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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 1999
Commission File Number: 0-27441
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XM Satellite Radio Holdings Inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1878819
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1250 23rd Street, N.W. 20037-1100
Washington, DC
(Zip Code)
(Address of principal executive
offices)
(202) 969-7100
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Class A Common Stock, par value $.01 per share
8.25% Series B Convertible Redeemable Preferred Stock, par value $.01 per share
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of common stock held by non-affiliates of the
registrant, based upon the closing price of the registrant's Class A common
stock as of March 10, 2000 is $42.50.
As of March 10, 2000, there were 32,156,738 shares of the registrant's Class
A common stock and 16,557,262 shares of the registrant's Class B common stock
outstanding.
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TABLE OF CONTENTS
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PART I
Item 1. Business............................................ 1
Item 2. Properties.......................................... 19
Item 3. Legal Proceedings................................... 19
Item 4. Submission of Matters to a Vote of Security
Holders............................................. 19
PART II
*Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters................................ 20
*Item 6. Selected Consolidated Financial Data................ 21
*Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 22
*Item 7A. Quantitative and Qualitative Disclosures about
Market Risk......................................... 28
Consolidated Financial Statements and Supplementary
Item 8. Data................................................ 29
*Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 29
PART III
Item 10. Directors and Executive Officers of the Registrant.. 30
Item 11. Executive Compensation.............................. 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management.......................................... 30
Item 13. Certain Relationships and Related Transactions...... 30
PART IV
Item 14. Exhibits, Consolidated Financial Statement
Schedules, and Reports on Form 8-K.................. 31
SIGNATURES.............................................................. 35
SCHEDULE I--VALUATION AND QUALIFYING ACCOUNTS........................... S-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.............................. F-1
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Except for any historical information, the matters we discuss in this Form
10-K concerning our company contain forward-looking statements. Any statements
in this Form 10-K that are not statements of historical fact, are intended to
be, and are, "forward-looking statements" under the safe harbor provided by
Section 27(a) of the Securities Act of 1933. Without limitation, the words
"anticipates," "believes," "estimates," "expects," "intends," "plans" and
similar expressions are intended to identify forward-looking statements. The
important factors we discuss below and under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as other factors identified in our filings with the SEC and those
presented elsewhere by its management from time to time, could cause actual
results to differ materially from those indicated by the forward-looking
statements made in this Form 10-K.
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, the terms "we," "our" and "us" refer
to XM Satellite Radio Holdings, Inc. and its subsidiaries, including XM
Satellite Radio Inc. XM Satellite Radio Inc. was incorporated in Delaware in
1992. XM Satellite Radio Holdings Inc. was incorporated in Delaware and became
a holding company for XM Satellite Radio Inc. in early 1997.
Overview
We seek to become a premier nationwide provider of audio entertainment and
information programming. We will transmit our XM Radio service by satellites to
vehicle, home and portable radios. We own one of two FCC licenses to provide a
satellite digital radio service in the United States. We will offer a wide
variety of music, news, talk, sports and other specialty programming on up to
100 distinct channels. We believe that customers will be attracted to our
service because of its wide variety of formats, digital quality sound and
coast-to-coast coverage.
We are constructing our satellite system and have contracts with third party
programmers, vendors and other partners. Key milestones achieved include the
following:
. $865.0 million of equity proceeds raised to date, net of expenses,
interest reserve and repayment of debt, including an initial public
offering; an offering of subordinated convertible notes to several
strategic and financial investors, including General Motors, Clear Channel
Communications, DIRECTV, Telcom Ventures, Columbia Capital and Madison
Dearborn Partners, which converted into equity at the time of our initial
public offering; concurrent follow-on offerings of Class A common stock
and Series B convertible redeemable preferred stock; and the private
placement of units consisting of senior secured notes and warrants to
purchase shares of Class A common stock;
. Contract with Hughes for construction and in-orbit delivery of two high-
powered satellites and long lead items for a ground spare;
. Contracts with LCC International for design of our international repeater
network and Hughes for the design and manufacture of the terrestrial
repeaters;
. Long-term agreement with the OnStar division of General Motors covering
the installation and exclusive marketing and distribution of XM Radio
service in General Motors vehicles;
. Contracts with Delphi-Delco Electronics, Sony, Motorola, Pioneer, Alpine,
Mitsubishi, Audiovox, Clarion and SHARP to manufacture and distribute XM
radios;
. Agreement with STMicroelectronics, a leading digital audio chipset
manufacturer, for the design and production of chipsets for XM radios;
. Agreement with Lucent Digital Radio to provide coding technology for our
audio signals;
. Agreements with leading specialty programmers, for many of which we will
be the exclusive satellite radio platform, covering at least 24 channels,
including AsiaOne, Black Entertainment Television (BET), BBC World
Service, Bloomberg News Radio, Clear Channel, CNN en Espanol, CNNfn, CNN
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Sports Illustrated, C-SPAN, DIRECTV, Hispanic Broadcasting Corporation
(formerly Heftel), NASCAR, One-on-One Sports, Radio One, Salem
Communications, Sporting News, Weather Channel and USA Today;
. Engaged Premiere Radio Networks to be our advertising sales
representative;
. Entered into marketing arrangements with SFX Entertainment and NASCAR;
. Letter of intent with Freightliner Corporation to install XM radios in
Freightliner trucks; and
. Agreement with Sirius Radio to develop a unified standard for satellite
radios, which will facilitate the ability of consumers to purchase an
interoperable radio capable of receiving both our and Sirius Radio's
service.
Market Opportunity
We believe that there is a significant market for our satellite radio
service. Market studies show strong demand for radio service, as evidenced by
radio listening trends, data relating to sales and distribution of radios and
the general growth in radio advertising. In addition, we note that in many
markets audio programming choices are limited to mass appeal formats. We
believe our national subscription service will complement traditional local
radio. Moreover, the success of subscription entertainment services in other
media such as cable television and market research further indicate potential
for significant consumer demand for satellite radio services.
Radio Listening
On average, adults listen to the radio 3.2 hours a day, with the amount of
radio listening fairly evenly distributed across gender and age groups. The
percentage of people listening to radio is also high. Market data show that
over 75% of the entire United States population age 12 and older listen to the
radio daily, and over 95% listen on a weekly basis (Radio Marketing Guide and
Factbook for Advertisers, Radio Advertising Bureau, Fall 1999 to Spring 2000).
In addition, more people listen to radio than to other comparable audio
entertainment formats. The popularity of radio versus these other formats
appears particularly strong in the car, where we will be targeting our service
initially. An estimated 69% of consumers chose radio as their most listened to
format in the car as compared to 15% for cassettes and 9% for CDs (Radio
Listening Habits, CEMA 1999).
Radio Sales and Distribution
A large number of radios are sold in the United States on an annual basis.
In 1999, radio manufacturers sold over 29 million car radios, including 17
million original equipment automobile radios and 11 million aftermarket
automobile radios, as well as 1.2 million aftermarket automobile CD changers.
Original equipment radios are installed in new cars; aftermarket radios are
installed in the automobile after purchase. Based on these statistics, each
additional one million subscribers would represent less than 3.5% of the new
original equipment manufacturer and aftermarket car radios brought to market
annually and would generate incremental subscription revenues, at $9.95 per
month, of approximately $120 million.
Radio Advertising
The continued popularity of radio is also reflected in the growth of radio
advertising. The Radio Advertising Bureau estimates that radio advertising
revenue in 1999 climbed to $17.7 billion, an increase of 15% over 1998.
Veronis, Suhler & Associates projects a compound annual increase of 9.7%
through 2003. This growth rate exceeds the projected increase in advertising
spending for television, newspapers, magazines, yellow pages and outdoor
advertising (Communications Industry Forecast, 1999).
Current Limitations on Programming Choice
Many consumers have access to a limited number of stations and programming
formats offered by traditional AM/FM radio. Our service is expected to be
attractive to underserved radio listeners who want expanded radio choices.
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Limited Number of Radio Stations. The number of radio stations available to
many consumers in their local market is limited in comparison to the up to 100
channels we expect to offer on a nationwide basis. In 1998, there were only 47
AM/FM radio stations as listed by Arbitron broadcasting in New York City, the
largest radio market in the United States. In fact, many metropolitan areas
outside the largest 50 markets, such as Jacksonville, FL, Louisville, KY, and
Oklahoma City, OK, have 30 or fewer AM/FM radio stations as listed by Arbitron
(American Radio, Spring 1999 Ratings Report, Duncan's American Radio, 1999).
We estimate that our coast-to-coast service will reach over 98 million
listeners age 12 and over who are beyond the range of the largest 50 markets as
measured by Arbitron. Of these listeners, 36 million live beyond the largest
276 markets (Census data and Fall 1999 Market Rankings, The Arbitron Company).
In addition, there are 22 million people age 12 and above who receive five or
fewer stations (The Satellite Report 1999, C. E. Unterberg, Towbin).
Limited Programming Formats. We believe that there is significant demand for
a satellite radio service that expands the current programming choices
available to these potential listeners. Over 52% of all commercial radio
stations use one of only three general programming formats--country, adult
contemporary and news/talk/sports (Veronis, Schuler & Associates Communications
Industry Forecast 1999). Over 71% of all commercial radio stations use one of
only five general formats--the same three, plus oldies and religion. The small
number of available programming choices means that artists representing niche
music formats likely receive little or no airtime in many markets. Radio
stations prefer featuring artists they believe appeal to the broadest market.
However, according to the Recording Industry Association of America, recorded
music sales of niche music formats such as classical, jazz, movie and Broadway
soundtracks, new age, children's programming and others comprised up to 21% of
total recorded music sales in 1998 (1998 Consumer Profile).
Demand for Subscription Services and Products
Penetration data relating to cable, satellite television, and premium movie
channels suggest that consumers are willing to pay for services that
dramatically expand programming choice or enhance quality. As of 1999, over 67%
of TV households subscribe to basic cable television at an average monthly cost
of $29, and over 11% of TV households subscribe to satellite television at an
average monthly cost of $51 (National Cable Television Association website and
DBSdish.com website). Also in 1999, according to Paul Kagan Associates,
subscribers to cable and satellite services purchased more than 75 million
premium channel units, such as HBO, Showtime, and Cinemax, for which they paid
an extra monthly charge on top of the basic monthly fee.
Demand for Satellite Radio Services
Several studies have been conducted demonstrating the demand for satellite
radio service.
In June 1999, we commissioned Strategic Marketing And Research Techniques,
(SMART), a leading market research company and Dr. Frank M. Bass, a leading
authority on the diffusion of new products and inventor of the Bass curve, to
estimate the demand for satellite radio based on survey data and historical
information. SMART surveyed 1,800 people ages 16 and over. The study concluded
that as many as 49 million people may subscribe to satellite radio by 2012,
assuming $9.95 as a monthly subscription fee and a radio price point of $150-
$399, depending upon the type of car or home unit chosen. The study also
anticipated that satellite radio will grow even faster than DBS.
In December 1998, we commissioned SMART to conduct a study based on one-on-
one interviews with over 1,000 licensed drivers ages 16 to 64 in ten
geographically dispersed markets. The study concluded that approximately 50% of
aftermarket radio purchases would be for AM/FM/satellite radio units with a
single-disc CD player. This assumed a radio price point of $399, a $75
installation fee and a $10 monthly subscription fee for the service. The same
study also found that consumers are more likely to buy satellite radio units
that offer at least 80 channels.
In November 1998, we commissioned Yankelovich Partners to gauge consumer
interest in satellite radio. This involved surveying 1,000 people via telephone
and correlating the results with the Yankelovich MONITOR
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study, which is the longest standing tracking study of consumer values and
attitudes in the United States. The study indicated that 18% of people age 16
and older were "definitely" or "probably" willing to pay $9.99 per month to
receive satellite radio and an additional $150 for a satellite radio when
buying a new car.
The XM Radio Service
We are designing the XM Radio service to address the tastes of each of our
targeted market segments through a combination of niche and broad appeal
programming. We believe that our distinctive approach to programming, combined
with digital quality sound and virtually seamless signal coverage throughout
the continental United States, will position us to become the leading provider
of the next generation in radio.
We Will Differentiate XM Radio from Traditional AM/FM Radio
Local radio stations, even those which are part of national networks, focus
on maximizing listener share within local markets. This limits the types of
programming they can profitably provide to mass appeal formats. In contrast,
our nationwide reach and ability to provide up to 100 channels in each radio
market will allow us to aggregate listeners from markets across the country,
expanding the types of programming we can provide. The following chart
indicates differences between XM Radio and traditional AM/FM radio.
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XM Radio Traditional AM/FM Radio
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Convenience: go anywhere Virtually seamless signal Local area coverage
capability coverage in the United
States
Choice: wide Up to 100 channels with a Limited formats in many markets
variety/number of wide variety of programming
stations
Improved audio quality Digital quality sound Analog AM/FM quality sound
Fewer commercials Average 6-7 minutes per Average 13-17 minutes per hour
hour; some channels
commercial free
More information about Text display with title/name No visual display
music of song/artist
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We plan to further differentiate XM Radio from traditional AM/FM radio in
the following ways.
