receivable upon such reorganization, reclassification,
consolidation, merger or sale, lease or other transfer by a
holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon
8
<PAGE>
exercise of this Warrant had this Warrant been exercised
immediately before such reorganization, reclassification,
consolidation, merger or sale, lease or other transfer, subject
to adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7. If
the Company effects any such consolidation, merger or sale, lease
or other transfer, the Company shall ensure that prior to, or
simultaneously with, the consummation thereof, the successor
Person (if other than the Company) resulting from such
consolidation or merger, or such Person purchasing, leasing or
otherwise acquiring such assets, shall assume, by written
instrument, the obligation to deliver to the Warrantholder the
shares of stock, securities or assets to which, in accordance
with the foregoing provisions, the Warrantholder may be entitled
and all other obligations of the Company under this Warrant. The
provisions of this paragraph (c) shall apply to successive
reorganizations, reclassifications, consolidations, mergers,
sales, leasing transactions and other transfers.
(d) Distributions to all Warrantholders of Common Stock. If the
---------------------------------------------------
Company shall, at any time after the date of issuance of this
Warrant, fix a record date to distribute to all holders of its
Common Stock any shares of capital stock of the Company (other
than Common Stock) or evidences of its indebtedness or assets
(not including regular quarterly cash dividends and distributions
paid from retained earnings of the Company) or rights or warrants
to subscribe for or purchase any of its securities, then the
Warrantholder shall be entitled to receive, upon exercise of this
Warrant, that portion of such distribution to which it would have
been entitled had the Warrantholder exercised its Warrant
immediately prior to the date of such distribution. At the time
it fixes the record date for such distribution, the Company shall
allocate sufficient reserves to ensure the timely and full
performance of the provisions of this Subsection. The Company
shall promptly (but in any case no later than five Business Days
prior to the record date of such distribution) give notice to the
Warrantholder that such distribution will take place.
(e) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued to any Warrantholder in connection with the
exercise of this Warrant. Instead of any fractional shares of
Common Stock that would otherwise be issuable to such
Warrantholder, the Company will pay to such Warrantholder a cash
adjustment in respect of such fractional interest in an
9
<PAGE>
amount equal to that fractional interest of the then current Fair
Market Value per share of Common Stock.
(f) Carryover. Notwithstanding any other provision of this Section
---------
7, no adjustment shall be made to the number of shares of Common
Stock to be delivered to the Warrantholder (or to the Exercise
Price) if such adjustment represents less than 0.10% of the
number of shares to be so delivered, but any lesser adjustment
shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with
any adjustments so carried forward shall amount to 0.10% or more
of the number of shares to be so delivered.
(g) Exercise Price Adjustment. Whenever the number of Warrant Shares
-------------------------
purchasable upon the exercise of this Warrant is adjusted, as
herein provided, the Exercise Price payable upon the exercise of
this Warrant shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon
the exercise of the Warrant immediately prior to such adjustment,
and of which the denominator shall be the number of Warrant
Shares purchasable immediately thereafter.
7.2 Rights Offering. In the event the Company shall effect an offering
---------------
of Common Stock pro rata among its stockholders, the Warrantholder
shall be entitled to elect to participate in each and every such
offering as if this Warrant had been exercised immediately prior to
each such offering. The Company shall promptly (but in any case no
later than five Business Days prior to such rights offering) give
notice to the Warrantholder that such rights offering will take
place. The Company shall not be required to make any adjustment with
respect to the issuance of shares of Common Stock pursuant to a
rights offering in which the holder hereof elects to participate
under the provisions of this Section 7.2.
7.3 Notice of Adjustments. Whenever the number of Warrant Shares or the
---------------------
Exercise Price of such Warrant Shares is adjusted, as herein
provided, the Company at its expense shall promptly give to the
Warrantholder notice of such adjustment or adjustments and a
certificate of the independent public accountants regularly employed
by the Company or a firm of independent public accountants of
recognized national standing selected by the Board of Directors of
the Company (which shall be appointed at the Company's expense)
setting forth the number of Warrant Shares and the Exercise Price of
10
<PAGE>
such Warrant Shares after such adjustment, a brief statement of the
facts requiring such adjustment, and the computation by which such
adjustment was made.
7.4 Notice of Extraordinary Corporate Events. In case the Company after
----------------------------------------
the date hereof shall propose to (i) distribute any dividend (whether
stock or cash or otherwise) to the holders of shares of Common Stock
or to make any other distribution to the holders of shares of Common
Stock, (ii) offer to the holders of shares of Common Stock rights to
subscribe for or purchase any additional shares of any class of stock
or any other rights or options, or (iii) effect any reclassification
of the Common Stock (other than a reclassification involving merely
the subdivision or combination of outstanding shares of Common
Stock), any capital reorganization, any consolidation or merger
(other than a merger in which no distribution of securities or other
property is to be made to holders of shares of Common Stock), any
sale or lease or transfer or other disposition of all or
substantially all of its property, assets and business, or the
liquidation, dissolution or winding up of the Company, then, in each
such case, the Company shall give to the Warrantholder notice of such
proposed action, which notice shall specify the date on which (a) the
books of the Company shall close, or (b) a record shall be taken for
determining the holders of Common Stock entitled to receive such
stock dividends or other distribution or such rights or options, or
(c) such reclassification, reorganization, consolidation, merger,
sale, transfer, other disposition, liquidation, dissolution or
winding up shall take place or commence, as the case may be, and the
date, if any, as of which it is expected that holders of record of
Common Stock shall be entitled to receive securities or other
property deliverable upon such action. Such notice shall be given in
the case of any action covered by clause (i) or (ii) above at least
ten days prior to the record date for determining holders of Common
Stock for purposes of receiving such payment or offer, or in the case
of any action covered by clause (iii) above at least 30 days prior to
the date upon which such action takes place and 20 days prior to any
record date to determine holders of Common Stock entitled to receive
such securities or other property.
7.5 Effect of Failure to Notify. Failure to file any certificate or
---------------------------
notice or to give any notice, or any defect in any certificate or
notice, pursuant to Sections 7.3 and 7.4 shall not affect the
legality or validity of the adjustment to the Exercise Price, the
number of shares purchasable upon exercise of this Warrant, or any
transaction giving rise thereto.
11
<PAGE>
8. Reports Under Securities Exchange Act of 1934. With a view to making
---------------------------------------------
available to the Warrantholders the benefits of Rule 144 promulgated under
the Securities Act or any other similar rule or regulation of the SEC that
may at any time permit the Warrantholders to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees, at all
times when the Warrantholders may need to rely on Rule 144 to sell such
securities to the public without registration, to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and
the Exchange Act; and
(c) furnish to each Warrantholder so long as such Warrantholder owns
Warrants, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of
Rule 144 (at any time after 90 days after the effective date of
the first registration statement filed by the Company), the
Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), (ii) a copy of
the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested to
permit the Warrantholders to sell such securities without
registration.
9. Amendments. Any provision of this Warrant may be amended and the
----------
observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent or approval of the Company and the Warrantholders who hold a
majority in interest of the Warrants; provided that it is not necessary
that the exact form of the amendment be approved by the holders of a
majority in interest of the Warrants if such holders have approved the
substance of such amendment. Any amendment or waiver effected in accordance
with this Section shall be binding upon each Warrantholder and the Company.
10. Expiration of the Warrant. The obligations of the Company pursuant to this
-------------------------
Warrant shall terminate on the Expiration Date.
11. Registration Rights.
-------------------
11.1 Shelf Registration.
------------------
12
<PAGE>
(a) Shelf Registration. At any time during the Registration Rights
------------------
Period, at the request of the Warrantholder, the Company shall
prepare and file, as soon as reasonably practicable thereafter, a
Registration Statement for an offering to be made on a delayed or
a continuous basis pursuant to Rule 415 (or any appropriate
similar rule that may be adopted by the Commission) under the
Securities Act covering the Warrant Shares (the "Shelf
Registration"). The Shelf Registration shall be on a Form S-3 or
another appropriate form (unless the Warrantholder reasonably
requests a specific form) permitting registration of such Warrant
Shares for resale by the Warrantholder in a non-underwritten
sale.
(b) Effectiveness. The Company shall use reasonable efforts to cause
-------------
the Shelf Registration to become effective under the Securities
Act as soon as reasonably practicable following the date of
filing. Subject to the requirements of the Securities Act
including, without limitation, requirements relating to updating
prospectuses through post-effective amendments or otherwise, the
Company shall use reasonable efforts to keep the Shelf
Registration continuously effective until the earlier of (i) the
date on which all of the Warrant Shares registered thereunder
from time to time are sold or (ii) the date that the
Warrantholder's Warrant Shares are eligible for immediate sale to
the public under Rule 144(k) under the Securities Act without any
limitation as to volume for such sale thereunder.
(c) Inclusion of Additional Common Stock. If the Warrantholder
------------------------------------
elects to request a Shelf Registration, the parties to the July
Rights Agreement, including the Company, may include in such
registration, on their own behalf, shares of Common Stock
requested and permitted to be included pursuant to the terms of
the July Rights Agreement.
11.2 Piggyback Registration Rights.
-----------------------------
(a) Requests for Piggyback Registration. Except as set forth in this
-----------------------------------
Section 11.2(a), if at any time during the Registration Rights
Period the Company proposes to effect a registered offering of
its Common Stock on Forms S-1, S-2 or S-3, the Company will give
prompt written notice to the Warrantholder of its intention to
effect such a registration. If the Company receives a written
request from the Warrantholder for inclusion of some or all of
the Warrant Shares within fifteen (15) days after the date the
Company's notice is given, then the Company will include,
13
<PAGE>
subject to paragraph (b) of this Section 11.2, in such
registration all of the Warrant Shares specified in such written
request (a "Piggyback Registration"); provided, however, that the
-----------------
Warrantholder shall not have any right to the notice described in
the first sentence of this Section 11.2(a) or to cause a
Piggyback Registration (i) at any time during the effectiveness
of a Shelf Registration or other than during the Registration
Rights Period or (ii) in connection with any offering by the
Company of securities other than its Common Stock.
(b) Priority on Piggyback Registrations. If, in connection with any
-----------------------------------
proposed Piggyback Registration in connection with an
underwritten offering by the Company or the other parties to the
July Rights Agreement, the managing underwriters of such offering
notify the Company or such other parties that in their opinion
the number of shares of securities requested to be included in
such offering exceeds the number which can be sold in such
offering in an orderly manner within a price range acceptable to
the Company, the Company will include in such offering (i) first,
the greatest number of shares of Common Stock requested to be
included by the Company or the other parties to the July Rights
Agreement and permitted to be included pursuant to the terms
thereof and (ii) second, other shares of the Company's Common
Stock, including the Warrant Shares as requested by the
Warrantholder, in each case up to the greatest number of shares
of Common Stock which, in the opinion of such managing
underwriters, can be sold in an orderly manner in the price range
of such offering; provided, however, in no event shall any
-------- -------
Warrant Shares be excluded from such offering if any
stockholder's securities are proposed to be included therein
other than those party to the agreement referenced in clause (i)
above.
11.3 Participation in Underwritten Registrations. Notwithstanding any
-------------------------------------------
other provision of this Section 11 to the contrary, the Warrantholder
may not participate in any underwritten offering by the Company
unless the Warrantholder: (i) agrees to sell its Warrant Shares on
the basis provided in the applicable underwriting arrangements, which
shall contain customary terms and conditions, and (ii) completes and
executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms
of such underwriting arrangements; provided, however, that if the
-------- -------
Warrantholder participates in an underwritten offering by the
Company, it shall not be required to make any representations or
warranties to the Company or the underwriters thereof other than
representations and warranties regarding the Warrantholder and its
intended method of distribution, nor shall it be required to
undertake joint or joint and several obligations with any other
Person.