Provide music formats unavailable in many markets. XM Radio will offer many
music formats that are popular but currently unavailable in many markets. More
than 52% of all commercial radio stations in markets measured by Arbitron use
one of only three programming formats: country; adult contemporary; or
news/talk/sports. There are many types of music with significant popularity, as
measured by recorded music sales and concert revenues, that are unavailable in
many traditional AM/FM radio markets. Such music could include classical
recordings or popular blues and rap music that have retail appeal but are not
commonly played on traditional AM/FM radio. This music also includes special
recordings such as the Irish dance soundtrack "Riverdance" and the "Three
Tenors" concerts which generate millions of CD sales, yet are not typically
played on today's AM/FM stations. Additionally, heavy metal and dance are two
of the more popular musical styles not currently broadcast in many small and
medium sized markets. Even major markets do not always offer a full complement
of formats.
Superserve popular music formats. We will be able to offer more specific
programming choices than traditional AM/FM radio generally offers for even the
most popular listening formats. For example, on traditional AM/FM radio oldies
music is often generalized on a single format. We will be able to segment this
category by offering several dedicated, era-specific formats. We also plan to
offer up to six dedicated channels with urban formats and four distinct country
music formats.
Use more extensive playlists. Traditional AM/FM radio stations frequently
use limited playlists that focus on artists and specific music that target the
largest audience. With our large channel capacity and focus on
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specific formats, we have the ability to provide more variety to attract
listeners dissatisfied with repetitive and/or limited playlist selection
offered by traditional radio.
Deliver a wide range of ethnic and informational programming. We will
provide a variety of formats that target specific ethnic and special interest
groups who are rarely served by traditional AM/FM radio. We believe by using
our national platform to aggregate geographically disparate groups through
affinity programming, we will provide advertisers a valuable way to market
products and services to these groups by advertising on our affinity channels.
Develop promotional opportunities with record companies, recording artists
and radio personalities. Because of our nationwide coverage and resulting
economies of scale, we will be able to deliver a variety of national promotions
and events that would not be cost effective or efficient on a market-by-market
basis through traditional AM/FM radio distribution. Also, we will seek to hire
and develop high profile talk and disc jockey talent capable of becoming the
next generation of national radio stars with an influence on radio similar to
the impact that the new breed of cable TV talk hosts have had on the television
industry.
Respond quickly when major music and cultural events occur. XM Radio
programmers will respond quickly to changing musical tastes, seasonal music and
emerging popular cultural events, such as Bruce Springsteen and Ricky Martin
tours, by providing listeners with extensive coverage utilizing our large
channel capacity.
Take advantage of digital's higher quality signal. There are several music
formats that have strong demand but have been relegated to AM stations with
weaker signals due to lack of available FM frequencies. Such AM formats include
traditional country music, big band/nostalgia and gospel formats that we will
be able to deliver with superior sound quality.
Focus on special demands of mobile listeners. A significant percentage of
radio listeners, such as truckers, routinely travel through two or more radio
markets on a frequent basis. According to the U.S. Department of
Transportation, there were over three million truckers in the United States in
1997. We believe these listeners will be attracted to a radio service with
national coast-to-coast coverage. We are seeking to specifically identify and
target the listening demands of this audience.
Availability of commercial-free and limited-advertising channels. We believe
that a significant portion of the listening market would pay to subscribe to a
radio service that provided commercial-free channels and channels with reduced
advertising, as demonstrated by the appeal of limited periods of non-stop music
used by some traditional AM/FM stations. Therefore, we plan to target this
audience with a number of commercial-free music channels covering popular music
formats. In addition, we expect that our limited-advertising channels will
carry less than half the advertising spots of typical AM/FM stations.
Use cross-promotion capability to market XM Radio. We will dedicate a
percentage of our advertising inventory across our channels to promote specific
programming and brand loyalty. AM/FM radio stations traditionally promote on a
single channel basis to build awareness.
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Representative XM Radio Channel List
The following table is a list of representative channels we may offer.
Channels in italics represent contractual commitments with content providers.
Representative Channels of XM Radio
ROCK MUSIC INFORMATION HISPANIC
Classic Rock All News (USA Today) Tejano (Hispanic
Classic Hard Rock All News (Bloomberg) Broadcasting Corp.)
New Hard Rock Public Affairs (C-SPAN) Caribbean (Hispanic
New Alternative Financial News (CNNfn) Broadcasting Corp.)
Classic Alternative News/Information (BBC Regional Mexican
Soft Rock World Service) (Hispanic Broadcasting
ECLECTIC MUSIC Home & Garden Corp.)
Contemporary Christian Love/Relationship Line Rock en Espanol
(Salem) Farm/Rural (Hispanic Broadcasting
Traditional Christian Health/Fitness Corp.)
(Salem) Comedy Hispanic Ballads
Blues Audio Books (Hispanic Broadcasting
Traditional Jazz Consumer Classified Corp.)
Reggae/Island Soap Operas Hispanic News (CNN en
World Music For Truckers Only Espanol)
American Folk Movie Soundtrack Channel OLDIES MUSIC
Pop Classical Relationship Classified 40's Oldies
Traditional Classical (-18) 50's Oldies
Modern Jazz Relationship Classified 60's Oldies
Progressive/Fusion (19-30) 70's Oldies
POP MUSIC Relationship Classified 80's Oldies
Top 20 Contemporary Hits (31-50) 90's Oldies
Disco/Dance Relationship Classified Love Songs
Broadway Show Tunes (51+) TALK
Modern Adult Lifestyles African American Talk
Contemporary Celebrity Gossip (BET/Radio One)
Classic Vocalists Entertainment News Asian/Indian Talk
All Request Contemporary Game Show/Contest (AsiaOne)
Hits URBAN MUSIC Christian/Family Talk
SPORTS Hip Hop/Rap (BET/Radio (Salem)
Sports Headlines One) Mandarin Talk (AsiaOne)
(CNN/Sports) Urban Dance Mix (Radio Conservative Talk
Sports Talk (One-On-One One) Liberal Talk
Sports, Sporting News) Classic Soul (BET/Radio Senior Citizen Talk
Sportsman Channel One) Rock Talk
Automotive (NASCAR) Gospel (BET/Radio One) Hispanic Talk
COUNTRY MUSIC Adult Urban (BET/Radio Teen Talk
Mainstream Country One) CHILDREN'S MUSIC
Classic Country Top 20 Urban Pre-School
Bluegrass/Traditional ENVIRONMENTAL MUSIC Grade School/pre-teen
Country Soft Jazz SPECIAL/EVENTS
All Request Country New Age Reserved Channels
Electronic
Environmental (Earth
Sounds)
Beautiful Instrumentals
Key Elements of Our Business
We have developed a business strategy to become a premier nationwide
provider of audio entertainment and information programming in the vehicle,
home and portable markets. Our strategy includes the following elements.
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Programming
We believe that the quality and diversity of our programming will be a key
driver of consumer interest in our service. To that end, we have developed a
unique programming strategy that offers consumers
. Original music and information channels created by XM Originals, our in-
house programming unit;
. Channels created by well-known providers of brand name programming; and
. The availability of commercial-free and advertiser-supported channels.
XM Originals. Through a programming unit in XM Radio called "XM Originals",
we will create a significant number of original channel formats with content
focusing on popular music such as oldies, rock and country, and on new and
innovative formats, including jazz, blues, reggae and pop classical. These
formats will include artists with strong music sales and concert revenue who do
not get significant airplay on traditional AM/FM radio stations. We also intend
to brand individual channels creating a specific station personality and image
using compelling on-air talent and other techniques to attract listeners in our
target market segments. We have hired a team of programming professionals with
a proven track record of introducing new radio formats and building local and
national listenership.
Brand Name Programming Partners. We intend to complement our original
programming with a variety of unique and diverse content provided to us by
brand name programming providers. We have signed contracts representing at
least 24 channels with numerous well-known specialty and niche programmers that
will provide brand name content for XM Radio. These companies include:
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Media Radio
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-- Bloomberg News Radio -- Hispanic Broadcasting Corporation (formerly Heftel)
-- USA Today -- Clear Channel Communications
-- CNNfn -- Radio One
-- CNN en Espanol -- Salem Communications
-- CNN Sports
Illustrated -- AsiaOne
-- C-SPAN Radio -- One-On-One Sports
-- Black Entertainment
Television -- BBC World Service
-- DIRECTV -- NASCAR
-- Weather Channel
-- Sporting News
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Availability of Commercial-Free and Limited-Advertising Channels. We will
provide a number of commercial-free music channels covering popular music
formats. In addition, our limited-advertising channels will carry less than
half the advertising of a typical AM/FM radio station. We expect the diversity
of our programming line-up will appeal to a large audience, including urban and
rural listeners of all ages, ethnicities, economic groups and specialty
interests. We expect to tailor our programming and marketing to appeal to
specific groups within those audiences that research has shown are most likely
to subscribe to our satellite radio service. Initially, we plan to concentrate
our programming efforts on listeners who are most receptive to innovative
entertainment services, so-called early adopters, and new car buyers. According
to our research, 16-34 years old adults will compose a high percentage of our
early adopters; we will therefore focus a significant portion of our
programming and marketing efforts to appeal to them. In addition, we will
develop programming and marketing specifically to appeal to other market
segments such as baby boomers who are 35-53 years old, seniors who are 54 years
old and older, African-Americans, Asian-Americans and Hispanics.
Future Content Arrangements. Under our agreement with Sirius Radio, all new
arrangements with providers of programming or content, including celebrity
talent, must be non-exclusive and may not reward any provider for not providing
content to the other party.
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Marketing and Distribution
Our marketing strategy will be designed to build awareness and demand among
potential subscribers in our target markets and the advertising community. In
addition, we expect to work closely with radio and automotive manufacturers and
retail distributors to promote rapid market penetration.
Establish Broad Distribution Channels for XM Radios
We plan to market our satellite radio service through several distribution
channels including national electronics retailers, car audio dealers, mass
retailers and automotive manufacturers. In addition, we will support our
distribution channels by building awareness of XM Radio with a substantial
introductory launch campaign, including national and local advertising.
Exclusive Distribution Agreement with General Motors. We have an agreement
with the OnStar division of General Motors whereby, for a 12-year period,
General Motors will exclusively distribute and market the XM Radio service and
install XM radios in General Motors vehicles beginning in 2001. General Motors
sold over 4.9 million automobiles in 1999, which represented more than 29% of
the United States automobile market. Under the agreement, we have substantial
payment obligations to General Motors, including among others, certain
guaranteed, annual, fixed payment obligations. While we have discussed with
General Motors certain installation projections, General Motors is not required
to meet any minimum targets for installing XM radios in General Motors
vehicles. In addition, certain of the payments to be made by us under this
agreement will not be directly related to the number of XM radios installed in
General Motors vehicles. Our contract with General Motors is described in more
detail under the caption "Certain Relationships and Related Transactions--
Distribution Agreement with General Motors and OnStar." We are currently in
discussions with other car manufacturers regarding additional distribution
agreements.
Distribution through Radio Manufacturers. We have signed contracts with
Delphi-Delco, Motorola, Pioneer, Alpine, Mitsubishi, Audiovox and Clarion for
the development, manufacture and distribution of XM radios for use in cars and
a contract with Sony Electronics to design, manufacture and market XM radios
for the portable, home, aftermarket and original equipment manufacture car
stereo markets. One of these manufacturers, Delco Electronics Corporation, a
subsidiary of Delphi Automotive Systems, is the leading original equipment
manufacturer of radios for the automobile industry, producing more than 33% of
car radios manufactured for installation in new automobiles in the United
States in 1997. Delphi-Delco is also the leading manufacturer of car radios
sold in General Motors vehicles and has signed a contract to build our radios
for General Motors. Sony is the leader in sales of portable CD players by a
large margin and one of the top three sellers of shelf systems. Sony has agreed
to assist with marketing XM Radios and has agreed to incentive arrangements
that condition its compensation on use of XM Radios manufactured by Sony or
containing Sony hardware. Motorola is a leading supplier of integrated
electronics systems to automobile manufacturers. Mitsubishi Electronic
Automotive America, together with its parent corporation Mitsubishi Electronic
Corp., is the largest Japanese manufacturer of factory- installed car radios in
the United States. Clarion is a leader in the car audio and mobile electronics
industry. Two of our other manufacturers, Pioneer Electronics Corporation and
Alpine Electronics, together sold over 31% of aftermarket car radios sold in
the United States in 1999. We have also signed a contract with SHARP to
manufacture and distribute XM radios for home and portable use. We are pursuing
additional agreements for the manufacture and distribution of XM radios,
subject to contract limitations on the number of manufacturer distributors
during the early years of service. We also plan to meet with automobile dealers
to educate them about XM Radio and develop sales and promotional campaigns to
promote XM radios to new car buyers.