14
<PAGE>
The Warrantholders further agree, in connection with an registration
of the Company's securities in an underwriting, upon the request of
the underwriters managing such underwriting, not to sell any Warrant
Shares without the prior written consent of the Company or such
underwriters for a period of time as determined by the Board of
Directors upon advice from the managing underwriter (not to exceed
180 days) after the effective date of such registration, provided
that each officer, director and key employees of the Company and all
other holders of at least five percent of the Company's Common Stock
shall make the same agreement with respect to other securities of the
Company then held by such other person and; provided, further, that
-------- -------
to the extent any officer, director, key employee or five percent
holder is permitted by the underwriters of such offering to transfer
any securities in connection with the offering, then each
Warrantholder shall be permitted to transfer a pro rata portion of
--- -----
its securities.
11.4 Expenses of Registration. The Company or Persons other than the
------------------------
Warrantholder shall pay any and all registration expenses incident to
the filing of each Registration Statement or otherwise incident to
the performance by the Company of or its compliance with, its
obligations under this Section 11. The Warrantholder shall pay all
underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of the Warrant Shares included in
such Registration Statement and the fees of any counsel retained by
the Warrantholder in connection therewith.
11.5 Registration Procedures. In connection with any Shelf Registration
-----------------------
or Piggyback Registration, and the Registration Statement effecting
such registration, the Company hereby covenants and agrees that it
shall:
(a) take such action as may be necessary so that: (i) such
Registration Statement and any amendment thereto and any
prospectus forming part thereof and any amendment or supplement
thereto (and each report or other document incorporated therein
by reference in each case) complies in all material respects with
the Securities Act and the Exchange Act and the respective rules
and regulations thereunder; (ii) such Registration Statement and
any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not
15
<PAGE>
misleading; and (iii) any prospectus forming part of such
Registration Statement, and any amendment or supplement to such
prospectus, does not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading;
(b) notify the Warrantholder as promptly as practicable in any of the
following circumstances: (i) at any time when a prospectus
relating to the Warrant Shares is required to be delivered under
the Securities Act, of the happening of any event as a result of
which the prospectus included in such Registration Statement
contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and, at
the request of the Warrantholder, the Company will prepare a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of the Warrant Shares, such
prospectus will not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements
therein not misleading; (ii) when such Registration Statement and
any amendment thereto has been filed with the Commission and when
such Registration Statement or any post-effective amendment
thereto has become effective; (iii) of any request by the
Commission for amendment or supplements to such Registration
Statement or the prospectus included therein or for additional
information; (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of such Registration Statement
or the initiation of any proceedings for that purpose; and (v)
the receipt by the Company of any notification with respect to
the suspension of the qualification of the securities included
therein for sale (including the Warrant Shares) in any
jurisdiction or the initiation of any proceeding for such
purpose;
(c) use its best efforts to prevent the issuance, and if issued to
obtain the withdrawal, of any order suspending the effectiveness
of such Registration Statement at the earliest possible time;
(d) use its best efforts to comply with the requirements of any
applicable blue sky laws of such jurisdictions as the
Warrantholder reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to
enable the Warrantholder to consummate the disposition in such
jurisdictions of the Warrant Shares (provided, however, that the
-------- -------
Company will not be required to: (i) qualify generally to
16
<PAGE>
do business in any jurisdiction where it would not otherwise be
required to qualify but for this subparagraph, (ii) subject
itself to taxation in any such jurisdictions, or (iii) consent to
general service of process in any such jurisdiction);
(e) cause the Warrant Shares included in such Registration Statement
to be listed on each securities exchange or quoted in each
quotation system on which similar securities issued by the
Company are then listed or quoted; and
(f) cooperate with the Warrantholder to facilitate the timely
preparation and delivery of certificates representing the Warrant
Shares to be sold pursuant to such Registration Statement free of
any restrictive legend and registered in such names as the
Warrantholder may request in connection with the sale of the
Warrant Shares pursuant to such Registration Statement.
The Warrantholder agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described
in Section 11.5(b) hereof, the Warrantholder will immediately
discontinue disposition of the Warrant Shares pursuant to a
Registration Statement until the Warrantholder's receipt of the
copies of the supplemented or amended prospectus contemplated by
Section 11.5(b) hereof, and, if so directed by the Company, the
Warrantholder will deliver to the Company (at the expense of the
Company) all copies in its possession, other than permanent file
copies then in the Warrantholder's possession, of the prospectus
covering the Warrant Shares current at the time of receipt of
such notice. If the Company shall give any such notice to
suspend the disposition of the Warrant Shares pursuant to a
Registration Statement, the Company shall extend the period
during which the Registration Statement shall be maintained
effective pursuant to this Section 11 by the number of days
during the period from and including the date of the giving of
such notice to and including the date when the Warrantholder
shall have received copies of the supplemented or amended
prospectus necessary to resume such dispositions.
11.6 Hold-Back Agreements.
--------------------
In connection with a Registration Statement effecting an underwritten
offering that includes Warrant Shares, the Warrantholder shall be deemed to have
agreed not to effect any public sale or public distribution of securities of the
17
<PAGE>
Company of the same or similar class or classes of the securities included in
such Registration Statement or any securities convertible into or exchangeable
or exercisable for such securities, including a sale pursuant to Rule 144 or
Rule 144A under the Securities Act, during the 15-day period prior to, and
during such period of time as may be required by the managing underwriter of
such offering, but not to exceed a 90-day period beginning on, the effective
date of the Registration Statement (except pursuant to such offering), except to
the extent otherwise agreed in writing by the managing underwriter of such
offering.
11.7 Black-Out Periods for Registration Statements.
---------------------------------------------
(a) Notwithstanding anything to the contrary in this Section 11, the
Company may, from time to time and at any time, subject to
Section 11.7(b) herein, delay filing or effectiveness of the
Registration Statement or direct the Warrantholder to suspend
sales of the Warrant Shares registered thereunder, as provided
herein, in the event of the consummation of, or negotiations
relating to, a material corporate transaction (i) that would
require additional disclosure of material information by the
Company in such Registration Statement (or such filings), (ii) as
to which the Company has a bona fide business purpose for
preserving confidentiality and (iii) which renders the Company
unable to comply with Commission requirements, in each case under
circumstances that would make it impractical or inadvisable to
cause such Registration Statement (or such filings) to become
effective or to promptly amend or supplement such Registration
Statement on a post-effective basis, as applicable (a "Suspension
Event").
(b) In the case of a Suspension Event, the Company may give notice (a
"Suspension Notice") to the Warrantholder to suspend sales of the
Warrant Shares so that the Company may correct or update such
Registration Statement (or such filings). Each such suspension
shall continue only for so long as the Suspension Event or its
effect is continuing, and in no event will any such suspension
exceed ninety (90) days (or 120 days in any calendar year) or all
such suspensions pursuant to this Warrant exceed an aggregate of
one hundred-eighty (180) days. The Warrantholder agrees that it
will not effect any sales of the Warrant Shares pursuant to such
Registration Statement (or such filings) at any time after it has
received a Suspension Notice from the Company and prior to the
termination of such Suspension Event. If so directed by the
Company, the Warrantholder will deliver to the Company all copies
of the prospectus covering the Warrant Shares held by it at the
time of
18
<PAGE>
receipt of the Suspension Notice. The Warrantholder may
recommence effecting sales of the Warrant Shares pursuant to such
Registration Statement (or such filings) following further notice
to such effect (an "End of Suspension Notice") from the Company,
which End of Suspension Notice shall, in the case of a Suspension
Event, be given by the Company not later than five (5) days after
the conclusion of any Suspension Event and shall be accompanied
by copies of the supplemented or amended prospectus necessary to
resume such sales.
11.8 Indemnification and Contribution.
--------------------------------
(a) Indemnification by the Company. The Company shall indemnify, to
------------------------------
the extent permitted by law, the Warrantholder, each Person who
controls the Warrantholder (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) and its
respective officers, directors, partners, members, employees,
agents and representatives, against all actions, suits, claims,
damages, losses, costs, expenses or proceedings (collectively,
"Losses") caused by any untrue or alleged untrue statement of
material fact contained in any Registration Statement, prospectus
or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which made, not
misleading, except insofar as the same are caused by or contained
in any information furnished in writing to the Company by the
Warrantholder expressly for use therein or by the Warrantholder's
failure to deliver a copy of the Registration Statement or
prospectus or any amendments or supplements thereto after the
Company has furnished the Warrantholder with a sufficient number
of copies of the same and except insofar as the same are caused
by or contained in any prospectus if the Warrantholder failed to
send or deliver a copy of any subsequent prospectus or prospectus
supplement which would have corrected such untrue or alleged
untrue statement of material fact or such omission or alleged
omission of a material fact with or prior to the delivery of
written confirmation of the sale by the Warrantholder after the
Company has furnished the Warrantholder with a sufficient number
of copies of the same. In connection with an Underwritten
Offering, the Company will indemnify such Underwriters, each
Person who controls such Underwriters (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange
Act) and their respective
19
<PAGE>
officers, directors, partners, employees, agents and
representatives to the same extent as provided above with respect
to the indemnification of the Warrantholder.
(b) Indemnification by Warrantholder. In connection with any
--------------------------------
Registration Statement in which the Warrantholder is
participating, the Warrantholder will furnish to the Company in
writing such information as the Company reasonably requests for
use in connection with any such Registration Statement or
prospectus and, to the extent permitted by law, will indemnify
the Company, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and their respective officers, directors, partners,
employees, agents and representatives against any Losses arising
out of or based upon any untrue or alleged untrue statement of a
material fact contained in any Registration Statement,
prospectus, or form of prospectus, or arising out of or based
upon any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein,
in light of the circumstances under which made, not misleading,
to the extent, but only to the extent, that such untrue or
alleged untrue statement is contained in, or such omission or
alleged omission is required to be contained in, any information
so furnished in writing by the Warrantholder to the Company
expressly for use in such Registration Statement or prospectus
and that such statement or omission was relied upon by the
Company in preparation of such Registration Statement, prospectus
or form of prospectus; provided, however, that the Warrantholder
shall not be liable in any such case to the extent that the
Warrantholder has furnished in writing to the Company prior to
the filing of any such Registration Statement or prospectus or
amendment or supplement thereto information expressly for use in
such Registration Statement or prospectus or any amendment or
supplement thereto which corrected or made not misleading,
information previously furnished to the Company, and the Company
failed to include such information therein. In no event shall
the liability of the Warrantholder hereunder be greater in amount
than the dollar amount of the proceeds (net of payment of all
expenses) received by the Warrantholder upon the sale of the
Warrant Shares giving rise to such indemnification obligation.
Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such indemnified
party.
20
<PAGE>
(c) Conduct of Indemnification Proceedings. If any Person shall be
--------------------------------------
entitled to indemnity pursuant to this Section 11.8, such
indemnified party shall give prompt written notice to the party
or parties from which such indemnity is sought of the
commencement of any proceeding with respect to which such
indemnified party seeks indemnification or contribution pursuant
hereto; provided, however, that the failure to so notify the
indemnifying parties shall not relieve the indemnifying parties
from any obligation or liability except to the extent that the
indemnifying parties have been prejudiced by such failure. The
indemnifying parties shall have the right, exercisable by giving
written notice to an indemnified party promptly after the receipt
of written notice from such indemnified party of such proceeding,
to assume, at the indemnifying parties' expense, the defense of
any such proceeding, with counsel reasonably satisfactory to such
indemnified party; provided, however, that an indemnified party
or parties (if more than one such indemnified party is named in
any proceeding) shall have the right to employ separate counsel
in any such proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense
of such indemnified party or parties unless the parties to such
proceeding include both the indemnified party or parties and the
indemnifying party or parties, and there exists, in the opinion
of the indemnified party(ies)' counsel, a conflict between one or
more indemnifying parties and one or more indemnified parties, in
which case the indemnifying parties shall, in connection with any
one such proceeding or separate but substantially similar or
related proceedings in the same jurisdiction, arising out of the
same general allegations or circumstances, be liable for the fees
and expenses of not more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such
indemnified party or parties. If an indemnifying party assumes
the defense of such proceeding, the indemnifying parties will not
be subject to any liability for any settlement made by the
indemnified party without its or their consent (such consent not
to be unreasonably withheld).