These leading radio manufacturers have strong retail and dealer distribution
networks in the United States. We expect to have access to the distribution
channels and direct sales relationships of these distributors, including
national electronics retailers, car audio dealers and mass retailers.
We do not intend to manufacture or hold inventory of XM radios. Radio
distribution likely would be handled by fulfillment centers, which hold
inventory for the radio manufacturers and ship products directly to listeners
at the manufacturers' request.
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Rural Market Distribution/Alternative Distribution. We intend to market our
satellite radio service in rural counties, using distribution channels similar
to satellite television, to penetrate rural households not served by
traditional electronic retailers. In addition, we plan to pursue alternative
distribution opportunities such as catalog/direct marketing, the Internet and
marketing through affinity groups.
Future Distribution Arrangements. We have signed an agreement with Sirius
Radio to develop a unified standard for satellite radios to facilitate the
ability of consumers to purchase one radio capable of receiving both our and
Sirius Radio's services. Both companies expect to work with their automobile
and radio manufacturing partners to integrate the new standard. Future
agreements with automakers and radio manufacturers will specify the unified
satellite radio standard. Furthermore, future agreements with retail and
automotive distribution partners and content providers will be on a non-
exclusive basis and may not reward any distribution partner for not
distributing the satellite radio system of the other party.
In addition, we have signed a letter of intent with Freightliner Corporation
to install XM radios in Freightliner trucks.
Maximize Revenue Through Dual Sources
As with other subscription-based entertainment media such as cable
television, we expect to generate revenue by charging a monthly subscription
fee and selling limited advertising time. We will earn all of the revenue from
advertising on our own programming and a portion of the revenues from
advertising on third party programming. XM Radio offers a new national radio
platform for advertisers that solves many of the problems associated with
buying radio advertising nationally on a spot or syndicated basis. We believe
the attractiveness of one-stop national radio advertising buys will provide a
significant source of income as our subscriber base grows.
Subscriber Development and Expansion
We expect to promote XM Radio as a national brand name with an exciting
image. Several months prior to service commencement, we will launch an
advertising campaign in several United States markets to test and generate
early feedback on the product offerings and stimulate early demand. Promotional
activities currently under consideration include distributing sample
programming at retail outlets, concert venues and on the Internet to generate
initial interest. For instance, we have entered into an agreement with SFX
Entertainment to be the exclusive satellite radio advertiser at live concerts
and sporting events presented by, and live entertainment venues managed by,
SFX.
Although XM Radio will be available nationwide upon commencement of
operations, we will initially concentrate promotional activities in several key
markets and rapidly expand to other large markets. This phased roll-out
strategy, similar to that employed by consumer electronics manufacturers and
special services such as DIRECTV and Web TV, will enable us to refine our
launch implementation throughout the roll-out period. The advertising will
consist of both branding and promotion efforts for XM Radio, as well as
separate campaigns to promote and brand individual channels. Initially, we will
focus marketing efforts on the various channels targeting young adults, who we
believe are more likely to drive early penetration. We also expect to benefit
from free local media coverage as XM Radio is first offered in each new market.
XM Radio will promote subscriber acquisition activities with both original
equipment and aftermarket radio manufacturers. This might include
. promotional campaigns directed towards automobile manufacturers and
dealers;
. promotional campaigns for free months of service with purchase of an XM
radio or free installations for aftermarket car radios;
. incentive programs for retailer sales forces;
. in-store promotional campaigns, including displays located in
electronics, music and other retail stores, rental car agencies and
automobile dealerships; and
. jointly funded local advertising campaigns with retailers.
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Advertiser Development and Acquisition
Our ability to aggregate various local niche market segments into national
audiences will be attractive to national advertisers and agencies. We have held
extensive meetings with media directors, planners and buyers at advertising and
media buying agencies to develop advertiser awareness of the benefits of
satellite radio. We expect to have advertising sales offices in seven major
media markets to sell directly to advertising agencies and media buying groups
and have engaged Premiere Radio Networks to be our advertising sales
representative. We will also work with ratings agencies in our advertising-
supported business. Statistical Research, Inc., which produces Radar reports,
has agreed to work with us to develop other ratings methodologies for satellite
radio.
During our early years of service, we do not expect to have a listener base
sufficient to attract substantial national advertising dollars on individual
channels at competitive rates. Thus, we plan initially to attract national
advertisers and agencies with the following kinds of incentives.
Charter Advertising Agreements. We have contracts with several advertisers,
advertising agencies and media buying companies offering charter advertising
packages at reduced rates for a limited time. Each charter advertiser will
purchase a minimum amount of advertising from us during the period that the
reduced rates are in effect. We intend to sign additional contracts on similar
terms.
Foreign Language Advertising. We and our programmers plan to offer foreign
language advertising on specific foreign language-based channels. Several major
national advertisers have expressed strong interest in the ability to advertise
to these hard-to-reach customer segments.
The XM Radio System
We are designing our system to provide satellite radio to the continental
United States and coastal waters using radio frequencies allocated by the FCC
for satellite radio. These radio frequencies are within a range of frequencies
called the S-Band. The XM Radio system will be capable of providing high
quality satellite services to XM radios in automobiles, trucks, recreation
vehicles and pleasure craft, as well as to fixed or portable XM radios in the
home, office or other fixed locations. The XM Radio system design uses a
network consisting of an uplink facility, two high-power satellites and, where
necessary, ground-based repeaters to provide digital audio service to XM
radios.
Space Segment
Satellite Construction. Under our satellite contract with Hughes, Hughes is
building and will launch two HS 702 high-power satellites for the XM Radio
system. Hughes has also agreed to provide, at our option, one ground spare
satellite, to be available in the event of a failed launch of any satellite or
to accommodate our satellite system growth.
We believe that the HS 702 model will provide higher quality performance
than other satellite options. The first HS 702 satellite was successfully
launched in the fourth quarter of 1999 and a total of three HS 702 satellites
are currently scheduled for launch before the launch of our satellites.
Hughes has also contracted to provide us with launch and operations support
services, equipment and software. Under our contract, Hughes must deliver the
first satellite no later than December 31, 2000 and the second satellite no
later than April 11, 2001.
Hughes has engaged Alcatel to provide the communications payload electronics
for our satellites. The communications payload electronics are designed to make
best use of technologies that have already been developed or used in previous
satellite programs. The design includes significant redundancy and protective
measures to prevent loss of service.
Satellite Transmission. We anticipate that our two satellites will be
deployed at 85 West Longitude and 115 West Longitude. After reaching their
designated orbital location, the satellites will receive audio signals from our
programming center and retransmit the signals across the continental United
States. The satellites will be 30(degrees) apart in longitude in order to
enhance the probability of clear line-of-sight communication between the
satellites and XM mobile radios.
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The transmission coverage areas, or footprints, of our satellites encompass
the 48 contiguous states and nearby coastal waters. We have tailored these
footprints to provide nearly uniform availability over the United States and to
minimize transmission spillage across the United States borders into Canada and
Mexico. However, because coverage does extend to the Gulf of Mexico, the
California coast and the Atlantic coast, we also expect to be able to provide
XM Radio to the cruise ships, cargo vessels and leisure boats which frequent
these waters.
Our satellites will transmit audio programming within a 12.5 MHz range of S-
Band radio frequencies that have been allocated by the FCC for our exclusive
use. Megahertz is a unit of measurement of frequency. This 12.5 MHz bandwidth
will be subdivided to carry the transmission of six signals, two signals to be
transmitted from each of our two satellites and two signals to be transmitted
by the terrestrial repeater network. The audio programming for XM Radio will be
carried on two satellite signals, and the remaining two satellite signals and
the terrestrial repeater signals will repeat the audio programming to enhance
overall signal reception. The transmission of higher quality sound requires the
use of more kilobits per second than the transmission of lesser quality sound.
In order to provide high-quality digital sound, we expect that music channels
will require approximately 56 to 64 kilobits per second depending on the type
of compression technology used, whereas talk channels will require
significantly less band width. We expect to use our allocated bandwidth in such
a way as to provide up to 100 channels of programming, with our music channels
having a high bandwidth allocation so as to provide high-quality digital sound.
Launch Services. Hughes has signed an agreement with Sea Launch Limited
Partnership, a joint venture in which Boeing Commercial Space Company has a
controlling 40% interest, to provide the launch services for our satellites.
The launch vehicle uses a new rocket called the Zenit-3SL, which is based on a
flight-proven two-stage rocket called the Zenit-2, plus a stage which is the
flight-proven upper stage of a Russian-developed rocket called the Proton
rocket. The Zenit-2 vehicle has been successfully launched 30 times in 35
attempts, for an 86% success rate. The upper stage has successfully flown in
186 flights on various rockets with five failures, for a 97% success rate.
Sea Launch has developed a new launch system to launch rockets from an
ocean-based platform. Sea Launch will perform all rocket and satellite
processing at the Sea Launch home port in Long Beach, California. Sea Launch
will move the platform to its launch position in the South Pacific Ocean near
the equator, where the satellites can be launched more efficiently by avoiding
the requirement to conduct an orbital plane change. In March 1999, Sea Launch
successfully launched a rocket carrying an inert payload into geo-stationary
orbit. Sea Launch also successfully launched its first commerical satellite,
DIRECTV 1-R, in October 1999. As of December 31, 1999, Sea Launch had contracts
for an additional 18 launches. In March 2000 a satellite launch by Sea Launch
experienced an anomaly that resulted in the loss of the communications
satellite payload. An investigation is currently underway by Boeing and its Sea
Launch partners to determine the cause of the failure. We understand that Sea
Launch will resume launches after the anomaly has been investigated and
rectified. While there can be no assurances, given the anticipated Sea Launch
turn around window between launches, as well as our placement on the launch
manifest, with two others ahead of us, we do not expect any significant delay
with our launch schedule.
Insurance. We bear the risk of loss for each of the satellites from the time
of launch, subject to exceptions set forth in our agreement with Hughes, and we
intend to obtain insurance to cover that risk. We intend to purchase launch and
in-orbit insurance policies from global space insurance underwriters. The
insurance premiums for both satellites are expected to cost us approximately
$50 million. We cannot predict the status of the insurance market near the time
of launch, which is the customary time for purchasing satellite insurance. We
expect that the policies we obtain will indemnify us for a total, constructive
total or partial loss of either of the satellites that occurs from the time of
launch through each satellite's expected lifetime. We intend to obtain coverage
which will exceed all hardware, insurance and launch service costs related to
the in-orbit replacement of a lost satellite. However, any insurance we may
obtain will not protect us from the adverse effect on our business operations
due to the loss of a satellite. We expect that these policies will contain
standard commercial satellite insurance provisions, including standard coverage
exclusions.
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Ground Segment
Satellite Control. Each of our satellites will be monitored by a telemetry,
tracking and control station, and both satellites will be controlled by a
satellite control station. Each of the stations will have a backup station. We
have a contract with an experienced satellite operator to perform the
telemetry, tracking and control functions.
Programming and Business Center. Programming from both our studios and
external sources will be sent to our programming center, which will package and
retransmit signals to our satellites through the uplink station. Financial
services and certain administrative support will be carried on at our business
center. Communications traffic between the various XM Radio facilities will be
controlled by the network monitoring center. The network monitoring center will
monitor satellite signals and the terrestrial repeater network to ensure that
the XM Radio system is operating properly. We plan to design and install fault
detection systems to detect various system failures before they cause
significant damage.
Terrestrial Repeaters. We intend to install a terrestrial repeater system to
supplement the coverage of our satellites. Terrestrial repeaters are ground-
based electronics equipment which receive and re-transmit the satellite
signals. We have signed a contract with LCC International, a wireless service
site planner, for the design and deployment of our terrestrial repeater
network. LCC International has completed initial site planning for 70 markets.
The contract with LCC International is described in more detail under the
caption "Certain Relationships and Related Transactions--Engineering Contract
with LCC International." We have entered into a contract with Hughes
Electronics Corporation for the design, development and manufacture of the
terrestrial repeaters. The contract is described in greater detail under the
caption "Certain Relationships and Related Party Transactions-Contracts with
Hughes."
In some areas, satellite signals may be subject to blockages from tall
buildings and other obstructions. Due to the satellites' longitudinal
separation, in most circumstances where reception is obscured from one
satellite, XM Radio will still be available from the other satellite. In some
urban areas with a high concentration of tall buildings, however, line-of-sight
obstructions to both satellites may be more frequent. In such areas, we will
install terrestrial repeaters to facilitate signal reception. We will install
terrestrial repeaters on rooftops and existing tower structures where they will
receive the satellite signals, amplify them and retransmit them at a
significantly higher signal strength than is possible directly from the
satellites. Before we may install many of our planned terrestrial repeaters, we
must obtain roof rights in suitable locations and on acceptable terms. We do
not expect this to present a serious problem to our construction of a
terrestrial repeater network.
The high power levels and proprietary signal design of the terrestrial
signals may allow XM radios to receive signals when a terrestrial repeater is
not in view, including within buildings and other structures which can be
penetrated by the terrestrial repeater signal. In some indoor locations which
cannot receive the repeater signal, users will need to use small externally
mounted antennas that will receive the signal from one of the two satellites.