(d) Contribution. If the indemnification provided for in this
------------
Section 11.8 is unavailable to an indemnified party or is
insufficient to hold such indemnified party harmless for any
Losses in respect of which this Section 11.8 would otherwise
apply by its terms, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have an
obligation to contribute to the amount paid or payable by such
indemnified party as a
21
<PAGE>
result of such Losses, in such proportion as is appropriate to
reflect the relative fault of the indemnifying party, on the one
hand, and such indemnified party, on the other hand, in
connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such indemnifying party, on
the one hand, and indemnified party, on the other hand, shall be
determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to
state a material fact, has been taken by, or relates to
information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such
action, statement or omission. The amount paid or payable by a
party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in
connection with any proceeding, to the extent such party would
have been indemnified for such expenses under Section 11.8(c), if
the indemnification provided for in Section 11.8(a) or Section
11.8(b) was available to such party. The Company and the
Warrantholder agree that it would not be just and equitable if
contribution pursuant to this Section 11.8(d) were determined by
pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to
in the second sentence of this paragraph. Notwithstanding the
provisions of this Section 11.8(d), the Warrantholder, as an
indemnifying party, shall not be required to contribute any
amount in excess of the amount by which the net proceeds received
by the Warrantholder exceeds the amount of any damages that the
Warrantholder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
omission. No person adjudged guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
11.9 Rule 144.
--------
The Company covenants that it will file any reports required to be
filed by it under the Securities Act and the Exchange Act and that it will take
such further action as the Warrantholder may reasonably request, all to the
extent required from time to time to enable the Warrantholder to sell the
Warrant Shares without registration under the Securities Act within the
limitations of the
22
<PAGE>
exemptions provided by (a) Rule 144 or 145 under the Securities Act, as such
rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of the Warrantholder, the
Company will deliver to the Warrantholder a written statement as to whether it
has complied with such requirements.
11.10 Specific Performance.
--------------------
The Warrantholder, in addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of liquidated or
other damages, will be entitled to specific performance of its rights under this
Section 11. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Section 11 and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
11.11 Transfers.
---------
(a) If the Warrantholder transfers all of its remaining Warrant
Shares, the Warrantholder may also transfer to its transferee all
(but not less than all) of the registration rights granted
pursuant to Section 11 hereof as an entirety and then held by
such Warrantholder; provided, however, that Sony (or any future
-----------------
direct or indirect transferee of such registration rights as
permitted pursuant this Section 11.11) shall not transfer such
registration rights to more than one transferee; and provided
--------
further, that no such transfer shall be deemed to obligate the
-------
Company to issue notices hereunder to any additional Person,
except to the extent the Company shall have received actual
notice of such transfer to such Person. At no time shall there
be more than one "Warrantholder" for purposes of Section 11
hereof.
(b) Any assignment or transfer of the registration rights set forth
herein shall be subject to the assumption by the transferee of
the terms and conditions set forth in Section 11 hereof
applicable to the transferor, and any proposed transferee shall
execute such documents and instruments that the Company may
reasonably require to evidence that such transferee is bound by
the terms and conditions set forth in Section 11 hereof.
12. Definitions.
-----------
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
23
<PAGE>
Assignment Form: an instrument of transfer of a warrant in the form
annexed hereto as Exhibit B.
Business Day: any day other than a Saturday, Sunday or a day on which
banks are required or authorized by law to close in The City of New York, State
of New York.
Bylaws: the bylaws of the Company, as the same may be amended and in
effect from time to time.
Certificate of Incorporation: the Certificate of Incorporation of the
Company, as the same may be amended and in effect from time to time.
Class B Common Stock: the meaning specified in Section 14.10 of this
Warrant.
Commission: the Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act.
Common Stock: the meaning specified on the cover of this Warrant.
Company: the meaning specified on the cover of this Warrant.
Contractual Obligation: as to any Person, any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument to which such
Person is a party or by which it or any of its property is bound.
End of Suspension Notice: the meaning specified in Section 11.7(b) of this
Warrant.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
similar Federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Exchange Act shall include a reference to a comparable section,
if any, of any such similar Federal statute.
Exercise Form: a request to exercise a warrant in the form annexed hereto
as Exhibit A.
Exercise Price: the meaning specified in Section 1.2 of this Warrant.
Expiration Date: 5:00 PM, New York City time, on the third anniversary of
the Vesting Date; provided, however, that if the number of Warrant Shares as
------------------
determined in Section 1.1 of this Warrant is zero, then the Expiration Date
shall occur immediately following the Vesting Date.
24
<PAGE>
Fair Market Value: With respect to a share of Common Stock as of a
particular date:
(i) if the Common Stock is registered under the Exchange Act, (a) the
average of the daily closing sales prices of the Common Stock for the
20 consecutive trading days immediately preceding such date, or (b) if
the securities have been registered under the Exchange Act for less
than 20 consecutive trading days before such date, then the average of
the daily closing sales prices for all of trading days before such
date for which closing sales prices are available, in the case of each
of (a) and (b), as certified by any Vice President or the Chief
Financial Officer of the Company; or
(ii) If the Common Stock is not registered under the Exchange Act, then the
Fair Market Value shall be as reasonably determined in good faith by
the Board of Directors of the Company or a duly appointed committee
thereof (which determination shall be reasonably described in the
written notice given to the Warrantholder); provided, however, that if
the Warrantholder reasonably objects to such determination of Fair
Market Value by the Board of Directors or a duly appointed committee
thereof, then such determination shall be referred to an unaffiliated
investment banking firm of national reputation whose determination
shall be final and binding upon the parties.
For the purposes of clause (i) of this definition, the closing sales price
for each such trading day shall be: (1) in the case of a security listed or
admitted to trading on any United States national securities exchange or
quotation system, the closing sales price, regular way, on such day, or if no
sale takes place on such day, the average of the closing bid and asked prices on
such day; (2) in the case of a security not then listed or admitted to trading
on any national securities exchange or quotation system, the last reported sale
price on such day, or if no sale takes place on such day, the average of the
closing bid and asked prices on such day, as reported by a reputable quotation
source designated by the Company; (3) in the case of a security not then listed
or admitted to trading on any national securities exchange or quotation system
and as to which no such reported sale price or bid and asked prices are
available, the average of the reported high bid and low asked prices on such
day, as reported by a reputable quotation service, or a newspaper of general
circulation in the Borough of Manhattan, City and State of New York, customarily
published on each Business Day, designated by the Company, or if there shall be
no bid and asked prices on such day, the average of the high bid and low asked
prices, as so reported, on the most recent day (not more than 30 days prior to
the date in question) for which prices have been so reported; and (4) if there
are no bid and asked prices reported during the 30 days prior to the date in
question, the Fair Market Value shall be determined as if the securities were
not registered under the Exchange Act.
25
<PAGE>
FCC: the Federal Communications Commission.
Fully-Diluted Shares: all shares of Common Stock issued and outstanding on
the Vesting Date, plus all shares of Common Stock issuable upon conversion of
all other securities of the Company issued and outstanding, and eligible within
60 days of the date of determination to be converted into Common Stock.
Governmental Authority: the government of any nation, state, city,
locality or other political subdivision of any thereof, and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government or any international regulatory body
having or asserting jurisdiction over a Person, its business or its properties.
July Rights Agreement: the Registration Rights Agreement, dated July 7,
1999, by and among the Company, American Mobile Satellite Corporation and the
Investors set forth therein.
Lien: any mortgage, deed of trust, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other), restriction or other security interest
of any kind or nature whatsoever.
Losses: the meaning specified in Section 11.8(a) of this Warrant.
OEM: the original equipment manufacturer of an XM Receiver (as defined in
the Sony Agreement) for distribution by automotive manufacturers, their
dealerships and distributors to dealerships.
Person: any individual, firm, corporation, partnership, limited liability
company, trust, incorporated or unincorporated association, joint venture, joint
stock company, Governmental Authority or other entity of any kind.
Piggyback Registration: the meaning specified in Section 11.2(a) of this
Warrant.
Registration Rights Period: the period of time commencing on the Vesting
Date and ending on the date that all of the Warrantholder's Warrant Shares are
eligible for immediate sale to the public under Rule 144(k) under the Securities
Act without any limitation as to volume or manner of sale for such sale
thereunder.
Registration Statement: a registration statement filed with the Commission
pursuant to the Securities Act.
Requirement of Law: as to any Person, the Certificate of Incorporation and
bylaws, or other organizational or governing documents, of such Person, and any
law, treaty, rule, regulation, qualification, license or franchise or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable or
26
<PAGE>
binding upon such Person or any of its property or to which such Person or any
of its property is subject or pertaining to any or all of the transactions
contemplated hereby.
Rule 144: the meaning specified in Section 8 of this Warrant.
SEC: the Securities and Exchange Commission or any other Federal agency at
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: the meaning specified on the cover of this Warrant, or any
similar Federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Act, shall include a reference to the comparable
section, if any, of any such similar Federal statute.
Series A Preferred Stock: the meaning specified in Section 14.10 of this
Warrant.
Series B Preferred Stock: the meaning specified in Section 14.10 of this
Warrant.
Shelf Registration: the meaning specified in Section 11.1(a) of this
Warrant.
Sony Agreement: the Sony Design, Development, Production, Marketing And
License Agreement, dated as of February 9, 2000, between the Company and Sony.
Sony Devices: all Sony-branded devices, other than Sony OEM Device(s), that
meet the requirements of an XM Receiver (as defined in the Sony Agreement).
Sony OEM Devices: all devices manufactured by or on behalf of Sony pursuant
to the Sony Agreement, for the OEM automotive market in the United States that
meet the requirements of an XM Receiver (as defined in the Sony Agreement).
Suspension Event: the meaning specified in Section 11.7(b) of this Warrant.
Suspension Notice: the meaning specified in Section 11.7(a) of this
Warrant.
Vesting Date: the date of the first meeting of the Board of Directors of
the Company that occurs after the activation of the Company's one-millionth
subscriber or, if such meeting does not occur on a Business Day or is adjourned
after 5:00 PM, New York City time, on a Business Day, the first Business Day
after such meeting.
Warrant Shares: the meaning specified on the cover of this Warrant.
27
<PAGE>
Warrantholder(s): Sony (for so long as Sony holds any interest in the
Warrant) and any transferee or transferees of Sony's rights in the Warrant in
accordance with Section 3 hereof (for so long as such transferee holds such
rights) and subject to Section 11.11 hereof.
XM Satellite Installed Base: the number of XM Receivers sold to retail
customers.
13. No Impairment. The Company shall not by any action, including,
-------------
without limitation, amending its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant,
but will at all time in good faith assist in the carrying out of all such
terms and in the taking of all such reasonable actions as may be necessary
or appropriate to protect the rights of the Warrantholder against
impairment. Without limiting the generality of the foregoing, the Company
shall (a) take all such actions as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassesable
shares of Common Stock upon the exercise of this Warrant, and (b) provide
reasonable assistance to the Warrantholder in obtaining all authorizations,
exemptions or consents from any Governmental Authority which may be
necessary in connection with the exercise of this Warrant.
14. Miscellaneous.
-------------
14.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to the
Warrants.
14.2 Binding Effects; Benefits. This Warrant shall inure to the benefit
-------------------------
of and shall be binding upon the Company and the Warrantholders and
their respective heirs, legal representatives, successors and
assigns. Nothing in this Warrant, expressed or implied, is intended
to or shall confer on any Person other than the Company and the
Warrantholders, or their respective heirs, legal representatives,
successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Warrant.
14.3 Section and Other Headings. The section and other headings
--------------------------
contained in this Warrant are for reference purposes only and shall
not be deemed to be a part of this Warrant or to affect the meaning
or interpretation of this Warrant.
28
<PAGE>
14.4 Pronouns. All pronouns and any variations thereof refer to the
--------
masculine, feminine or neuter, singular or plural, as the context may
require.
14.5 Further Assurances. Each of the Company and the Warrantholder
------------------
shall do and perform all such further acts and things and execute and
deliver all such other certificates, instruments and documents as the
Company or the Warrantholder may, at any time and from time to time,
reasonably request in connection with the performance of any of the
provisions of this Warrant.
14.6 Notices. All notices and other communications required or
-------
permitted to be given under this Warrant shall be in writing and
shall be deemed to have been duly given if (i) delivered personally
or (ii) sent by facsimile or recognized overnight courier or by
United States first class certified mail, postage prepaid, to the
parties hereto at the following addresses or to such other address as
any party hereto shall hereafter specify by notice to the other party
hereto:
if to the Company, addressed to:
XM Satellite Radio Inc.
1250 23rd Street, N.W.
Suite 57
Washington, D.C. 20037
Attention: Chief Financial Officer
if to the Warrantholder, addressed to:
Sony Electronics, Inc.
Law Department, MD 2F4
1 Sony Drive
Park Ridge, New Jersey 07856
Attention: General Counsel
Except as otherwise provided herein, all such notices and
communications shall be deemed to have been received (a) on the date
of delivery thereof, if delivered personally or sent by facsimile,
(b) on the second Business Day following delivery into the custody of
an overnight courier service, if sent by overnight courier, provided
that such delivery is made before such courier's deadline for next-
day delivery, or (c) on the third Business Day after the mailing
thereof.
14.7 Separability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without
29
<PAGE>
rendering invalid or unenforceable the terms and provisions of this
Warrant or affecting the validity or enforceability of any of the
terms or provisions of this Warrant in any other jurisdiction.
14.8 Governing Law. This Warrant shall be deemed to be a contract made
-------------
under the laws of New York and for all purposes shall be governed by
and construed in accordance with the laws of such State applicable to
such agreements made and to be performed entirely within such State,
except that all matters relating to issuances of stock shall be
governed by Delaware General Corporation Law.
14.9 No Rights or Liabilities as Stockholder. Nothing contained in this
---------------------------------------
Warrant shall be deemed to confer upon the Warrantholder any rights
as a stockholder of the Company or as imposing any liabilities on the
Warrantholder to purchase any securities whether such liabilities are
asserted by the Company or by creditors or stockholders of the
Company or otherwise.
14.10 Representations of the Company. The Company hereby
------------------------------
represents and warrants, as of the date hereof, to the Warrantholder
as follows:
(a) Corporate Existence and Power. The Company (i) is a corporation
-----------------------------
duly incorporated, validly existing and in good standing under
the laws of the State of Delaware; (ii) has all requisite
corporate power and authority to own and operate its property, to
lease the property it operates as lessee and to conduct the
business in which it is engaged; and (iii) has the corporate
power and authority to execute, deliver and perform its
obligations under this Warrant. The Company is duly qualified to
do business as a foreign corporation in, and is in good standing
under the laws of, each jurisdiction in which the conduct of its
business or the nature of the property owned requires such
qualification.
(b) Corporate Authorization; No Contravention. The execution,
-----------------------------------------
delivery and performance by the Company of this Warrant and the
transactions contemplated hereby, including, without limitation,
the sale, issuance and delivery of the Warrant Shares, (i) have
been duly authorized by all necessary corporate action of the
Company; (ii) do not contravene the terms of the Certificate of
Incorporation or Bylaws; and (iii) do not violate, conflict with
or result in any breach or contravention of, or the creation of
any Lien under, any Contractual Obligation of the Company or any
Requirement of Law applicable to the Company. No event has
occurred and no condition exists which,
30
<PAGE>
upon notice or the passage of time (or both), would constitute a
default under any indenture, mortgage, deed of trust, credit
agreement, note or other evidence of indebtedness or other
material agreement of the Company or the Certificate of
Incorporation or Bylaws.
(c) Capitalization of the Company. The authorized capital stock of
-----------------------------
the Company consists of (i) 180,000,000 shares of Common Stock,
of which, as of January 31, 2000 (a) 26,465,076 shares were
issued and outstanding and (b) 30,658,680 shares were reserved
for issuance upon the exercise of outstanding stock options and
conversion of outstanding shares of the Company's Class B Common
Stock, par value $0.01 per share ("Class B Common Stock"), Series
A Convertible Preferred Stock, par value $0.01 per share ("Series
A Preferred Stock") and 8.25% Series B Convertible Redeemable
Preferred Stock, par value $0.01 per share ("Series B Preferred
Stock"), (ii) 30,000,000 shares of Class B Common Stock, of
which, as of January 31, 2000, 17,872,176 shares were issued and
outstanding, (iii) 15,000,000 shares of Series A Preferred Stock,
of which, as of January 31, 2000, 10,786,504 shares were issued
and outstanding and (iv) 3,000,000 shares of Series B Preferred
Stock, of which, as of January 31, 2000, 2,000,000 shares were
issued and outstanding. In each case, the numbers set forth
above exclude recent exercises of employee stock options. Each
share of Class B Common Stock, Series A Preferred Stock and
Series B Preferred Stock may be converted at any time, at the
option of the holder, into one share of Common Stock.
(d) Issuance of Warrant Shares. The Warrant Shares have been duly
--------------------------
authorized and reserved for issuance. When issued, such shares
will be validly issued, fully paid and non-assessable, and free
and clear of all Liens and preemptive rights, and the holders
thereof shall be entitled to all rights and preferences accorded
to a holder of Common Stock.
(e) Binding Effect. This Warrant has been duly executed and
--------------
delivered by the Company and constitutes the legal, valid and
binding obligation of the Company enforceable against the Company
in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent
conveyance or transfer, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by
general principles of equity.
31
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
XM SATELLITE RADIO HOLDINGS INC.
By: Hugh Panero
-------------------------------------
Hugh Panero
President and Chief Executive Officer
Dated: February ___, 2000
Attest:
By: Joseph M. Titlebaum
------------------------------
Joseph M. Titlebaum
Senior Vice President, General Counsel
and Secretary
32
<PAGE>
Exhibit A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase __________ shares of Common Stock and
herewith tenders payment for such Common Stock to the order of XM Satellite
Radio Holdings Inc. in the amount of $__________, which amount includes payment
of the par value for _________ of the Common Stock, in accordance with the terms
of this Warrant. The undersigned requests that a certificate for such shares of
Common Stock be registered in the name of __________________ and that such
certificates be delivered to __________________ whose address is
___________________________________.
Dated:______________
Signature ______________________________
______________________________
(Print Name)
______________________________
(Street Address)
______________________________
(City) (State) (Zip Code)
Signed in the Presence of:
__________________________
33
<PAGE>
Exhibit B
FORM OF ASSIGNMENT
(To be executed only upon transfer of this Warrant)
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto ______________________ the right
represented by such Warrant to purchase ________________ shares of Common Stock
of XM Satellite Radio Holdings Inc. to which such Warrant relates and all other
rights of the Warrantholder under the within Warrant, and authorizes XM
Satellite Radio Holdings Inc., or any of its officers, to make such transfer on
the books of XM Satellite Radio Holdings Inc. maintained for such purpose, with
full power of substitution in the premises. This sale, assignment and transfer
has been previously approved in writing by XM Satellite Radio Holdings Inc.
Dated:______________
Signature ______________________________
______________________________
(Print Name)
______________________________
(Street Address)
______________________________
(City) (State) (Zip Code)
Signed in the Presence of:
__________________________
34
<PAGE>
Exhibit 10.29
***** 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.
JOINT DEVELOPMENT AGREEMENT
This JOINT DEVELOPMENT AGREEMENT is entered into between XM Satellite
Radio Inc., a Delaware corporation with its principal location at 1250 23rd
Street, N.W., Washington, DC ("XM"), and Sirius Satellite Radio Inc., a Delaware
--
corporation with its principal location at 1221 Avenue of the Americas, New
York, New York ("Sirius") as of February 16th, 2000 ("Effective Date").
------ --------------
RECITALS
WHEREAS, XM is engaged in designing, developing, marketing and licensing
the technology relating to its satellite digital audio radio system ("XM Radio
--------
System") in accordance with the rights under the license issued to XM by the
- ------
Federal Communications Commission (the "FCC");
---
WHEREAS, Sirius is engaged in designing, developing, marketing and
licensing the technology relating to its satellite digital audio radio system
("Sirius Radio System") in accordance with the rights under the license issued
- ---------------------
to Sirius by the FCC;
WHEREAS, the FCC has mandated that XM and Sirius deploy a final receiver
design that is interoperable;
WHEREAS, due to the different technical heritage, satellite design and
performance requirements of the XM Radio System and the Sirius Radio System,
such systems currently employ different technologies that impede the design and
development of an interoperable receiver;
WHEREAS, XM and Sirius and their respective radio equipment suppliers
already have expended significant funds in developing Single Mode Radios (as
defined below);
WHEREAS, it will take an extensive and expensive joint program to merge the
technologies employed by the XM Radio System and the Sirius Radio System in
order to design and develop a cost efficient interoperable receiver;
WHEREAS, XM and Sirius are, and will continue to be, competitors in, among
other things, the marketing and sale of the satellite broadcasting of radio
programming to listeners, the acquisition of rights to broadcast such
programming and sale of radio advertising availabilities and other forms of
advertising or promotional opportunities in connection with that programming
(collectively, "Business Opportunities");
----------------------
WHEREAS, nothing in this Agreement is intended to, or will in any way,
restrain or reduce the competitive rivalry between the parties in the pursuit of
Business Opportunities;
WHEREAS, the parties desire to comply with FCC licensing requirements and
to enhance efficiency and consumer welfare by jointly developing and deploying
certain interoperable technology for the purpose of producing radios capable of
receiving broadcasts from both the XM Radio System and the Sirius Radio System;
<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.
WHEREAS, in jointly developing such interoperable technology in the most
cost effective manner, the parties believe it necessary and desirable to
integrate some of their economic activities to develop and bring to market
Interoperable Radios (as defined below); and
WHEREAS, the parties wish to set forth the terms and conditions under which
they will jointly develop and deploy such interoperable technology;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE I
Definitions
-----------
1.01. Defined Terms. Capitalized terms used herein and not otherwise
-------------
defined herein shall have the meaning assigned to such terms below:
"Aftermarket" shall mean the market for radios that are (a) sold to
-----------
a customer for use in a vehicle, aircraft or vessel, after such vehicle,
aircraft or vessel has been manufactured and sold to a customer; or (b)
sold separately as stand alone devices.
"Agreement" shall mean this Joint Development Agreement, including
---------
all Exhibits attached hereto, as amended, supplemented or otherwise
modified from time to time.
"Auditor" shall have the meaning specified in Section 14.10.
-------
"Business Opportunities" shall have the meaning specified in the
----------------------
recitals to this Agreement.
"Confidential Information" shall have the meaning specified in
------------------------
Section 9.01.
"Consultant" shall have the meaning specified in Section 3.02(b).
----------
"Consulting Agreement" shall have the meaning specified in Section
--------------------
3.02(b).
"Content Provider" shall have the meaning specified in Section
----------------
6.06.
"Distribution Partners" shall have the meaning specified in Section
---------------------
6.01.
"Effective Date" shall have the meaning specified in the
--------------
introductory paragraph of this Agreement.
"[*****] Deals" shall mean the agreements,
-----------------------------
arrangements and understandings in effect as of the Effective Date among
[*****]
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
3
[*****], as such agreements, arrangements and understandings may be
amended, supplemented or otherwise modified from time to time.
"[*****] Partner" shall mean [*****].