We have contracted to purchase 1,550 terrestrial repeaters and may install
as many as 1,700 terrestrial repeaters to cover urban areas in approximately 70
markets. We expect that this system will be operational by the second quarter
of 2001. We estimate that the largest urban markets may require in excess of
100 repeaters, while smaller cities with fewer tall buildings may require as
few as one to three repeaters. We also intend to use additional small repeaters
in areas such as tunnels, where reception would otherwise be severely
restricted. Our placement of terrestrial repeaters will be guided by a newly
developed radio frequency analysis technique which, employing technology
similar to that used in certain cellular telephone systems, analyzes the
satellite footprint to discover areas likely to have impaired reception of XM
Radio.
We expect to benefit from the expertise gained by American Mobile with its
ARDIS terrestrial two-way data network consisting of approximately 1,700 base
stations sites serving cities throughout the United States. We may use a
portion of these sites in our system.
XM Radios. We will transmit XM Radio throughout the continental United
States to vehicle, portable, home and plug and play radios. Our radios will be
capable of receiving both XM Radio and traditional AM/FM stations. We believe
prototypes will be available and limited production will begin by December
2000, and radios will be commercially available by commencement of commercial
operation.
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We have signed a contract with STMicroelectronics to design and produce
chips which will decode the XM Radio signal. Additionally, some of the design
elements in the chipsets currently being made for the WorldSpace International
system, which operates in a different frequency band, will be integrated into
our chipsets. Lucent Digital Radio has agreed to provide coding technology for
our audio signals.
Delphi-Delco, Motorola, Pioneer, Alpine, Mitsubishi, Audiovox and Clarion
have signed contracts with us to develop, manufacture and distribute XM radios
which can be used in the car and we have signed a contract with Sony
Electronics to design, manufacture and market XM radios for the portable, home,
aftermarket and original equipment manufacture car stereo markets. We have also
signed a contract with SHARP to manufacture XM radios for home and portable
use.
Unified Standard for Satellite Radio. On February 16, 2000, we signed an
agreement with Sirius Radio to develop a unified standard for satellite radios
to facilitate the ability of consumers to purchase one radio capable of
receiving both our and Sirius Radio's services. The technology relating to this
unified standard will be jointly developed, funded and owned by the two
companies. In addition, we will work together with Sirius Radio to proliferate
the new standard by creating a service mark for satellite radio. This unified
standard is intended to meet FCC rules that require interoperability with both
licensed satellite radio systems.
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 each company's 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. In connection with this agreement, the pending patent litigation against
XM Radio has been resolved.
We anticipate that it will take several years to develop radios capable of
receiving both services. At the commercial launch of our service, we anticipate
that our consumers will be able to purchase radios only capable of receiving
our service.
Both companies expect to work with their automobile and radio manufacturing
partners to integrate the new standard. Future agreements with automakers and
radio manufacturers will specify the unified satellite radio standard.
Furthermore, future agreements with retail and automotive distribution partners
and content providers will be on a non-exclusive basis.
We and Sirius Radio have also agreed to negotiate in good faith to provide
service to each other's subscribers in the event of a catastrophic failure of
the XM Radio system or the Sirius Radio system.
Competition
We expect to face competition for both listeners and advertising dollars.
Sirius Satellite Radio
Our direct competitor in satellite radio service is likely to be Sirius
Satellite Radio, the only other FCC licensee for satellite radio service in the
United States. Since October 1997, Sirius Satellite Radio's common stock has
traded on the Nasdaq National Market. Sirius Satellite Radio plans to deploy
three satellites in a North American elliptical orbit and a network of
terrestrial repeaters. Sirius Satellite Radio has announced in recent SEC
filings that it has arrangements for the construction, implementation and
distribution of its service and that it expects to begin receiving revenue from
operations in early 2001, which is slightly ahead of our planned commencement
of commercial operations in the second quarter of 2001.
Traditional AM/FM Radio
Our competition will also include traditional AM/FM radio. Unlike XM Radio,
traditional AM/FM radio already has a well established market for its services
and generally offers free broadcast reception paid for by commercial
advertising rather than by a subscription fee. Also, many radio stations offer
information programming of a local nature, such as traffic and weather reports,
which XM Radio initially will be unable to offer as effectively as local radio,
or at all. The AM/FM radio broadcasting industry is highly competitive.
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Radio stations compete for listeners and advertising revenues directly with
other radio stations within their markets on the basis of a variety of factors,
including
. program content;
. air talent;
. transmitter power;
. source frequency;
. audience characteristics;
. local program acceptance; and
. the number and characteristics of other radio stations in the market.
Currently, traditional AM/FM radio stations broadcast by means of analog
signals, not digital transmission. We believe, however, that in the future
traditional AM/FM radio broadcasters may be able to transmit digitally into the
bandwidth occupied by current AM/FM stations.
Internet Radio
There are a growing number of Internet radio broadcasts which provide
listeners with radio programming from around the country and the world.
Internet radio can be heard through a personal computer equipped with a modem,
sound card and speakers. One of the largest Internet radio providers,
Broadcast.com Inc., currently provides a large number of stations on the
Internet and has recently completed an initial public offering of stock,
indicating growth in the industry. Announcements have been made about plans by
one or more companies to deliver Internet radio to cars or portable radios
using satellites. Although we believe that the current sound quality of
Internet radio is below standard and may vary depending on factors such as
network traffic, which can distort or interrupt the broadcast, we expect that
improvements from higher bandwidths, faster modems and wider programming
selection may make Internet radio a more significant competitor in the future.
There are a number of Internet-based audio formats in existence or in
development which could compete directly with XM Radio. For example, Internet
users with the appropriate hardware and software can download sound files for
free or for a nominal charge and play them from their personal computers or
from specialized portable players. In addition, prominent members of the music
and computer industry have supported an initiative known as the Secure Digital
Music Initiative to become a standard for fee-based electronic distribution of
copyrighted sound recordings. Although presently available formats have
drawbacks such as hardware requirements and download bandwidth constraints,
which we believe would make XM Radio a more attractive option to consumers,
Internet-based audio formats may become increasingly competitive as quality
improves and costs are reduced.
Direct Broadcast Satellite and Cable Audio
A number of companies provide specialized audio service through either
direct broadcast satellite and cable audio systems. These services are targeted
to fixed locations, mostly in-home. The radio service offered by direct
broadcast satellite and cable audio is generally an add-on service to the
higher priced video service.
Regulatory Matters
XM Radio and Sirius Radio received licenses from the FCC in October 1997 to
construct and operate satellite radio service. The FCC has allocated 25 MHz for
the new service in a range of radio frequencies known as the S-Band.
As an owner of one of two FCC licenses to operate a commercial satellite
radio service in the United States, we will continue to be subject to
regulatory oversight by the FCC. Our development, implementation and eventual
operation of our system will be subject to significant regulation by the FCC
under authority granted under the Communications Act and related to federal
law. Non-compliance by us with FCC rules and regulations could result in fines,
additional license conditions, license revocation or other detrimental FCC
actions. Any of these FCC actions may harm our business. There is no guarantee
that the rules and regulations of the FCC will continue to support our business
plan.
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One of the two losing bidders in the satellite radio license auction filed
an application for review of the order granting our FCC license, but the
challenge was denied. The losing bidder is seeking review by the FCC. The
losing bidder has argued that WorldSpace had effectively taken control of us
without FCC approval and that WorldSpace has circumvented the FCC's application
cut-off procedures. WorldSpace is no longer a stockholder in our company. We
have opposed this appeal and have denied the allegations contained in the
challenge. The FCC's order granting our license remains in effect during the
pendency of the application for review. Although we believe that the award of
the license to us will continue to be upheld, we cannot predict the ultimate
outcome of this challenge. If this challenge is successful, the FCC could take
a range of actions, any of which could harm our ability to proceed with our
planned satellite radio service.
Our license, which is held by a subsidiary wholly owned by us, has a term of
eight years from commencement of our operations and may be renewed. The FCC
requires the satellite radio licensees, including us, to adhere to certain
milestones in the development of their systems, including a requirement that
the licensees begin full operation by October 2003.
Our FCC license requires us to meet the following milestones:
<TABLE>
<CAPTION>
Deadline Milestone Status
- -------- --------- ------
<S> <C> <C>
October 1998 Complete contracting for first satellite Completed March 1998
October 1999 Complete contracting for second satellite Completed March 1998
October 2001 Begin in-orbit operation of at least one satellite Expected Fourth Quarter 2000
October 2003 Begin full operation of the XM Radio system Expected Second Quarter 2001
</TABLE>
While we have already fulfilled the first two milestones, we may not meet
the remaining two milestones, in part because we depend on third parties to
build and launch our satellites. If we fail to meet these milestones, the FCC
could take a range of actions, any of which may harm our business.
For business and technical reasons, we have decided to modify certain
aspects of the satellite radio system described in our May 1997 amended
application to the FCC. Specifically, we intend to
. increase the satellites' transmission power;
. eliminate coverage of Alaska and Hawaii; and
. change the total number of signals carried by the satellites and
terrestrial repeaters.
We will subdivide our 12.5 MHz of allocated bandwidth to carry six signals
instead of five as previously stated in our FCC application. Two signals will
be transmitted by each of the two satellites, and two signals will be
transmitted by our terrestrial repeaters. We have filed an application
requesting that the FCC allow us to modify the XM Radio system to incorporate
these changes. In response to our application, one commenter expressed concern
that a grant of XM Radio's request to operate its satellites at higher power
could have an adverse effect on international frequency coordination with the
government of Mexico. We discuss the coordination of the XM Radio system with
systems operating in the same frequency bands in adjacent countries below in
this section. While the FCC regularly approves modifications to commercial
licenses, it may not approve our request.
The FCC has indicated that it may in the future impose public service
obligations, such as channel set-asides for educational programming, on
satellite radio licensees.
The FCC's rules require interoperability with all licensed satellite radio
systems that are operational or under construction. The FCC conditioned our
license on certification by us that our final receiver design is interoperable
with the final receiver design of the other licensee, Sirius Radio, which plans
to use a different transmission technology than we plan to use. Because of
uncertainty regarding the design of Sirius Radio's systems, we may face
difficulties initially in meeting this interoperability requirement. We have
signed an agreement with Sirius Radio to develop a unified standard for
satellite radios, but we anticipate that it will take
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several years to develop the technologies necessary for radios that will be
capable of receiving both our service and Sirius Radio's service. Accordingly,
we may not be able to meet the FCC's interoperability requirements by the time
we launch our commercial operations and may need to obtain an extension of time
or modification of this requirement from the FCC. Furthermore, complying with
the interoperability requirement could make the radios more difficult and
costly to manufacture.
The FCC is currently conducting a rulemaking proceeding to establish rules
for terrestrial repeater transmitters, which we plan to deploy to fill in gaps
in satellite coverage. The FCC has proposed to permit us to deploy these
facilities. Specifically, the FCC has proposed a form of blanket licensing for
terrestrial repeaters and service rules which would prohibit satellite radio
licensees from using terrestrial repeating transmitters to originate local
programming or transmit signals other than those received from the satellite
radio satellites. Various parties, including the National Association of
Broadcasters, have asked the FCC to
. delay consideration of terrestrial repeater rules until our company and
Sirius Radio provide additional information regarding planned
terrestrial repeaters;
. require individual licensing of each terrestrial repeater;
. limit the number of repeaters that may be deployed; and
. impose a waiting period on the use of repeaters in order to determine if
signal reception problems can be resolved through other means.
Our plans to deploy terrestrial repeaters in our system may be impacted,
possibly materially, by whatever rules the FCC issues in this regard.
The FCC also may adopt limits on emissions of terrestrial repeaters to
protect other services using nearby frequencies. While we believe that we will
meet any reasonable non-interference standard for terrestrial repeaters, the
FCC has no specific standard at this time, and the application of such limits
might increase our cost of using repeaters. Although we are optimistic that we
will be able to construct and use terrestrial repeaters as needed, the
development and implementation of the FCC's ultimate rules might delay this
process or restrict our ability to do so.
We will need to coordinate the XM Radio system with systems operating in the
same frequency bands in adjacent countries. Canada and Mexico are the countries
whose radio systems are most likely to be affected by satellite radio. The
United States government, which conducts the coordination process, has resolved
the issue with Canada and has begun discussions with the Mexican government.
However, the negotiations with Mexico could be complicated by that country's
interest in developing a similar digital satellite radio service that might
operate on the same frequencies as XM Radio will use in the United States.
Although we are optimistic that the FCC will coordinate satellite radio
frequency use with Mexico without compromising our ability to operate as
planned, it may not be able to do so, which could materially affect XM Radio.
We will operate the communication uplinks between our own earth station and
our satellites in a band of radio frequencies that are used for several other
services. These services are known under FCC rules as fixed services, broadcast
auxiliary services, electronic news gathering services, and mobile satellite
services for uplink station networks. Although we are optimistic that we will
succeed in coordinating domestic uplink station networks, we may not be able to
coordinate use of this spectrum in a timely manner, or at all.