---------------
"[****] Deals" shall mean the agreements, arrangements and
------------
understandings in effect as of the Effective Date among [*****],
or any of their respective subsidiaries or affiliates, as such agreements,
arrangements and understandings may be amended, supplemented or otherwise
modified from time to time.
"[*****] Partner" shall mean [*****] and [*****].
"Expedited Rules" shall have the meaning specified in Section 13.02.
---------------
"FCC" shall have the meaning specified in the recitals to this
---
Agreement, together with any successor agency or agencies.
"FCC License" shall mean the license granted by the FCC to Sirius or
-----------
XM, as the context may require, to launch and operate satellites to provide
a radio communications service in which audio programming is digitally
transmitted by one or more space stations directly to fixed, mobile and/or
portable stations which may involve complementary repeating terrestrial
transmitters and telemetry, tracking and control facilities.
"Interoperable Chipset" shall mean integrated circuits which are
---------------------
capable of receiving, decoding, decompressing and outputting to a user
interface the digital audio radio broadcast, transmitted from both
satellites and terrestrial repeaters, of both the XM Radio System and the
Sirius Radio System.
<PAGE>
4
*****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.
"Interoperable Radio" shall mean a radio that, at a minimum, (a)
-------------------
receives and processes the audio portion of both the Sirius Radio System
signal and the XM Radio System signal, either as a result of an
Interoperable Chipset contained in the unit itself or as a result of an
Interoperable Chipset contained in an outboard location which interfaces
directly with the unit, and (b) which is capable of providing the user
interface for both Sirius Radio System broadcasts and XM Radio System
broadcasts, including displaying the artist and title information
transmitted as part of such broadcasts, in each case, without the consumer
purchasing additional hardware or software.
"Interoperability Technology" shall mean the technology, including
---------------------------
the technology which is jointly funded and developed by Sirius and XM
pursuant to this Agreement or owned and/or licensed by either party, which
is required to design, develop and/or manufacture an Interoperable Radio,
as well as any enhancements and modifications jointly funded and developed
for such technology pursuant to this Agreement (including the industry
standards jointly developed by the parties pursuant to Section 3.03), but
shall not include Non-core Technology.
"JV" shall have the meaning specified in Article XI.
--
[*****] shall have the meaning specified in Section 6.02(a).
-----
[*****] shall have the meaning specified in Section 6.04(a).
-----
"Non-core Technology" shall have the meaning specified in Section
-------------------
5.02.
"Non-owning Party" shall have the meaning specified in Section 8.05.
----------------
"OEM Automobile Partners" shall mean an original equipment
-----------------------
manufacturer of vehicles (including trucks and/or other specialty
vehicles), such as General Motors Corporation, Ford Motor Company,
DaimlerChrysler AG, Honda Motor Company, Toyota, BMW AG and their
respective divisions, affiliates and subsidiaries.
"Owning Party" shall have the meaning specified in Section 8.05.
------------
"Project Leader" shall have the meaning specified in Section
--------------
3.02(d).
"Project Plan" shall have the meaning specified in Section 3.02(b).
------------
"Radio Manufacturing Partners" shall have the meaning specified in
----------------------------
Section 5.04.
"Recipient" shall have the meaning specified in Section 9.01.
---------
"RFP" shall have the meaning specified in Section 3.02(e).
---
"SDARS Mark" shall have the meaning specified in Section 4.04(a).
----------
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
5
"Single Mode Radio" shall mean a radio that (a) receives and
-----------------
processes the Sirius Radio System signal or the XM Radio System signal, but
not both, and (b) which is capable of providing the user interface for
either Sirius Radio System broadcasts or XM Radio System broadcasts, but
not both.
"Sirius" shall have the meaning specified in the first paragraph of
------
this Agreement.
"Sirius Radio System" shall have the meaning specified in the
-------------------
recitals to this Agreement.
"Specifications" shall have the meaning specified in Section
--------------
3.02(c).
[*****]
"Third Party Technology" shall mean any patents, know-how or other
----------------------
intellectual property rights owned or controlled by any person or entity
other than Sirius, XM and their respective affiliates that may be included
within the XM Radio System or the Sirius Radio System or in
Interoperability Technology from time to time.
"XM" shall have the meaning specified in the first paragraph of this
--
Agreement.
"XM Radio System" shall have the meaning specified in the recitals
---------------
to this Agreement.
1.02. Other Definitional Matters. Definitions in this Agreement apply
--------------------------
equally to the singular and plural forms of the defined terms. The words
"include" and "including" shall be deemed to be followed by the phrase "without
limitation" or "but not limited to" when such phrase does not otherwise appear.
The terms "herein," "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular section, paragraph
or subdivision. All article, section, paragraph, clause, exhibit or schedule
references not attributed to a particular document shall be references to such
parts of this Agreement.
<PAGE>
6
ARTICLE II
Term of this Agreement
----------------------
Unless terminated in accordance with Section 12.01, this Agreement shall
commence on the Effective Date and continue until the termination of each of the
parties' respective FCC Licenses, and shall be automatically renewed upon the
renewal or extension of the FCC Licenses.
ARTICLE III
Joint Technology Development.
-----------------------------
3.01. Interoperability Technology Development. XM and Sirius hereby agree
----------------------------------------
to develop Interoperability Technology for the purpose of producing (or having
produced by others) Interoperable Radios.
3.02. Project Plan. Unless otherwise agreed by the parties in writing:
------------
(a) As soon as practicable, the parties shall exchange, on a
mutually agreed date, appropriate technical documentation relating to the
XM Radio System and the Sirius Radio System, as the case may be.
(b) The parties shall use commercially reasonable efforts to
execute, within 90 days following the Effective Date, a consulting
agreement (the "Consulting Agreement") with a third party consultant
--------------------
reasonably acceptable to both parties (the "Consultant") to manage the
----------
project development activities relating to the Interoperability Technology.
The Consultant shall have responsibility for creating a budget and project
plan for developing the Interoperability Technology (the "Project Plan").
------------
(c) The Consultant shall work with representatives of the parties
to develop the Project Plan, including the development and preparation of a
written document containing agreed upon engineering and other
specifications for the Interoperable Chipset (the "Specifications"). The
--------------
Specifications shall be in form and substance acceptable to both Sirius and
XM.
(d) The parties shall negotiate in good faith to determine the
Project Plan and Specifications. Each party agrees to use commercially
reasonable efforts to meet any deliverables and/or timetables set forth in
the Project Plan. Each party shall provide commercially reasonable support
to facilitate the exchange of information during the development of the
Project Plan and Specifications, as well as during the development of the
Interoperability Technology. In addition, each party shall designate a
project leader (each, a "Project Leader"), who shall be designated in the
--------------
Project Plan, and who shall coordinate such party's development activities.
(e) As part of the Project Plan, upon completion of the
Specifications, the Consultant shall issue to chipset design and
fabrication firms reasonably acceptable
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
7
to XM and Sirius, a request for (the "RFP") to design, develop and
---
manufacture Interoperable Chipsets. However, the Consultant shall [*****]
Similarly, the Consultant shall [*****]. As soon as practicable after
responses to the RFP have been received by the Consultant and reviewed by
XM and Sirius, the Consultant, with the consent of Sirius and XM (which
shall not be unreasonably withheld, delayed or conditioned), shall use
commercially reasonable efforts to negotiate one or more agreements to
design and develop Interoperable Chipsets.
(f) The parties shall use commercially reasonable efforts to
develop an antenna or series of antennas which function with both the
Sirius Radio System and the XM Radio System for deployment with
Interoperable Radios.
(g) Nothing contained in this Agreement shall be interpreted or
construed to limit in any way Sirius' or XM's ability to continue its
existing integrated circuit development efforts for Single Mode Radios.
(h) XM and Sirius shall each use commercially reasonable efforts to
design and develop Interoperable Radios that are backward compatible with
then existing Single Mode Radios.
(i) XM and Sirius agree that [*****], as the case may be.
3.03. SDARS Industry Standards Publication. In order to direct that the
------------------------------------
development work performed pursuant to this Agreement results in the quality of
reception on Interoperable Radios of either party's programming being comparable
to the quality of reception of such party's programming on a Single Mode Radio,
XM and Sirius shall jointly develop and publish industry standards for
Interoperable Radios. Such standards shall contain parameters relating to
Interoperable Radios, including, but not limited to user-interface and
communication protocols.
3.04. Enhancement and Support of the Interoperability Technologies. Each
------------------------------------------------------------
party agrees to use commercially reasonable efforts to maintain and enhance the
Interoperability Technology to ensure its proper functioning and commercial
usefulness.
3.05. Implementation of Non-core Technologies. Nothing in this Agreement
---------------------------------------
shall prevent the development, manufacturing, marketing, sale and distribution
of Interoperable Radios with respect to which the Non-core Technologies, if any,
used by or relating to customers of one of the parties differ from the Non-core
Technologies, if any, used by or relating to customers of the other party.
<PAGE>
8
ARTICLE IV
Intellectual Property Rights and Ownership
------------------------------------------
4.01. XM Radio System. The parties agree that XM owns, or has license
---------------
rights to, the XM Radio System and shall at all times continue to retain full
and exclusive right, title and ownership and/or license, as the case may be, in
and to the XM Radio System, and in any and all intellectual property rights
therein, including, but not limited to, all rights in related patents,
trademarks, copyrights, derivative works and proprietary and trade secret rights
and know-how.
4.02. Sirius Radio System. The parties agree that Sirius owns, or has
-------------------
license rights to, the Sirius Radio System and shall at times continue to retain
full and exclusive right, title and ownership and/or license, as the case may
be, in and to the Sirius Radio System, and in any and all intellectual property
rights therein, including, but not limited to, all rights in related patents,
trademarks, copyrights, derivative works and proprietary and trade secret rights
and know-how.
4.03. Interoperability Technology. (a) Subject to each party's rights
---------------------------
set forth in Sections 4.01 and 4.02, the parties agree that XM and Sirius shall
jointly own the Interoperability Technology jointly developed by the parties and
jointly funded hereunder, and any and all intellectual property rights therein,
including, but not limited to, all rights in related patents, trademarks,
copyrights, derivative works and proprietary and trade secret rights and know-
how. Each party shall give the other party all reasonable assistance and shall,
at the other party's request and expense, execute and deliver all documents and
assignments which may be necessary to establish the joint ownership rights in
the Interoperability Technology.
(b) If any patentable inventions are created as a result of the parties'
joint development activities hereunder, the parties agree to cooperate in the
filing and prosecution of patent applications for such inventions with the costs
to be shared equally by the parties. Any resulting patent shall be jointly
owned by Sirius and XM.
(c) Each party agrees to require each of its employees to assign to such
party all of such employee's right, title and interest in and to
Interoperability Technology and all related intellectual property rights,
including patents, patent applications, copyright, derivative works, trademarks,
trade secrets, know-how and other proprietary rights.
4.04. Logo or Service Mark for Interoperability Technology. (a) Sirius
----------------------------------------------------
and XM shall jointly select and file for federal trademark protection a new
name, logo and/or service mark (collectively, the "SDARS Mark") relating to
----------
digital satellite radios for the purposes of promoting and identifying
Interoperable Radios and Single Mode Radios, and the parties shall share equally
in any profits relating to the SDARS Mark. The parties will work cooperatively
to design the SDARS Mark(s) so as to minimize consumer confusion regarding
whether a given radio is a Single Mode Radio or Interoperable Radio.
(b) From and after the joint selection thereof, Sirius and XM shall
prominently use and/or display the SDARS Mark in all communications that mention
XM or Sirius.
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
9
(c) Each of the parties agrees not to change its name to, or adopt the use
of a trade name or trademark that is likely to cause confusion with (i) the
corporate name, trade names and trademarks employed by the other party hereto,
or (ii) following the joint selection thereof, the SDARS Mark.
(d) Each party shall license the SDARS Mark to its Radio Manufacturing
Partners, Distribution Partners and OEM Automobile Partners for use on Single
Mode Radios and Interoperable Radios. Each party shall require, as part of any
agreement, arrangement or understanding entered into with any Radio
Manufacturing Partner, Distribution Partner or OEM Automobile Partner after the
Effective Date, the use of the SDARS Mark on the face or another static
component of the user interface of all Single Mode Radios and Interoperable
Radios; provided that such requirement shall not apply to any radio if no logo,
--------
trade name or trademark relating to XM, Sirius or satellite digital audio radio
service is displayed on the face or any other static component of the user
interface thereof. In addition, each party shall use commercially reasonable
efforts to require its [*****] Partners and [*****] Partners to use the SDARS
Mark on the face or another static component of the user interface of all Single
Mode Radios and Interoperable Radios; provided that such requirement shall not
--------
apply to any radio if no logo, trade name or trademark relating to XM, Sirius or
satellite digital audio radio service is displayed on the face or any other
static component of the user interface thereof.
(e) Each party acknowledges that the quality of use of the SDARS Mark will
have an important effect on goodwill associated with the SDARS Mark and on the
resulting value of the SDARS Mark and each party agrees that the nature and
quality of all uses of the SDARS Mark shall be of high quality, and be
adequately suited to exploitation of the SDARS Mark to the best advantage and
enhancement of the SDARS Mark and consistent with quality control standards
mutually established by the parties.
ARTICLE V
Licensing Matters
-----------------
5.01. Independent Developments. (a) In the event that either party
------------------------
independently develops technology, including any technology existing on the
Effective Date, that is included in Interoperability Technology, such party
shall retain full right, title and interest in and to such technology, including
any and all intellectual property rights therein; however, each party hereby
grants to the other party, to the fullest extent possible, subject to any Third
Party Technology restrictions as described in Section 5.03, a perpetual, non-
exclusive, royalty-free, worldwide license to use, copy, distribute, sublicense
and allow its Distribution Partners and Radio Manufacturing Partners to
sublicense such technology for the purpose of manufacturing Interoperable Radios
and marketing and distributing Interoperable Radios in North America.
(b) In addition, each party shall retain full right, title and interest in
and to its technology included in the digital satellite radio system of such
party as of the Effective Date, including any and all intellectual property
rights therein; however, each party hereby grants to the other party, to the
fullest extent possible, subject to any Third Party
<PAGE>
10
Technology restrictions as described in Section 5.03, a perpetual, non-
exclusive, royalty-free, worldwide license to use, copy, distribute, sublicense
and allow such other party's Distribution Partners and Radio Manufacturing
Partners to sublicense such technology (including any other technology relevant
to a satellite digital audio radio system that such party, or any officer,
employee or affiliate of such party, may own or have a license to use) for the
purpose of manufacturing, marketing and distributing such other party's
satellite digital audio radio system in North America, including any Single Mode
Radios used in connection therewith; provided that the technology covered by
--------
such license shall exclude all Non-core Technology.
5.02. Independent Development of Non-core Technology. In the event that
----------------------------------------------
either party independently develops or licenses technology that is not included
in the definition of Interoperability Technology ("Non-core Technology"), such
-------------------
Non-core Technology shall remain the property of the developing or licensing
party; and all right, title and interest in and to such Non-core Technology,
including any intellectual property rights therein, shall reside with the
developing or licensing party. In such event, the developing or licensing party
shall make available (or, in the case of licensed technology, use commercially
reasonable efforts (which shall not include the payment of additional license
fees) to make available) to the other party, upon written request, a license for
such Non-core Technology on commercially reasonable terms. In the event that
the non-developing party does not accept such commercially reasonable terms, no
license shall be granted. In no event shall either party be entitled to any
equitable relief with regard to Non-core Technology.
5.03. Third Party Technology. Each party shall be responsible, at its
----------------------
cost, for licensing any Third Party Technology to the extent that such Third
Party Technology is used in the digital satellite radio system of such party.
All licenses granted hereunder shall be subject to existing agreements entered
into by the parties for such Third Party Technology. A listing of the Third
Party Technology included within each party's satellite digital audio radio
system as of the Effective Date shall be provided to the other party within 30
days of the Effective Date. Each party shall, within 30 days of the Effective
Date, provide to the other party copies of any agreements executed by such party
relating to Third Party Technology, to the extent such party is legally entitled
to disclose such agreement. Each party shall use commercially reasonable
efforts to obtain all consents necessary to disclose such agreements to the
other party in accordance with the terms of this Agreement.
5.04. Licensing of the Interoperability Technology to Third Parties.
-------------------------------------------------------------
Subject to any restrictions in the Third Party Technology agreements, as joint
owners of the Interoperability Technology, the parties shall each have authority
to license (and permit the sublicense of) the Interoperability Technology to
third parties, including, but not limited to, manufacturers of integrated
circuits and receivers ("Radio Manufacturing Partners"), for the purpose of
----------------------------
manufacturing, marketing, distributing and/or selling Interoperable Radios. The
parties shall share equally in any licensing, technical assistance or other
revenue recognized from such third party licensing of, or technical or other
assistance relating to, Interoperability Technology.
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
11
ARTICLE VI
Marketing Matters
-----------------
6.01. Distribution Partners. Commencing on the Effective Date, neither
---------------------
party shall enter into any agreement, arrangement or understanding with any
[*****] distribution partner (collectively, "Distribution Partners") for the
---------------------
distribution of either the XM Radio System or Sirius Radio System that [*****].
In addition, commencing on the Effective Date neither party shall enter into any
agreement, arrangement or understanding which [*****].
6.02. [*****] Deals. (a) Notwithstanding anything to the contrary in
-----------------
this Agreement, XM and Sirius each agree that, other than their respective
[*****] Deals, all agreements, arrangements and understandings made by either
party after the Effective Date that [*****] shall specify the [*****]; provided
--------
that, in the period before [*****]; and provided further, that neither party
-------- -------
shall enter into any agreement, arrangement or understanding to [*****].
(b) Neither party shall after the Effective Date enter into any agreement,
arrangement or understanding with [*****] in circumvention of the terms of this
Agreement and neither party shall [*****], other than in accordance with the
terms of this Agreement.
6.03. [*****] Deals. (a) Notwithstanding anything to the contrary in
-------------
Section 6.02, both XM and Sirius shall be free to [*****]. The parties
acknowledge that any [*****] Deals. After the Effective Date, each of the
parties shall work cooperatively with one another and with its [*****], enter
into any agreement relating to Interoperable Radios with any [*****] Deal unless
such agreement (i) is either (A) [*****]
<PAGE>
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential treatment
has been requested with respect to the omitted portions.
12
[*****] and (ii) shall become effective as soon as practicable after [*****];
provided, that until such an agreement is established with a given [*****] of a
- --------
party, the other party shall not [*****].
(b) Notwithstanding Sections 6.02(a) and 6.03(a), in the period [*****].
6.04. [*****] Partners. (a) Notwithstanding anything to the contrary in
----------------
this Agreement, XM and Sirius each agree that all agreements, arrangements and
understandings made by either party after the Effective Date that contemplate
[*****]; provided that, for the avoidance of doubt, it is understood that each
--------
of the parties may [*****].
(b) Notwithstanding Section 6.04(a), in the period [*****].
(c) Neither party shall [*****] Deal in circumvention of the terms of this
Agreement nor shall it [*****] in violation of the terms of Section 6.04(a).
6.05. [*****] Partners. (a) Notwithstanding anything to the contrary in
----------------
Section 6.04, the parties agree that each may [*****]. The parties acknowledge
that [*****]. Nothing in this Agreement shall, or shall be construed to, require
either party to [*****].
(b) XM and Sirius shall each [*****].
6.06. New Content Arrangements. (a) Commencing on the Effective Date,
------------------------
neither party shall enter into any agreement, arrangement or understanding with
any provider of content or programming, including celebrity talent (a "Content
Provider") that (i) [*****]
<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.
13
[*****] or (ii) rewards any such Content Provider for [*****]. This Section
6.06(a) shall not apply to contracts between either party and its employees,
other than celebrity talent. To implement this provision, each party agrees,
[*****].
(b) Commencing on the Effective Date, neither party shall enter into any
agreement, arrangement or understanding [*****].
ARTICLE VII
Consideration
-------------
7.01. Resources. Each party agrees to devote its resources to the joint
---------
development of the Interoperability Technology in accordance with the Project
Plan, or as mutually agreed by the parties in writing.
7.02. Existing Technology. Each party shall negotiate in good faith the
-------------------
financial value of the intellectual property licenses granted hereunder for the
technology of such party that is included in (a) the Interoperability
Technology; and/or (b) the satellite digital audio radio system of the other
party. The applicability, validity, value, use, importance and available
alternatives of each party's intellectual property rights with respect to (i)
the Interoperability Technology; and (ii) the other party's satellite digital
audio radio system shall be considered in determining the financial value of
such intellectual property licenses. In the event that the parties fail to
reach agreement regarding the financial value of such intellectual property
licenses within ninety days of the Effective Date, the parties shall resolve the
dispute through binding arbitration in accordance with Section 13.02. The
financial value agreed by the parties or determined by arbitration to be
attributed to each party's existing technology licenses granted hereunder shall
be set forth on a schedule which shall be approved in writing by both parties.
Each party shall receive a credit against its contribution to fees, costs and
expenses that this Agreement may require equal to the value attributed to its
technology pursuant to this Section.
7.03. Fees, Costs and Expenses. Subject to Section 7.02, each party shall
------------------------
share equally in the fee, costs and expenses associated with the following
activities:
(a) contracting with the Consultant pursuant to the Consulting
Agreement, as further described in Section 3.02(b);
(b) publication of the industry standards set forth in Section 3.03;
(c) joint trademark activities set forth in Section 4.04;
<PAGE>
14
(d) development, enhancement and support of the Interoperability
Technology as described in Section 3.04.
(e) royalties, if applicable, due after the Effective Date for Third
Party Technology that the parties mutually agree shall be included in
Interoperability Technology;
(f) the parties' activities pursuant to this Agreement to jointly
market the Interoperability Technology;
(g) the parties' activities relating to the filing and prosecution
of patent applications for the jointly owned Interoperability Technology;
and
(h) any other joint activities undertaken in furtherance of this
Agreement as mutually agreed by the parties in writing.
7.04. Stipulation of Dismissal of Patent Litigation. Subject to the terms
----------------------------------------------
of this Agreement, XM and Sirius shall cause to be to filed, within five
business days of the Effective Date, a stipulation substantially in the form set
forth in Exhibit A for dismissal, without prejudice, of the patent litigation
---------
currently pending between XM and Sirius.
ARTICLE VIII
Infringement Action Defense and General Indemnity
-------------------------------------------------
8.01. XM Defense. (a) Subject to Section 8.03 and 8.04, XM shall defend
----------
at its expense any action brought against Sirius, or any of its officers or
directors, to the extent such action is based upon the claim that the XM Radio
System, including the technology contributed pursuant to Section 5.01,
constitutes direct infringement of any duly issued United States patent,
copyright, trademark or trade secret and will pay any reasonable expenses and
settlements or judgments to the extent based thereon, provided that (i) XM has
sole control of any such action or settlement negotiations, (ii) Sirius notifies
XM promptly in writing of such claim, suit or proceeding, and (iii) Sirius uses
commercially reasonable efforts, at XM's expense, to assist in the settlement
and/or defense of any such claim, suit or proceeding. Sirius may, at its option
and expense, elect to participate in such settlement and/or defense with its own
counsel. Neither party shall be liable for any costs or expenses incurred by
the other party without its prior written authorization.