We also need to protect our system from out-of-band emissions from licensees
operating in adjacent frequency bands. Wireless Communication Service licensees
operating in frequency bands adjacent to the satellite radio's S-Band
allocation must comply with certain out-of-band emission limits imposed by the
FCC to protect satellite radio systems. These limits, however, are less
stringent than those we proposed. In addition, in April 1998, the FCC proposed
to amend its rules to allow for new radio frequency lighting devices that would
operate in an adjacent radio frequency band. We opposed the proposal on the
grounds that the proliferation of this new kind of lighting and its proposed
emission limits, particularly if used for street lighting, may interfere with
XM Radio. However, the FCC may not rule in our favor, a decision which could
adversely affect our signal quality.
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The FCC order granting our license determined that because we are a private
satellite system providing a subscription service on a non-common carrier
basis, we would not be subject to the FCC's foreign ownership restrictions.
However, such restrictions would apply to us if we were to offer non
subscription services, which may appear more lucrative to potential advertisers
than subscription services. The FCC also stated in its order that it may
reconsider its decision not to subject satellite radio licensees to its foreign
ownership restrictions.
Sea Launch, Alcatel and other vendors are subject to United States export
regulations. Our vendors will need approval from the State Department under
technology export statutes and regulations for the launch of our satellites.
Although these are not new requirements, the export of technology has received
considerable attention in response to concerns about the export of technology
to China by the United States defense contractors. The negative publicity may
lead the United States Congress to alter the relevant laws or regulations, or
may change the State Department's policy in enforcing the regulations. Any
change in applicable law or policy may result in delay of our satellite launch.
Intellectual Property
System Technology
We have contracted with several technology companies to implement portions
of the XM Radio system. These technology companies include Hughes and Alcatel
(satellites); Delphi-Delco, Sony, Motorola, Pioneer, Alpine, Mitsubishi,
Audiovox, Clarion and SHARP (car and home radios); STMicroelectronics
(chipsets); Lucent Digital Radio (audio coding technology); Fraunhofer
Institute (various technologies) and LCC International (design of repeater
network). We will not acquire any intellectual property rights in the
satellites. We will have joint ownership of or a license to use the technology
developed by the radio and chipset manufacturers. We will own the design of our
system, including aspects of the technology used in communicating from the
satellites and the design of the repeater network.
Our system design, our repeater system design and the specifications we
supplied to our radio and chipset manufacturers incorporates or may in the
future incorporate some intellectual property licensed to us on a non-exclusive
basis by WorldSpace Management. WorldSpace Management has used this technology
in its own non-United States satellite radio system. We also have the right to
sublicense the licensed technology to any third party, including chipset
manufacturers, terrestrial repeater manufacturers and receiver manufacturers in
connection with the XM Radio system. Under our agreement with WorldSpace
Management we must pay one time, annual or percentage royalty fees or reimburse
WorldSpace Management for various costs for various elements of the licensed
technology that we decide to use in the XM Radio system. We have incurred costs
of $6.7 million to WorldSpace Management under this agreement through December
31, 1999. We will not be required to pay royalties to WorldSpace Management for
licensed technology that we do not use in our system. We anticipate that the
Fraunhofer Institute will continue to provide various development services for
us in connection with the design of our system.
American Mobile has granted us a royalty-free license with respect to
certain ground segment communications technology and antenna technology.
American Mobile and WorldSpace Management have also granted us royalty-free,
non-exclusive and irrevocable licenses to use and sublicense all improvements
to their technology. The technology licenses from American Mobile and
WorldSpace Management renew automatically on an annual basis unless terminated
for a breach which has not been or cannot be remedied.
We believe that the intellectual property rights we have licensed under our
technology license were independently developed or duly licensed by American
Mobile or WorldSpace International, as the case may be. We cannot assure you,
however, that third parties will not bring suit against us for patent or other
infringement of intellectual property rights.
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We have signed an agreement with Sirius Radio to develop a unified standard
for satellite radios to facilitate the ability of consumers to purchase one
radio capable of receiving both our and Sirius Radio's services. The technology
relating to this 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 the unified standard and to its
system; the value of this license will be considered part of its contribution
toward the joint project. 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. Each party will be entitled to license
fees or a credit towards its obligation to fund one half of the development
cost of the technologies used to develop a unified standard for satellite
radios. The amount of the fees or credit will be based upon the validity,
value, use, importance and available alternatives of the technology each
contributes and will be determined over time by agreement of the parties or by
arbitration. We cannot predict at this time the amount of license fees, if any,
payable by or to XM or Sirius Radio of the size or the credits to XM and
Sirius Radio from the use of their technology. This may require additional
capital, which could be significant.
Prior Litigation with Sirius Radio; Technology License
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 resolved 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.
If this litigation were recommenced, we believe based on the planned design
of our system, our knowledge of the differences between our system and the
claims of the Sirius Radio patents and on advice we have previously received
from our patent counsel, that a court would find that we have not and will not
infringe any Sirius Radio patents. However, the litigation could harm us, even
if we were successful. It would divert our management's attention and might
make it more difficult for us to raise financing or enter into other agreements
with third parties. In addition, even if we prevailed, the Sirius Radio
litigation might prevent us from moving forward with the development of the XM
Radio system in a timely manner. The Sirius Radio patents involved in the
litigation relate to certain aspects of signal and reception methodologies that
may be employed by a satellite radio system. If this suit were refiled and we
lost all or part of this litigation, we could become liable to Sirius Radio for
money damages and subject to an injunction preventing us from using certain
technology in the XM Radio system. Any such injunction could force us to
engineer technology which would not be subject to the injunction, license or
develop alternative technology, or seek a license from, and pay royalties to,
Sirius Radio. If any of these strategies becomes necessary, it could be costly
and time-consuming and would likely delay any implementation of our system. If
we could not accomplish any strategy, or could not do so in a timely manner at
an acceptable cost, our business would be harmed.
Copyrights to Programming
We must negotiate and enter into music programming royalty arrangements with
performing rights societies such as the American Society of Composers, Authors
and Publishers, Broadcast Music, Inc., and SESAC, Inc. These organizations
collect royalties and distribute them to songwriters and music publishers and
negotiate fees with copyright users based on a percentage of revenues. Radio
broadcasters currently pay a combined total of approximately 3-4% of their
revenues to these performing rights societies. We expect to negotiate or
establish by arbitration royalty arrangements with these organizations, but
such royalty arrangements may be more costly than anticipated or unavailable.
Under the Digital Performance Right in Sound Recordings Act of 1995 and the
Digital Millennium Copyright Act of 1998, we also have to negotiate royalty
arrangements with the owners of the sound
18
<PAGE>
recordings. The Recording Industry Association of America will negotiate
licenses and collect royalties on behalf of copyright owners for this
performance right in sound recordings. Cable audio services currently pay a
royalty rate of 6.5% of gross subscriber revenue. This rate was set by the
Librarian of Congress, which has statutory authority to decide rates through
arbitration, and was affirmed on May 21, 1999 by the United States Court of
Appeals for the District of Columbia. Although we believe we can distinguish XM
Radio sufficiently from the cable audio services in order to negotiate a lower
statutory rate, we may not be able to do so.
The XMTM Trademark
We believe that XM Radio will be seen as the complement to AM and FM radio.
We have an application pending in the United States Patent and Trademark Office
for the registration of the trademark "XM" in
connection with the transmission services offered by our company and expect
that our brand name and logo will be prominently displayed on the surface of XM
radios together with the radio manufacturer's brand name. This will identify
the equipment as being XM Radio- compatible and build awareness of XM Radio. We
intend to maintain our trademark and the anticipated registration. We are not
aware of any material claims of infringement or other challenges to our right
to use the "XM" trademark in the United States.
Personnel
As of January 31, 2000, we had 67 employees. In addition, we rely upon a
number of consultants and other advisors. The extent and timing of any increase
in staffing will depend on the availability of qualified personnel and other
developments in our business. None of our employees is represented by a labor
union, and we believe that our relationship with our employees is good.
ITEM 2. PROPERTIES
Our executive offices are located at 1250 23rd Street, N.W., Suite 57,
Washington, D.C. 20037-1100, and are leased pursuant to a lease agreement that
will expire on October 31, 2000. We have entered into a ten year lease of
approximately 120,000 square feet of additional space in Washington, D.C. to be
used as our headquarters office, as well as for our studio and production
facilities.
ITEM 3. LEGAL PROCEEDINGS
Except for the FCC proceeding described under the caption "Business--
Regulatory Matters," we are not a party to any material litigation or other
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Our Class A common stock has been quoted on the Nasdaq National Market under
the symbol "XMSR" since our initial public offering on October 5, 1999. The
following table presents, for the period indicated, the high and low sales
prices per share of our Class A common stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
High Low
------ -------
<S> <C> <C>
1999:
Fourth Quarter (beginning October 5, 1999)..................... $44.75 $11.625
</TABLE>
On March 10, 2000, the last reported bid price for our Class A common stock
on the Nasdaq National Market was $42.50. As of March 10, 2000, there were 76
holders of record of our Class A common stock.
DIVIDEND POLICY
We have not declared or paid any dividends since our date of inception. We
do not intend to pay cash dividends on our common stock in the foreseeable
future. We anticipate we will retain any earnings for use in our operations and
the expansion of our business. We are obligated to pay dividends on our Series
B convertible redeemable preferred stock, which we may pay in cash or in shares
of our Class A common stock, at our option.
RECENT SALES OF UNREGISTERED SECURITIES
None.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
In considering the following selected consolidated financial data, you
should also read our consolidated financial statements and notes and the
section captioned "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The consolidated statements of operations data for
the three-year period ended December 31, 1999, and for the period from December
15, 1992 (date of inception) to December 31, 1999, and the consolidated balance
sheets data as of December 31, 1997, 1998 and 1999 are derived from our
consolidated financial statements. These statements have been audited by KPMG
LLP, independent certified public accountants. KPMG's report contains a
paragraph stating that we have not begun operations and are dependent upon
additional debt or equity financing, and that these factors raise substantial
doubt about our ability to continue as a going concern. The selected
consolidated financial data do not include any adjustments that might result
from the outcome of that uncertainty.
<TABLE>
<CAPTION>
December 15,
1992 (Date of
Years Ended December 31, Inception)
-------------------------------- to December 31,
1997 1998 1999 1999 (1)
--------- --------- ---------- ---------------
(In thousands, except share
data)
<S> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenue...................... $ -- $ -- $ -- $ --
--------- --------- ---------- --------
Operating expenses:
Research and development.... -- 6,941 4,274 11,215
Professional fees........... 1,090 5,242 9,969 16,301
General and administrative.. 20 4,010 16,448 20,478
--------- --------- ---------- --------
Total operating expenses.... 1,110 16,193 30,691 47,994
--------- --------- ---------- --------
Operating loss............... (1,110) (16,193) (30,691) (47,994)
Other expense--interest
income (expense), net....... (549) 26 (6,205) (6,728)
--------- --------- ---------- --------
Net loss..................... $ (1,659) $ (16,167) $ (36,896) $(54,722)
========= ========= ========== ========
Net loss per share--basic and
diluted..................... $(0.26) $(2.42) $(2.40)
========= ========= ==========
Weighted average shares used
in computing net loss per
share--basic and diluted.... 6,368,166 6,689,250 15,344,102
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998 1999
------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheets Data:
Cash, cash equivalents and short-term
investments........................... $ 1 $ 310 $120,170
System under construction.............. 91,932 169,029 362,358
Total assets........................... 91,933 170,485 515,189
Total debt............................. 82,504 140,332 212
Total liabilities...................... 82,949 177,668 30,172
Stockholders' equity (deficit)......... 8,984 (7,183) 485,017
</TABLE>
- --------
(1) Business activity for the period from December 15, 1992, which was our date
of inception, through December 31, 1996 was insignificant.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which we believe
is relevant to an assessment and understanding of our financial condition and
consolidated results of operations. This discussion should be read together
with our consolidated financial statements and related notes beginning on page
F-1 of this report.
Introduction
XM Satellite Radio Inc. was incorporated in Delaware in 1992 as a wholly-
owned subsidiary of American Mobile. XM Satellite Radio Holdings Inc. became a
holding company for XM Satellite Radio Inc. in connection with a strategic
investment by a former shareholder in early 1997. In July 1999, following our
repayment of $75.0 million in debt owed to the former shareholder, it conveyed
all of its interest in us to a trust. American Mobile then acquired all of that
interest from the trust, making American Mobile our only stockholder at that
time. Also, in July, we issued $250.0 million of Series A subordinated
convertible notes. In October 1999, we completed an initial public offering and
exercised an overallotment option for a cumulative total of 10,241,000 shares
of Class A common stock, yielding net proceeds of $114.1 million. Concurrent
with the closing of our initial public offering, the $250.0 million of Series A
subordinated convertible notes, together with associated accrued interest of
$6.8 million, converted into 10,786,504 shares of Series A convertible
preferred stock and 16,179,755 shares of Class A common stock. Additionally,
the $21.4 million and $81.7 million of convertible notes issued to American
Mobile, together with associated accrued interest of $3.8 million, converted
into 11,182,926 shares of 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,
yielding net proceeds of $132.2 million, a concurrent offering of 2,000,000
shares of our Series B convertible redeemable preferred stock, which yielded
net proceeds of $96.3 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 $191.0 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
. 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.