(b) In the event that the XM Radio System is likely to result in, or is
subject to, a claim hereunder, XM shall, at its option, modify the XM Radio
System so that it becomes non-infringing, or procure the right to continue using
the XM Radio System without modification. Notwithstanding the foregoing, XM
shall not be liable for any claim arising from or based upon the combination of
the XM Radio System with another system, including the Sirius Radio System,
unless Sirius establishes that the modifications or combination of the systems
did not contribute to the infringement, except to the extent XM knew, or
reasonably should have known, that such modifications or combination could give
rise to such claim and failed to so inform Sirius.
<PAGE>
15
8.02. Sirius Defense. (a) Subject to Section 8.03 and 8.04, Sirius shall
--------------
defend at its expense any action brought against XM, or any of its officers or
directors, to the extent such action is based upon the claim that the Sirius
Radio System, including the technology contributed pursuant to Section 5.01,
constitutes direct infringement of any duly issued United States patent,
copyright, trademark or trade secret and will pay any reasonable expenses and
settlements or judgments to the extent based thereon, provided that (i) Sirius
has sole control of any such action or settlement negotiations, (ii) XM notifies
Sirius promptly in writing of such claims, suit or proceeding, and (iii) XM uses
commercially reasonable efforts, at Sirius' expense, to assist in the settlement
and/or defense of any such claim, suit or proceeding. XM may, at its option and
expense, elect to participate in such settlement, and/or defense with its own
counsel. Neither party shall be liable for any costs or expenses incurred by
the other party without its prior written authorization.
(b) In the event that the Sirius Radio System is likely to result in, or
is subject to, a claim hereunder, Sirius shall, at its option, modify the Sirius
Radio System so that it becomes non-infringing, or procure the right to continue
using the Sirius Radio System without modification. Notwithstanding the
foregoing, Sirius shall not be liable for any claim arising from or based upon
the combination of the Sirius Radio System with another system, including the XM
Radio System, unless XM establishes that the modifications or combination of the
systems did not contribute to the infringement, except to the extent Sirius
knew, or reasonably should have known, that such modification or combination
could give rise to such claim and failed to so inform XM.
8.03. No Indemnification for Interoperability Technology. Except to the
--------------------------------------------------
extent indemnification is available pursuant to Section 8.01 or 8.02, neither
party shall be liable to the other for any intellectual property infringement
claim, action, proceeding or suit brought against such party relating to the
Interoperability Technology.
8.04. Non-Core Technology. In the event that either party licenses Non-
-------------------
core Technology to the other party, any indemnification rights and obligations
shall be as set forth in the licensing agreement between the parties relating to
such Non-core Technology.
8.05. General Indemnity for Third Party Actions Based on Use of the Other
-------------------------------------------------------------------
Party's System. Subject to Section 8.01 through 8.04, each party (in such
- --------------
context, the "Owning Party") owns a satellite digital radio system and such
------------
Owning Party shall defend, indemnify and hold harmless the other party (in such
context, the "Non-owning Party") from all damages, liabilities and expenses,
----------------
including reasonable attorney's fees, arising out of, connected with, or
resulting in any way from a claim or action by a third party against the Non-
owning Party due to the performance or use of the satellite digital radio system
of the Owning Party.
ARTICLE IX
Confidential Information.
-------------------------
9.01. General. Each party acknowledges that in the course of performance
-------
of this Agreement, either of them may disclose to the other (such other party,
together with its directors, officers, employees, agents and other
representatives, a "Recipient") information
---------
<PAGE>
16
about the disclosing party's technology, products, business or activities which
such party considers proprietary and confidential, including, without
limitation, information regarding the XM Radio System, the Sirius Radio System,
Interoperability Technology, other trade secrets and information concerning the
existence and terms of this Agreement and the joint development arrangements
contemplated hereunder, as well as the characterization and use of any of the
intellectual property rights of the parties described in this Agreement, and any
financial valuations, determinations, or settlements relating to either party's
intellectual property rights in any patent or other disputes between the
parties, in any form, including, without limitation, oral, written, graphic,
demonstrative, machine recognizable or sample form (all of such proprietary and
confidential information, and all summaries, analyses and other material and
data generated by Recipient from any such information, is hereinafter referred
to as "Confidential Information"). Confidential Information shall be retained
------------------------
in confidence and shall not be disclosed or caused or permitted to be disclosed
directly or indirectly to any third party without the prior written approval of
the disclosing party, and shall not be used by Recipient for any reason other
than in accordance with the terms of this Agreement. Notwithstanding the
foregoing, in no event shall either party exchange information on the subjects
as to which the parties compete, and nothing in this Section 9.01 shall be
construed to require the sharing of any information other than information
necessary to effectuate the purposes of this Agreement. The obligation of
Recipient to retain Confidential Information in confidence shall not apply to
Confidential Information which is (a) now in or hereafter enters the public
domain beyond the control of Recipient and without its violation of this
Agreement; (b) rightfully known to Recipient prior to the time of disclosure by
the disclosing party hereunder, or independently developed by Recipient
personnel without access to Confidential Information; (c) disclosed in good
faith to Recipient by a third party legally entitled to disclose the same; or
(d) which Recipient discloses under operation of law, rule or legal process;
provided, that (i) the burden shall be on Recipient to prove the applicability
- --------
of one or more of the foregoing exceptions by documentary evidence should the
disclosing party question the applicability of such exceptions; (ii) as to
exception (b), Recipient makes known to the disclosing party within five (5)
days of receipt of information from the disclosing party that such information
was already known to Recipient and (iii) as to exception (d), Recipient provides
the disclosing party with prompt written notice of any request or legal
proceeding through which Recipient may be required to disclose such Confidential
Information.
9.02. Transmission of Confidential Information. Recipient agrees to
----------------------------------------
transmit Confidential Information only to those of its directors, officers,
employees, agents or other representatives who need access to the Confidential
Information for the purposes of this Agreement, and who are informed by
Recipient of the confidential nature of such Confidential Information, and who
agree to be bound by the terms of this Agreement or an agreement containing
substantially similar terms in regards to Confidential Information. Recipient
further agrees to be responsible for any breach of this Agreement by any
director, officer, employee or other representative of Recipient.
9.03. Return or Destruction of Confidential Information. Recipient agrees
-------------------------------------------------
that all Confidential Information disclosed to Recipient hereunder shall be and
remain the property of the disclosing party, unless otherwise agreed hereunder.
Any tangible form of such Confidential Information including, but not limited
to, documents, papers, computer diskettes and electronically transmitted
information shall be destroyed by Recipient or returned, together with all
copies thereof, to the disclosing party upon request. If such tangible
<PAGE>
17
form of Confidential Information is destroyed, a certification of such
destruction executed by a duly authorized officer of Recipient shall be
delivered to the disclosing party.
9.04. Survival of Confidentiality Obligations. Recipient's obligations
---------------------------------------
under this Article IX shall survive the termination of this Agreement,
regardless of the manner of such termination, and shall be binding upon its
successors and assigns.
9.05. Publicity. (a) Each party agrees that it shall not make any public
---------
statement concerning the existence of this Agreement, the contemplated joint
development efforts, the intellectual property rights of either party relating
to the development of Interoperable Radios or statements regarding the
settlement of any patent or other disputes between the parties, without the
prior written consent of the other party.
(b) The parties shall promptly issue a press release announcing this
Agreement, in the form attached hereto as Exhibit B.
---------
(c) The parties hereby agree to cooperate with one another with regard to
any disclosures required by the Securities and Exchange Commission ("SEC") and
---
the FCC relating to this Agreement, and each shall afford the other party as
much advance notice as practicable for such party's review and comment prior to
the filing of such SEC or FCC disclosure document.
ARTICLE X
Warranty; Disclaimers; Limitation of Liability
----------------------------------------------
10.01. Warranties. Each party hereby represents and warrants to the other
----------
that (subject to agreements for Third Party Technology as set forth in Section
5.03):
(a) it has the right and power to enter into this Agreement;
(b) to the best of its knowledge, the information which it may
disclose to the other party, and the process of disclosure and the use of
such information in accordance with the provisions of this Agreement, will
not violate any trade secret right, trademark, issued United States patent,
copyright or other proprietary right of any third party; and
(c) it holds good title or right, free and clear of all liens and
encumbrances, to technology or other information which it is providing
under this Agreement.
In addition to the foregoing, each party warrants that its development efforts
relating to the Interoperability Technology shall be performed in accordance
with those standards of care, skill and diligence, and those practices and
procedures, which are commonly accepted in connection with the performance of
the same or similar services, and that any development work performed by such
party pursuant to this Agreement shall substantially conform to the
Specifications.
<PAGE>
18
10.02. DISCLAIMER. EXCEPT AS SPECIFICALLY SET FORTH HEREIN, NEITHER PARTY
----------
MAKES ANY OTHER WARRANTY TO THE OTHER PARTY UNDER THIS AGREEMENT, EITHER
EXPRESS, IMPLIED, OR ARISING BY COURSE OF CONDUCT OR PERFORMANCE, CUSTOM OR
USAGE IN THE TRADE, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10.03 LIMITATION OF LIABILITY. EACH PARTY SHALL BE LIABLE TO THE OTHER IN
----- -----------------------
THE EVENT OF A MATERIAL BREACH OF THIS AGREEMENT IN AN AMOUNT EQUAL TO DIRECT
DAMAGES ACTUALLY SUFFERED BY THE OTHER PARTY. EXCEPT FOR WILLFUL MISCONDUCT
AND/OR LACK OF GOOD FAITH, NEITHER PARTY HEREUNDER SHALL BE LIABLE FOR ANY LOST
PROFITS, LOST SAVINGS, OR INCIDENTAL DAMAGES, OR OTHER ECONOMIC CONSEQUENTIAL
DAMAGES RESULTING FROM THIS AGREEMENT. WHERE A PARTY IS LIABLE FOR
CONSEQUENTIAL DAMAGES UNDER THIS PROVISION, SUCH PARTY'S LIABILITY THEREFOR
SHALL NOT EXCEED $100 MILLION.
ARTICLE XI
Establishment of Joint Venture
------------------------------
The parties contemplate that they may form a joint venture or limited
liability corporation ("JV") to pursue the development of the Interoperability
--
Technology. If a JV is established, the parties agree that any agreements
between the parties relating to establishing the JV and/or addressing any of the
terms or conditions included in this Agreement shall supersede the terms of this
Agreement. The parties anticipate that the JV may contract with the Consultant
to undertake the parties' activities pursuant to this Agreement to jointly
develop the Interoperability Technology, including preparing the RFP for third
parties and licensing the Interoperability Technology to third parties,
including, but not limited to, chipset manufacturers, OEM Automobile Partners,
Distribution Partners and Radio Manufacturing Partners. The parties further
anticipate that all development and other costs of such JV will be split equally
between XM and Sirius. In the event that the parties elect not to form such JV,
this Agreement shall continue in full force and effect.
ARTICLE XII
Termination
-----------
12.01. Termination Events. Either party may terminate this Agreement upon
------------------
the occurrence of any of the following events:
(a) the other party becomes the subject of a bankruptcy petition
filed in a court in any jurisdiction, whether voluntary or involuntary,
and, in the case of an involuntary proceeding, is not dismissed within 90
days; or
(b) a receiver or a trustee is appointed for all or a substantial
portion of the other party's assets; or
<PAGE>
19
(c) the other party makes an assignment for the benefit of its
creditors; or
(d) Sirius Radio and XM agree in writing that the design and
development of an Interoperable Receiver is technically impracticable; or
(e) the other party fails to begin digital audio broadcasting for
sale to consumers using the XM Radio System or the Sirius Radio System, as
applicable, on or before June 30, 2002 and is not reasonably likely to
commence such broadcasts on or before December 31, 2002; or
(f) the other party or any of its subsidiaries defaults in the
payment of principal of or premium, if any, on any indebtedness aggregating
$25 million or more, when the same becomes due and payable, and such
default or defaults shall have continued after any applicable grace period
and shall not have been cured or waived; or
(g) the other party fails to perform any material covenant or
obligation contained in this Agreement, and such failure continues
unremedied for a period of ninety days following receipt of written notice
describing in reasonable detail such failure.