22
<PAGE>
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Research and Development. Research and development expenses decreased to
$4.3 million in 1999, compared with $6.9 million in 1998. The decrease in
research and development expenses resulted from the completion of the
development of some of our system technology during 1998.
Professional Fees. Professional fees increased to approximately $10.0
million in 1999, compared with $5.2 million in 1998. The increase primarily
reflects additional legal, regulatory and marketing expenses.
General and Administrative. General and administrative expenses increased to
$16.4 million in 1999, compared with $4.0 million in 1998. The increase
primarily reflects increased headcount and facility expenses to begin program
management and operations. We also commenced the amortization of our goodwill
and intangibles resulting from American Mobile's acquisition of a former
investor's interest in us during 1999. We have granted certain key executives
stock options and incurred a non-cash compensation charge of approximately $4.1
million in the fourth quarter of 1999 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.
Interest Income. Interest income increased to $2.9 million in 1999, compared
with 1998, which was insignificant. The increase was the result of higher
average balances of cash and short-term investments during 1999 due to the
proceeds from the issuance of Series A convertible notes in the third quarter
of 1999 exceeding the amounts of expenditures for satellite and launch vehicle
construction, other capital expenditures and operating expenses.
Interest Expense. As of December 31, 1999 and 1998, we owed $0 and $140.2
million, respectively, including accrued interest, under various debt
agreements which we entered into for the purpose of financing the XM Radio
system. Our capitalized interest costs were $15.3 million and $11.8 million
associated with our FCC license and the XM Radio system during 1999 and 1998,
respectively. We expensed interest costs of $9.1 million and $0 during 1999 and
1998, respectively. We incurred a one-time $5.5 million charge to interest due
to the beneficial conversion feature of the new American Mobile note. We also
exceeded our interest capitalization threshold by $3.6 million.
Net Loss. The net loss for 1999 and 1998 was $36.9 million and $16.2
million, respectively. The increase in net losses for 1999, compared with 1998,
primarily reflects an increase in net interest expense as discussed above and
additional general and administration expenses, primarily due to increased
headcount and facility expenses, in preparation for commercial operations and
the commencement of amortization of goodwill and intangibles.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Research and Development. Research and development expenses amounted to
approximately $6.9 million for the year ended December 31, 1998. Research and
development expenses for the year ended December 31, 1997 were insignificant.
The increase in research and development expenses resulted from the development
of some of our system technology during 1998.
Professional Fees. Professional fees increased to approximately $5.2 million
for the year ended December 31, 1998, compared with $1.1 million for the year
ended December 31, 1997. The increase primarily reflects legal, regulatory and
marketing expenses.
General and Administrative. General and administrative expenses increased to
$4.0 million for the year ended December 31, 1998, compared with $20,000 for
the year ended December 31, 1997. The increase primarily reflects increased
headcount and facility expenses to begin program management and operations.
Interest Expense. As of December 31, 1998 and 1997, we owed $140.2 million
and $82.5 million, respectively, including accrued interest, under various debt
agreements which we entered into for the purpose of
23
<PAGE>
financing the XM Radio system. We capitalized interest costs of $11.8 million
and $1.9 million associated with our FCC license and the XM Radio system during
the year ended December 31, 1998 and 1997, respectively. We expensed interest
costs of $0.5 million during the year ended December 31, 1997.
Net Loss. The net loss for the years ended December 31, 1998 and 1997 was
$16.2 million and $1.7 million, respectively, primarily reflecting research and
development activities, professional fees and general and administrative
expenses.
Liquidity and Capital Resources
At December 31, 1999, we had a total of cash, cash equivalents and short-
term investments of $120.2 million and working capital of $94.7 million,
compared with cash and cash equivalents of $0.3 million and working capital of
$(130.3) million at December 31, 1998. The increases in the respective balances
are due primarily to the proceeds from the issuance of Series A subordinated
convertible notes in July 1999 (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Funds Required for XM Radio
Through Commencement of Commercial Operations--Sources of Funds") exceeding
capital expenditures and operating expenses for 1999, which was off-set by a
$75 million payment to retire loans payable, and the conversion of current
loans payable to a former shareholder into the non-current American Mobile new
convertible note. In October 1999, we successfully completed an initial public
offering, which raised $114.1 million in net proceeds, and converted the Series
A subordinated convertible notes into Series A convertible preferred stock and
Class A common stock.
Funds Required for XM Radio Through Commencement of Commercial Operations
We estimate that we will require approximately $1.1 billion to develop and
implement the XM Radio system from our inception through the commencement of
commercial operations, which we are targeting for the second quarter of 2001.
We will have raised an aggregate of $865.0 million since our inception net of
expenses, interest reserve and repayment of debt. We will require substantial
additional funding, approximately $235.0 million, to finish building the XM
Radio system, to provide working capital and fund operating losses until we
commence commercial operations. The funds raised to date are expected to be
sufficient in the absence of additional financing to cover our funding needs
into the third quarter of 2000.
We currently expect to satisfy our funding requirements by selling debt or
equity securities and by obtaining loans or other credit lines from banks or
other financial institutions. In addition, we plan to raise funds through
vendor financing arrangements associated with our terrestrial repeater project.
If we are successful in raising additional financing, we anticipate that a
significant portion of future 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. Often, high yield debt
securities are issued as part of units with warrants to purchase common stock.
If warrants were issued in any debt placement by us, the amount of common stock
that may be purchased and the price at which stock would be purchased under the
warrants would depend upon market conditions at that time.
American Mobile is our controlling stockholder. American Mobile 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 Holdings, or
50.5% giving effect to the conversion of all of Holdings' outstanding common
stock equivalents. American Mobile 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 American Mobile, we will only be 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. Certain holders of our nonvoting
securities have agreed not to convert their securities if it would cause
American Mobile not to hold a majority of our voting stock or a lesser
percentage approved by the FCC, until we obtain approval by the FCC of a change
in control. In return, Holdings has agreed not to issue new voting securities,
other than the units issued on March 15, 2000 and other than up to 2,000,000
shares of Class A common stock (except upon conversion or exercise of existing
securities or under our employee stock plans), if it would make these holders
unable to convert any of their non-voting securities. We intend to seek
appropriate FCC approvals in the near future. We may not be able to obtain FCC
24
<PAGE>
approval or it may take a long period of time to obtain such approval and
there may be conditions imposed in connection with such approval which may be
unfavorable to us. The inability to raise capital opportunistically, or at
all, could adversely affect our business plan.
We may not be able to raise any funds or obtain loans on favorable terms or
at all. Our ability to obtain the required financing depends on several
factors, including future market conditions; our success or lack of success in
developing, implementing and marketing our satellite radio service; our future
creditworthiness; and restrictions contained in agreements with our investors
or lenders. If we fail to obtain any necessary financing on a timely basis, a
number of adverse effects could occur. Our satellite construction and launch
and other events necessary to our business could be materially delayed or
their costs could materially increase. We could default on our commitments to
our satellite construction or launch contractors, creditors or others, leading
to termination of construction or inability to launch our satellites. Finally,
we may not be able to launch our satellite radio service as planned and may
have to discontinue operations or seek a purchaser for our business or assets.
Our expected sources and uses of funds through commencement of commercial
operations are as follows:
Inception Through Commercial Launch
(in millions)
Sources of Funds
<TABLE>
<S> <C>
Total funds raised to date.......................................... $ 865.0
Future capital requirements......................................... 235.0
--------
Total sources..................................................... $1,100.0
========
Uses of Funds
Satellites and launch............................................... $ 472.6
Launch insurance.................................................... 50.0
Terrestrial repeater system......................................... 263.3
Ground segment...................................................... 65.9
--------
Total system...................................................... 851.8
FCC license......................................................... 90.0
Operating expenses and working capital requirements................. 158.2
--------
Total uses........................................................ $1,100.0
========
</TABLE>
The sources and uses chart for inception through commercial launch assumes
that we will commence full commercial operations in the second quarter of 2001
and does not include net interest income or expense of any future offerings or
other financings. We anticipate that we will need substantial further funding
after commencement of operations to cover our cash requirements before we
generate positive cash flow from operations. Many factors, including our
ability to generate significant revenues, could affect this estimate. See
"Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Total funds raised to date in the chart above include proceeds of
. $9.2 million in equity contributions and an additional $157.8 million in
equity from converted debt instruments funded by American Mobile and by
a former investor who sold its investment to American Mobile.
. $238.7 million in net proceeds from convertible notes which were
converted to Class A common stock and Series A convertible preferred
stock on October 8, 1999 as a result of our initial public offering. $75
million of these proceeds were used to repay outstanding debt.
. $114.1 million in net proceeds from our initial public offering.
. $132.2 million in net proceeds from a Class A common stock offering in
the first quarter of 2000.
25
<PAGE>
. $96.3 million in net proceeds from a Series B convertible preferred
stock offering in the first quarter of 2000.
. $191.0 million in net proceeds from a private placement on March 15,
2000, of 325,000 units, each unit 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, excluding
$123.0 million for an interest reserve.
. $0.4 million in proceeds from the sale of stock under the employee stock
purchase plan and the exercise of stock options.
The use of funds for satellites and launch in the chart above includes
$472.6 million for satellites, launch and long-lead items, including certain
financing costs associated with the satellites, and for an option to complete
the ground spare satellite under our satellite contract with Hughes. As of
December 31, 1999, $183.9 million has been paid under the satellite contract.
The anticipated $65.9 million in costs for ground segment are intended to
cover the satellite control facilities, programming production studios and
various other equipment and facilities. As of December 31, 1999, we had
incurred 7.6 million in costs in deploying the ground segment.
Other operating expenses and working capital requirements in the chart above
include cumulative historical operating losses through December 31, 1999 of
$54.7 million.
Sources of Funds. To date, we have raised approximately $865.0 million of
equity proceeds, net of expenses, interest reserve and repayment of debt. These
funds have been used to acquire our FCC license, make required payments under
our satellite contract with Hughes, and for working capital and operating
expenses. Of the $865.0 million raised to date, approximately $167.0 million,
excluding the Class A common stock acquired as part of our initial public
offering, has been raised through the issuance of equity to, and receipt of
loans from, our current stockholder, American Mobile, and a former stockholder.
Of this amount, approximately $90.7 million and $46.0 million was raised in
1997 and 1998, respectively, and $30.3 million was raised in January 1999.
In July 1999, we issued $250.0 million of Series A subordinated convertible
notes to six strategic and financial investors--General Motors, $50.0 million;
Clear Channel Communications, $75.0 million; DIRECTV, $50.0 million; and
Columbia Capital, Telcom Ventures, L.L.C. and Madison Dearborn Partners, $75.0
million in the aggregate. Using part of the proceeds from the issuance of the
Series A subordinated convertible notes, we paid a former stockholder $75.0
million in July 1999 to redeem an outstanding loan. We incurred fees and
expenses totalling $11.3 million in connection with these transactions.
In October 1999, we raised $114.1 million from the issuance of 10.2 million
shares of Class A common stock at a price of $12 per share less $8.8 million in
underwriting discounts and commissions and estimated expenses. The Series A
convertible notes, together with related accrued interest, automatically
converted into 16,179,755 shares of our Class A common stock and 10,786,504
shares of our Series A preferred stock. Also, the American Mobile notes,
together with related accrued interest, automatically converted into 11,182,926
shares of our Class B common stock. As a result of these transactions,
substantially all of our indebtedness converted into equity.
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 $132.2 million. At the
same time, we completed an offering of 2,000,000 shares of our Series B
convertible redeemable preferred stock, which yielded net proceeds of $96.3
million. We also completed a private placement on March 15, 2000 of 325,000
units, each unit 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 $191.0 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 our
inception to December 31, 1999, totaled $295.5 million.
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<PAGE>
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 December 31, 1999, we had paid approximately $183.9
million under our satellite contract and recognized an additional $15.5 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 an aggregate of approximately $50.0
million. As of December 31, 1999, we had not incurred any costs with respect to
launch insurance.
Terrestrial Repeater System. Based on the current design of the XM Radio
system and preliminary bids, we estimate that through our expected commencement
of operations in the second quarter of 2001 we will incur aggregate costs of
approximately $263.3 million for a terrestrial repeater system. We expect these
costs to cover the capital cost of the design, development and installation of
a system of terrestrial repeaters to cover approximately 70 cities and
metropolitan areas. As of December 31, 1999, we had incurred costs with respect
to the terrestrial repeater buildout of $10.1 million which we paid. In August
1999, we signed a contract calling for payments of approximately $115.0 million
for engineering and site preparation. We 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 December 31,
1999, we have paid $3.5 million under this contract.
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 December 31, 1999, we
had incurred $5.6 million in costs with respect to the ground segment.
FCC License. In October 1997, we received one of two satellite radio
licenses issued by the FCC. We have paid approximately $90.0 million for this
license, including the initial bid right. No additional payments have been made
relating to the license.
Operating Expenses and Working Capital Requirements. In addition to the
above capital needs, we will require funds for working capital, operating
expenses and royalty payments currently estimated to be approximately $158.2
million through our targeted commercial launch in the second quarter of 2001.
From our inception through December 31, 1999, we have incurred total expenses
of $36.9 million. Total cash used in operating activities was $18.8 million.
The difference between the loss incurred to date and cash used in operations is
principally due to a $5.5 million beneficial conversion charge, $12.5 million
in amounts due to related parties and $3.6 million in accrued interest.
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 XM or Sirius Radio or the size of the credits to XM and
Sirius Radio from the use of their technology. This may require significant
additional capital.
27
<PAGE>
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.
Year 2000 Readiness
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Many such systems will
need to accept four-digit entries in order to distinguish 20th century dates
from 21st century dates. As a result, by the end of 1999, computer systems and
software used by many companies have been upgraded to comply with these Year
2000 requirements. Otherwise these systems may cause miscalculations that will
interfere with business activities or simply fail to work. When we use the
terms "Year 2000 Ready" or "Year 2000 Readiness," we mean that customers will
not experience any material difference in performance and functionality of our
networks as a result of the date being prior to, during or after the Year 2000.
We began to assess our Year 2000 Readiness in mid-1998. We have completed
the identification, necessary modification and testing of all our current
systems, which we believe are Year 2000 compliant. This required no significant
expense. Because we are a development stage company and do not expect to
commence commercial operations until the second quarter of 2001, as of the date
of this report, we have not experienced and do not expect any significant
operational or financial problems for our company as a result of Year 2000
issues. Our existing technology development contracts require Year 2000
Readiness, and we require Year 2000 Readiness in all new contracts that we
enter.
In addition to our internal review process, we have had communications with
certain significant third parties with which we do business to
. evaluate their Year 2000 Readiness and state of compliance; and
28
<PAGE>
. determine the extent to which our systems may be affected if they fail
to remediate their own Year 2000 issues.
To date, we have not identified any system which demonstrates symptoms of
not being Year 2000 Ready or for which a suitable alternative cannot be
implemented.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1999, we do not have any derivative financial instruments
and do not intend to use derivatives. We invest our cash in short-term
commercial paper and investment-grade corporate and government obligations and
money market funds. All of our indebtedness was automatically converted into
equity upon completion of our initial public offering. As a result, we believe
that our exposure to interest rate risk is not material to our results of
operations.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of XM Satellite Radio Holdings Inc.,
including our consolidated balance sheets as of December 31, 1998 and 1999, and
consolidated statements of operations, consolidated statements of cash flows,
and consolidated statements of stockholders' equity (deficit) for the three-
year period ended December 31, 1999, and for the period from December 15, 1992
(date of inception) to December 31, 1999 and notes to the consolidated
financial statements, together with a report thereon of KPMG LLP, dated
February 16, 2000, except for Note 14 which is as of March 15, 2000, are
attached hereto as pages F-1 through F-25.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information is incorporated herein by reference to our definitive 2000
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information is incorporated herein by reference to our definitive 2000
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information is incorporated herein by reference to our definitive 2000
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information is incorporated herein by reference to our definitive 2000
Proxy Statement.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1)The following Consolidated Financial Statements of and report of
independent public accountants are included in Item 8 of this Form 10-K:
Report of Independent Auditors.
Consolidated Balance Sheets as of December 31, 1998 and 1999.
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999, and for the period from December 15, 1992 (date of
inception) to December 31, 1999.
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1997, 1998 and 1999, and for the period from December 15,
1992 (date of inception) to December 31, 1999.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999, and for the period from December 15, 1992 (date of
inception) to December 31, 1999.
Notes to Consolidated Financial Statements.
(a)(2)The following consolidated financial statement schedule is filed as part
of this report and is attached hereto as page S-1:
Schedule I--Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulations of the Commission either have been included in the Consolidated
Financial Statements of XM Satellite Radio Holdings Inc. or the notes thereto,
are not required under the related instructions or are inapplicable, and
therefore have been omitted.
(a)(3)The following exhibits are either provided with this Form 10-K or are
incorporated herein by reference:
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
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.
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.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
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.
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.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
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.
21.1++ Subsidiaries of XM Satellite Radio Holdings Inc.
23.1 Consent of KPMG LLP.
27.1 Financial Data Schedule.
</TABLE>
- --------
+ 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.
* 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 246-2 under the Securities
Exchange Act of 1934.
(b)Reports on Form 8-K.
On February 25, 2000, the Company filed a Current Report on Form 8-K that
contained audited, consolidated financial statements substantially the
same as those contained herein. 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.
XM Satellite Radio Holdings Inc. hereby files as part of this Form 10-K
the Exhibits listed in the Index to Exhibits.
(d)Consolidated Financial Statement Schedule.
The following consolidated financial statement schedule is filed
herewith:
Schedule I--Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because they are
inapplicable or the information required to be set forth therein is
provided in the Consolidated Financial Statements of XM Satellite Radio
Holdings Inc. or notes thereto.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized in the District of
Columbia, on the 16th day of March, 2000.
XM Satellite Radio Holdings Inc.
By: /s/ Hugh Panero
----------------------------------
Name: Hugh Panero
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Hugh Panero President Chief Executive March 16, 2000
______________________________________ Officer, and Director
Hugh Panero (Principal Executive
Officer)
/s/ Heinz Stubblefield Senior Vice President and March 16, 2000
______________________________________ Chief Financial Officer
Heinz Stubblefield (Principal Financial and
Accounting Officer)
/s/ Gary M. Parsons Chairman of the Board of March 16, 2000
______________________________________ Directors
Gary M. Parsons
/s/ Nathaniel A. Davis Director March 16, 2000
______________________________________
Nathaniel A. Davis
/s/ Thomas J. Donohue Director March 16, 2000
______________________________________
Thomas J. Donohue
/s/ Randall T. Mays Director March 16, 2000
______________________________________
Randall T. Mays
/s/ Randy S. Segal Director March 16, 2000
______________________________________
Randy S. Segal
/s/ Ronald L. Zarrella Director March 16, 2000
______________________________________
Ronald L. Zarrella
</TABLE>
34
<PAGE>
Independent Auditors' Report on Consolidated Financial Statement Schedule
The Board of Directors
XM Satellite Radio Holdings Inc. and Subsidiaries:
Under date of February 16, 2000, except for Note 14 which is as of March 15,
2000, we reported on the consolidated balance sheets of XM Satellite Radio
Holdings Inc. and Subsidiaries (a development stage company) as of December 31,
1998 and 1999, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1999 and for the period from December 15,
1992 (date of inception) to December 31, 1999, which are included in this
Annual Report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule. This consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this consolidated financial statement schedule based on
our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
The audit report on the consolidated financial statements of XM Satellite
Radio Holdings Inc. and Subsidiaries referred to above contains an explanatory
paragraph that states that the Company has not commenced operations and is
dependent upon additional debt or equity financing, which raises substantial
doubt about its ability to continue as a going concern. The consolidated
financial statement schedule included in the registration statement does not
include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
McLean, VA
February 16, 2000, except
for Note 14, which is
as of March 15, 2000
S-1
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions (Deductions)
--------- ----------------------------------------------------
Charged to Charged to Write-Offs/
Balance Costs and Other Accounts -- Payments/ Balance
Description January 1 Expenses Describe Other December 31
----------- --------- ---------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1997
Deferred Tax Assets--
Valuation allowance... $ -- 746 -- -- 746
Year Ended December 31,
1998
Deferred Tax Assets--
Valuation allowance... $ 746 7,232 -- -- 7,978
Year Ended December 31,
1999
Deferred Tax Assets--
Valuation allowance... $7,978 (3,159) -- -- 4,819
</TABLE>
S-2
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................ F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)................... F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
XM Satellite Radio Holdings Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of XM Satellite
Radio Holdings Inc. and subsidiaries (a development stage company) as of
December 31, 1998 and 1999, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1999, and for the period from
December 15, 1992 (date of inception) to December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of XM
Satellite Radio Holdings Inc. and subsidiaries (a development stage company) as
of December 31, 1998 and 1999, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1999 and for the period from December 15, 1992 (date of inception) to December
31, 1999, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
note 11 to the consolidated financial statements, the Company has not commenced
operations and is dependent upon additional debt or equity financing, which
raises substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters is also described in note 11. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ KPMG LLP
McLean, VA
February 16, 2000, except
for Note 14, which is
as of March 15, 2000
F-2
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
---------- ----------
(in thousands, except
share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 310 $ 50,698
Short-term investments................................. -- 69,472
Prepaid and other current assets....................... 172 1,077
---------- ----------
Total current assets................................. 482 121,247
Other assets:
System under construction.............................. 169,029 362,358
Property and equipment, net of accumulated depreciation
and amortization of $57 and $347...................... 449 2,551
Goodwill and intangibles, net of accumulated
amortization of $0 and $1,220......................... -- 25,380
Other assets........................................... 525 3,653
---------- ----------
Total assets......................................... $ 170,485 $ 515,189
---------- ----------
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................... $ 23,125 $ 23,338
Accrued expenses......................................... 444 1,514
Due to related parties................................... 13,767 62
Accrued interest on loans payable........................ 1,907 --
Loans payable due to related parties..................... 91,546 --
Royalty payable.......................................... -- 1,646
Term loan................................................ 34 --
-------- --------
Total current liabilities.............................. 130,823 26,560
Term loan, net of current portion.......................... 53 --
Subordinated convertible notes payable due to related
party..................................................... 45,583 --
Accrued interest on subordinated convertible notes payable
due to related party...................................... 1,209 --
Royalty payable, net of current portion.................... -- 3,400
Capital lease, net of current portion...................... -- 212
-------- --------
Total liabilities...................................... 177,668 30,172
-------- --------
Stockholders' equity (deficit):
Preferred stock, par value $0.01; 60,000,000 shares
authorized, 15,000,000 shares designated Series A, no
shares and 10,786,504 issued and outstanding at December
31, 1998 and 1999....................................... -- 108
Class A common stock, par value $0.01; 180,000,000 shares
authorized, no and 26,465,333 shares issued and
outstanding at December 31, 1998 and 1999............... -- 265
Class B common stock, par value $0.01; 30,000,000 shares
authorized, 125 (6,689,250 post split) and 17,872,176
shares issued and outstanding at........................ -- 179
December 31, 1998 and 1999
Class C common stock, par value $0.01; 30,000,000 shares
authorized, no shares issued and outstanding at
December 31, 1998 and 1999............................. -- --
Additional paid-in capital............................... 10,643 539,187
Deficit accumulated during development stage............. (17,826) (54,722)
-------- --------
Total stockholders' equity (deficit)................... (7,183) 485,017
-------- --------
Commitments and contingencies (notes 11 and 12)
Total liabilities and stockholders' equity (deficit)... $170,485 $515,189
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1997, 1998 and 1999, and for the period from
December 15, 1992 (date of inception) to December 31, 1999
<TABLE>
<CAPTION>
December 15, 1992
(date of inception)
1997 1998 1999 to December 31, 1999
--------- --------- ----------- --------------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Revenue................. $ -- $ -- $ -- $ --
--------- --------- ----------- --------
Operating expenses:
Research and
development.......... -- 6,941 4,274 11,215
Professional fees..... 1,090 5,242 9,969 16,301
General and
administrative....... 20 4,010 16,448 20,478
--------- --------- ----------- --------
Total operating
expenses........... 1,110 16,193 30,691 47,994
--------- --------- ----------- --------
Operating loss...... (1,110) (16,193) (30,691) (47,994)
Other income (expense):
Interest income....... -- 26 2,916 2,942
Interest expense...... (549) -- (9,121) (9,670)
--------- --------- ----------- --------
Net loss............ $ (1,659) $ (16,167) $ (36,896) $(54,722)