12.02. Effects of Termination. Upon termination of this Agreement pursuant
----------------------
to Section 12.01, the licenses granted to each party pursuant to Section 5.01
shall survive such termination and each party shall continue to maintain joint
ownership rights in the Interoperability Technology; provided that if this
Agreement is terminated by a party pursuant to Section 12.01(g) prior to the
time that the value of the intellectual property licensed under Section 5.01
shall have been determined, either through negotiated agreement or decision of
an arbitrator, then the licenses granted to the other party under Section 5.01
shall terminate.
12.03. Mutual Covenant Prior to Termination. Other than a party which has
------------------------------------
terminated this Agreement pursuant to Section 12.01(g), neither party shall take
any legal action, including, but not limited to, arbitration, that seeks to
enjoin the other party's use of any intellectual property rights which relate to
or are useful in a digital satellite radio system or any enhancements,
modifications, and derivative works thereof.
ARTICLE XIII
Dispute Resolution and Arbitration
----------------------------------
13.01. Dispute Resolution. The parties shall attempt to settle any
------------------
dispute between them amicably and agree to exercise their commercially
reasonable efforts to resolve such controversy or dispute prior to seeking an
arbitrated resolution. To invoke the dispute resolution process, the invoking
party shall give to the other party written notice of its decision to do so,
including a description of the issues subject to the controversy or dispute and
a proposed resolution thereof. Designated representatives of both parties with
the closest responsibility for this Agreement shall attempt to resolve the
controversy or dispute within five business days after receipt of such notice.
If those designated representatives
<PAGE>
20
cannot resolve the controversy or dispute, the parties shall describe their
controversy or dispute and their respective proposals for resolution to their
respective Chief Executive Officers or other designated persons with comparable
authority who shall meet in good faith to resolve the controversy or dispute.
Except as provided in Section 7.02, if any controversy or dispute is not
resolved within ten business days after such meeting, the parties shall seek a
resolution through arbitration as set forth in Section 13.02.
13.02. Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement shall be settled by arbitration in Washington, DC, by one or
more arbitrators, as mutually agreed by the parties, and such arbitrator(s) will
be persons with sufficient expertise to evaluate the subject of the dispute. In
the event that the dispute relates to intellectual property, such arbitrators
shall have sufficient technical, engineering and legal knowledge to evaluate the
applicability, validity and value of the intellectual property that is the
subject of the dispute. The arbitration shall be conducted in accordance with
the Expedited Arbitration Rules of JAMS/Endispute ("Expedited Rules"). In the
---------------
event that the parties do not agree on the arbitrators, or other procedures or
standards concerning the arbitration, such choice of arbitrator(s) or other
procedures shall be determined under the Expedited Rules. The award of the
arbitrator shall be binding upon the parties. The arbitrator(s) shall be
entitled to award reasonable attorneys' fees and expenses to the prevailing
party.
ARTICLE XIV
Miscellaneous
-------------
14.01. Non-Solicitation. During the term of this Agreement, and for a
----------------
period of twelve months following termination of this Agreement, neither party
shall, without the prior written consent of the other party, directly or
indirectly solicit for employment, employ or otherwise engage the services of
employees or individual consultants of the other party.
14.02. Catastrophic Loss Backup. XM and Sirius shall negotiate in good
------------------------
faith with respect to an agreement to provide service to the other's subscribers
in the event of a catastrophic failure of the XM Radio System or the Sirius
Radio System.
14.03. Governing Law. This Agreement shall be governed by, and
-------------
interpreted in accordance with, the laws of the State of New York, without
giving effect to any provisions which would require the application of the laws
of another jurisdiction.
14.04. Assignment. Any assignment of this Agreement by either party
----------
(except to an entity controlling, controlled by or in common control with such
party) without the written consent of the other party shall be void. Subject to
the foregoing, this Agreement will be binding upon and will inure to the benefit
of the respective successors and assigns of the parties.
14.05. Entire Agreement. This Agreement and all exhibits hereto shall
----------------
constitute the entire agreement between the parties with regard to the subject
matter of this Agreement and supersede all previous communications, whether oral
or written, between the parties with respect to such subject matter. No
modification of any provision of this Agreement
<PAGE>
21
shall be binding unless in writing and signed by duly authorized representatives
of XM and Sirius.
14.06. Severability. Each party agrees that, in the event any court shall
------------
determine that any provision of this Agreement is invalid, such determination
shall not affect the validity of any other provisions of this Agreement, which
shall remain in full force and effect and shall be construed so as to be valid
under applicable law only to the extent that such construction maintains the
economic balance of the parties under this Agreement.
14.07. Waiver. Each party agrees that no failure or delay by any party in
------
exercising any right, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise thereof.
14.08. Notices. Any notice required or permitted to be sent under this
-------
Agreement shall be sent by certified mail, overnight mail with receipt requested
or telefax with written confirmation to the following addresses:
For XM:
XM Satellite Radio Inc.
1250 23rd Street, N.W.
Washington, DC 20037
Attention: General Counsel
Telecopier: 202-969-7050
For Sirius:
Sirius Satellite Radio Inc.
1221 Avenue of the Americas
36th Floor
New York, New York 10020
Attention: General Counsel
Telecopier: 212-584-5353
14.09. Independent Parties. The parties hereto are independent parties, and
-------------------
neither shall be liable for the performance or failure to perform of the other
party.
14.10. Records and Audits. Either party may, up to twice within any
------------------
twelve month period at such party's expense and upon five (5) days written
notice to the other party, hire an independent audit firm or other independent
representative reasonably acceptable to the other party ("Auditor"), to inspect
-------
or audit any or all of the other party's records solely relating to this
Agreement, for the purposes of verifying the other party's compliance with its
obligations hereunder. Such Auditor shall not disclose any information relating
to the business of the other party other than that information required to
determine the other party's compliance, and in such event, only to those
employees, agents or representatives of the other party having a need-to-know
for the purpose of the verification.
<PAGE>
22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the Effective Date.
Accepted by XM Satellite Radio Inc. Accepted by Sirius Satellite Radio Inc.
By: By:
--------------------------- ---------------------------
Name: Name:
Title: Title:
<PAGE>
23
EXHIBIT A
STIPULATION OF DISMISSAL
James David Jacobs (JJ 7731)
Robert B. Davidson (RD 7158)
Jonathan S. Caplan (JC 1039)
BAKER & MCKENZIE
805 Third Avenue
New York, New York 10022
Tel.: (212) 751-5700
Attorneys for Plaintiff
Sirius Radio Inc.
Robert C. Morgan (RM 0245)
Mark H. Bloomberg (MB 5614)
FISH & NEAVE
1251 Avenue of the Americas, 50th Fl.
New York, New York 10020
Tel.: (212) 596-9000
Attorneys for Defendant
XM Satellite Radio, Inc.
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SIRIUS RADIO INC., )
)
Plaintiff, ) Civ. No. 99-0230 (LMM)
)
v. )
)
XM SATELLITE RADIO, INC., )
)
Defendant. )
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
STIPULATION OF DISMISSAL
------------------------
<PAGE>
24
Pursuant to Rule 41, Fed. R. Civ. P., Plaintiff Sirius Radio Inc. and
Defendant XM Satellite Radio, Inc., by their undersigned attorneys, stipulate
that this action be dismissed, without prejudice, each party bearing its own
costs and attorney fees.
Respectfully submitted, Respectfully submitted,
By_________________________ By_________________________
James David Jacobs (JJ 7731) Robert C. Morgan (RM 0245)
Robert B. Davidson (RD 7158) Mark H. Bloomberg (MB 5614)
Jonathan S. Caplan (JC 1039) FISH & NEAVE
BAKER & MCKENZIE 1251 Avenue of the Americas
805 Third Avenue New York, New York 10020
New York, New York 10022 Tel.: (212) 596-9000
Tel.: (212) 751-5700
Attorneys for Plaintiff, Attorneys for Defendant,
Sirius Radio Inc. XM Satellite Radio Inc.
Dated:_________________________ Dated:_________________________
<PAGE>
25
EXHIBIT B
PRESS RELEASE
PRESS RELEASE
For Immediate Release
Sirius Radio and XM Radio Form Alliance to Develop
Unified Standard for Satellite Radios
New York, NY and Washington, DC -- February 16, 2000 -- Sirius
Satellite Radio (Nasdaq: SIRI) and XM Satellite Radio (Nasdaq: XMSR) today
announced an agreement to develop a unified standard for satellite radios.
The standard is expected to accelerate growth of the satellite radio
category by enabling consumers to purchase one radio capable of receiving
both companies' broadcasts. XM Radio and Sirius will jointly fund development
of the technology and work together to proliferate the new standard by
creating a service mark for satellite radio. As part of the agreement, each
company will contribute its intellectual property to the initiative and have
agreed to resolve any pending patent litigation.
"This standard is good news both for consumers and for the category," said
David Margolese, Sirius Chairman and CEO, and High Panero, XM President and
CEO, in a joint statement. "This will allow for reduced subscriber
acquisition costs, more satellite radios in the marketplace, and a
simplified choice for consumers."
The unified standard will represent a second generation of satellite radios.
At the time of the commercial launches of XM Radio and Sirius, consumers
will be able to purchase radios capable of receiving one of the two
companies' broadcasts. These radios are already being developed by leading
electronics and automotive manufacturers. XM and Sirius will work with their
existing automobile and radio manufacturing partners to integrate the new
standard under the terms of their existing agreements. All future agreements
with automakers and radio partners will specify the new satellite radio
standard.
XM Radio and Sirius are each building a digital satellite radio service for
consumers, offering up to 100 channels of audio entertainment for a monthly
subscription fee of $9.95. For more information about the companies, visit
XM Satellite Radio at www.xmradio.com and Sirius Satellite Radio at
---------------
www.siriusradio.com.
-------------------
continues...
Sirius Radio and XM Radio Form Alliance
Page Two
Any statements that express, or involve discussions as to, expectations,
beliefs, plans, objectives, assumptions, future events or performance with
respect to Sirius Satellite Radio Inc. or XM Satellite Radio Inc. are not
historical facts and may be forward-looking and, accordingly, such statements
involve estimates, assumptions and uncertainties which could cause actual
results to differ materially from those expressed in the forward-looking
statements. Accordingly, any such statements are qualified in their entirety by
reference to the factors discussed, as the case may be, in XM Satellite Radio
Inc.'s registration statement on Form S-1 (File No. 333-93529) filed with the
Securities and Exchange Commission or Sirius Satellite Radio Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1998, filed under the
company's former name, CD Radio Inc. Among the key factors that have a direct
bearing on the companies' results of operations are the potential risk of delay
in implementing the companies' business plans; increased costs of construction
and launch of necessary satellites; dependence on satellite construction and
launch contractors; dependence on third-party technology partners; risk of
launch failure; unproven market and unproven applications of existing
technology; unavailability of satellite radio receivers; and the companies' need
for additional financing.
###############
For more information, please call:
Sirius Satellite Radio: XM Satellite Radio:
Mindy Kramer Vicki Stearn
212-584-5138 202-969-7070
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited Condensed Consolidated Statement of Loss, Condensed
Consolidated Balance Sheet, and Condensed Consolidated Statement of Cash Flows,
in each case for the three months ended March 31, 2000, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 448,037
<SECURITIES> 58,817
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 508,054
<PP&E> 8,456
<DEPRECIATION> 507
<TOTAL-ASSETS> 1,072,146
<CURRENT-LIABILITIES> 41,542
<BONDS> 259,528
0
128
<COMMON> 488
<OTHER-SE> 834,521
<TOTAL-LIABILITY-AND-EQUITY> 1,072,146
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,740)
<INCOME-TAX> (12,740)
<INCOME-CONTINUING> (12,740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,740)
<EPS-BASIC> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