========= ========= =========== ========
Net loss per share:
Basic and diluted..... $ (0.26) $ (2.42) $ (2.40)
========= ========= ===========
Weighted average shares
used in computing net
loss per share-basic
and diluted............ 6,368,166 6,689,250 $15,344,102
========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1997, 1998 and 1999, and for the period from
December 15, 1992 (date of inception) to December 31, 1999
<TABLE>
<CAPTION>
Deficit
Series A Class A Class B Class C Accumulated
Preferred Stock Common Stock Common Stock Common Stock Additional During Total
----------------- ----------------- ----------------- ------------- Paid-in Development Stockholders'
Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity (Deficit)
---------- ------ ---------- ------ ---------- ------ ------ ------ ---------- ----------- ----------------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock
(December 15,
1992)........... -- $ -- -- $ -- 100 $ -- -- $-- $ -- $ -- $ --
---------- ---- ---------- ---- ---------- ---- --- --- -------- -------- --------
Balance at
December 31,
1992............ -- -- -- -- 100 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ---------- ---- --- --- -------- -------- --------
Balance at
December 31,
1993............ -- -- -- -- 100 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ---------- ---- --- --- -------- -------- --------
Balance at
December 31,
1994............ -- -- -- -- 100 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ---------- ---- --- --- -------- -------- --------
Balance at
December 31,
1995............ -- -- -- -- 100 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ---------- ---- --- --- -------- -------- --------
Balance at
December 31,
1996............ -- -- -- -- 100 -- -- -- -- -- --
Contributions to
paid-in
capital......... -- -- -- -- -- -- -- -- 143 -- 143
Issuance of
common stock and
capital
contributions... -- -- -- -- 25 -- -- -- 9,000 -- 9,000
Issuance of
options......... -- -- -- -- -- -- -- -- 1,500 -- 1,500
Net loss........ -- -- -- -- -- -- -- -- -- (1,659) (1,659)
---------- ---- ---------- ---- ---------- ---- --- --- -------- -------- --------
Balance at
December 31,
1997............ -- -- -- -- 125 -- -- -- 10,643 (1,659) 8,984
Net loss........ -- -- -- -- -- -- -- -- -- (16,167) (16,167)
---------- ---- ---------- ---- ---------- ---- --- --- -------- -------- --------
Balance at
December 31,
1998............ -- -- -- -- 125 -- -- -- 10,643 (17,826) (7,183)
53,514-for-one
stock split..... -- -- -- -- 6,689,125 67 -- -- (67) -- --
Initial public
offering........ -- -- 10,241,000 102 -- -- -- -- 114,032 -- 114,134
Conversion of
Series A
convertible
debt............ 10,786,504 108 16,179,755 162 -- -- -- -- 246,079 -- 246,349
Conversion of
subordinated
convertible
notes payable to
related party... -- -- -- -- 11,182,926 112 -- -- 106,843 -- 106,955
Issuance of
shares to key
executive....... -- -- 14,716 -- -- -- -- -- 140 -- 140
Issuance of
shares through
exercise of
stock options... -- -- 1,071 -- -- -- -- -- 10 -- 10
Issuance of
shares through
the employee
stock purchase
plan............ -- -- 28,791 1 -- -- -- -- 293 -- 294
Increase in FCC
license,
goodwill and
intangibles from
WorldSpace
Transaction..... -- -- -- -- -- -- -- -- 51,624 -- 51,624
Charge for
beneficial
conversion
feature of note
issued to
Parent.......... -- -- -- -- -- -- -- -- 5,520 -- 5,520
Non-cash stock
compensation.... -- -- -- -- -- -- -- -- 4,070 -- 4,070
Net loss........ -- -- -- -- -- -- -- -- -- (36,896) (36,896)
---------- ---- ---------- ---- ---------- ---- --- --- -------- -------- --------
Balance at
December 31,
1999............ 10,786,504 $108 26,465,333 $265 17,872,176 $179 -- $-- $539,187 $(54,722) $485,017
========== ==== ========== ==== ========== ==== === === ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1998 and 1999, and for the period from
December 15, 1992 (date of inception) to December 31, 1999
<TABLE>
<CAPTION>
December 15, 1992
(date of
inception) to
1997 1998 1999 December 31, 1999
-------- -------- --------- -----------------
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $ (1,659) $(16,167) $ (36,896) $ (54,722)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............... 33 57 1,987 2,077
Non-cash stock
compensation............... -- -- 4,210 4,210
Non-cash charge for
beneficial conversion
feature of note issued to
Parent..................... -- -- 5,520 5,520
Changes in operating assets
and liabilities:
Increase in prepaid and
other current assets...... -- (212) (905) (1,117)
Decrease in other assets... -- -- 43 43
Increase in accounts
payable and accrued
expenses.................. -- 1,701 7,519 9,220
Increase (decrease) in
amounts due to related
parties................... 445 13,322 (1,316) 12,451
Increase (decrease) in
accrued interest.......... 517 (2) 3,053 3,568
-------- -------- --------- ---------
Net cash used in operating
activities............... (664) (1,301) (16,785) (18,750)
-------- -------- --------- ---------
Cash flows from investing
activities:
Purchase of property and
equipment................... -- (506) (2,008) (2,514)
Additions to system under
construction................ (90,031) (43,406) (159,510) (292,947)
Purchase of short-term
investments................. -- -- (69,472) (69,472)
Other investing activities... -- -- (3,422) (3,422)
-------- -------- --------- ---------
Net cash used in investing
activities............... (90,031) (43,912) (234,412) (368,355)
-------- -------- --------- ---------
Cash flows from financing
activities:
Proceeds from sale of common
stock and capital
contribution................ 9,143 -- 114,428 123,571
Proceeds from issuance of
loan payable to related
party....................... 80,053 337 -- 80,390
Proceeds from issuance of
options..................... 1,500 -- -- 1,500
Proceeds from issuance of
subordinated convertible
notes to related parties.... -- 45,583 22,966 68,549
Proceeds from issuance of
convertible notes........... -- -- 250,000 250,000
Repayment of loan payable.... -- -- (75,000) (75,000)
Payments for deferred
financing costs............. -- (393) (10,725) (11,118)
Other investing activities... -- (5) (84) (89)
-------- -------- --------- ---------
Net cash provided by
financing activities..... 90,696 45,522 301,585 437,803
-------- -------- --------- ---------
Net increase in cash and cash
equivalents.................. 1 309 50,388 50,698
Cash and cash equivalents at
beginning of period.......... -- 1 310 --
-------- -------- --------- ---------
Cash and cash equivalents at
end of period................ $ 1 $ 310 $ 50,698 $ 50,698
======== ======== ========= =========
</TABLE>
(Continued)
F-6
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Years ended December 31, 1997, 1998 and 1999, and for the period from
December 15, 1992 (date of inception) to December 31, 1999
<TABLE>
<CAPTION>
December 15, 1992
(date of
inception) to
1997 1998 1999 December 31, 1999
------ ------- -------- -----------------
(in thousands)
<S> <C> <C> <C> <C>
Supplemental cash flow disclosure:
Increase in FCC license, goodwill
and intangibles from WorldSpace
Transaction........................ $ -- $ -- $ 51,624 $ 51,624
Liabilities exchanged for new
convertible note to Parent......... -- -- 81,676 81,676
Non-cash interest capitalized....... 1,901 11,824 15,162 28,887
Interest converted into principal
note balance....................... 501 9,157 4,601 14,259
Accrued expenses transferred to loan
balance............................ -- -- 7,405 7,405
Accrued system milestone payments... -- 21,867 15,500 15,500
Property acquired through capital
leases............................. -- -- 470 470
Conversion of debt to equity........ -- -- 353,315 353,315
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the period from December 15, 1992 (date of inception) to December 31, 1999
(1) Summary of Significant Accounting Policies and Practices
(a) Nature of Business
XM Satellite Radio Inc. ("XMSR"), formerly American Mobile Radio
Corporation, was incorporated on December 15, 1992 in the State of Delaware as
a wholly owned subsidiary of American Mobile Satellite Corporation ("AMSC" or
"Parent") 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 AMSC, XMSR and WorldSpace, Inc. ("WSI"), WSI
acquired a 20 percent interest in XMSR.
On May 16, 1997, AMSC and WSI formed XM Satellite Radio Holdings Inc. (the
"Company"), formerly AMRC Holdings Inc., as a holding company for XMSR in
connection with the construction, launch and operation of a domestic
communications satellite system for the provision of DARS. AMSC and WSI
exchanged their respective interests in XMSR for equivalent interests in the
Company, which had no assets, liabilities or operations prior to the
transaction.
On July 7, 1999, AMSC acquired WSI's 20 percent interest in the Company,
which is discussed in note 4.
(b) Principles of Consolidation and Basis of Presentation
The 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.
As discussed in Note 6, on September 9, 1999, the Company effected a
53,514-for-1 stock split. The effect of the stock split has been reflected as
of December 31, 1999 in the consolidated balance sheet and consolidated
statement of stockholders' equity (deficit); however, the activity in prior
periods was not restated in those statements. All references to the number of
common shares and per share amounts in the consolidated financial statements
and notes thereto have been restated to reflect the effect of the split for
all periods presented.
(c) Cash and Cash Equivalents
The Company considers short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents. The Company
had the following cash and cash equivalents balances (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
---- -------
<S> <C> <C>
Cash on deposit.............................................. $ 28 $ 66
Money market funds........................................... 282 10,620
Commercial paper............................................. -- 40,012
---- -------
$310 $50,698
==== =======
</TABLE>
F-8
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
(d) Short-term Investments
The Company holds commercial paper with maturity dates of less than one year
that is stated at amortized cost, which approximates fair value.
(e) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization is calculated using the straight-
line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture, fixtures and computer equipment................ 3 years
Machinery and equipment................................... 7 years
Leasehold improvements.................................... Remaining lease
</TABLE>
(f) System Under Construction
The Company is currently developing its satellite system. Costs related to
the project are being capitalized to the extent that they have future benefits.
As of December 31, 1999, all amounts recorded as system under construction
relate to costs incurred in obtaining a Federal Communications Commission
("FCC") license and approval as well as the system development. The FCC license
will be amortized using the straight line method over an estimated useful life
of fifteen years. Amortization of the license will begin on commercial launch.
Depreciation of the Company's satellites will commence upon in-orbit delivery.
Depreciation of the Company's ground stations will commence upon commercial
launch. The satellites and the ground stations will be depreciated over their
estimated useful lives.
On October 16, 1997, the FCC granted XMSR a license to launch and operate
two geostationary satellites for the purpose of providing DARS in the United
States in the 2332.5-2345 Mhz (space-to-earth) frequency band, subject to
achieving certain technical milestones and international regulatory
requirements. The license is valid for eight years upon successful launch and
orbital insertion of the satellites. The Company's license requires that it
comply with a construction and launch schedule specified by the FCC for each of
the two authorized satellites. The FCC has the authority to revoke the
authorizations and in connection with such revocation could exercise its
authority to rescind the Company's license. The Company believes that the
exercise of such authority to rescind the license is unlikely.
System under construction consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
License................................................ $ 90,031 $115,055
Satellite system....................................... 63,273 204,083
Terrestrial system..................................... -- 6,578
Spacecraft control facilities.......................... 2,000 2,000
Broadcast facilities and other......................... -- 5,574
Capitalized interest................................... 13,725 29,068
-------- --------
$169,029 $362,358
======== ========
</TABLE>
F-9
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
The Company's policy is to review its long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(g)Goodwill and Intangible Assets
Goodwill and intangible assets, which represents the excess of purchase
price over fair value of net assets acquired, is amortized on a straight-line
basis over the expected periods to be benefited, generally 15 years. The
Company assesses the recoverability of its intangible assets by determining
whether the amortization of the goodwill and intangible assets balance over its
remaining life can be recovered through undiscounted future operating cash
flows. The amount of goodwill and intangible assets impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment of
the recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
(h)Stock-Based Compensation
The Company accounts for stock-based compensation arrangements in accordance
with the provisions of Accounting Principle Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related interpretations,
and complies with the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. Under APB 25, compensation expense is based upon the
difference, if any, on the date of grant, between the fair value of the
Company's stock and the exercise price. All stock-based awards to non-employees
are accounted for at their fair value in accordance with SFAS No. 123.
(i) Research and Development
Research and development costs are expensed as incurred.
(j) 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 computer 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.
(k) Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and the financial reporting amounts at each year-end, based on
enacted tax laws
F-10
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the sum of tax payable for the period and the change
during the period in deferred tax assets and liabilities.
(l) Comprehensive Income
In December 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income (SFAS 130). This statement establishes standards for reporting and
displaying comprehensive income and its components in the financial statements.
This statement is effective for all interim and annual periods with the year
ended December 31, 1998. The Company has evaluated the provisions of SFAS 130
and has determined that there were no transactions that have taken place during
the years ended December 31, 1997, 1998 and 1999 that would be classified as
other comprehensive income.
(m) Accounting Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of expenses
during the reporting period. The estimates involve judgments with respect to,
among other things, various future factors which are difficult to predict and
are beyond the control of the Company. Significant estimates include valuation
of the Company's investment in the DARS license, goodwill and intangible
assets, and the valuation allowances against deferred tax assets. Accordingly,
actual amounts could differ from these estimates.
(n)Reclassifications
Certain fiscal year 1997 and 1998 amounts have been reclassified to conform
to the fiscal 1999 consolidated financial statement presentation.
(o)Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The new standard
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. This statement, as amended, is effective for all fiscal
quarters beginning after June 15, 2000. The Company does not expect SFAS No.
133 to have a material affect on its financial position or results of
operations.
(2) Related Party Transactions
The Company had related party transactions with the following shareholders:
(a)AMSC
In 1997, AMSC contributed $143,000 for the Company to establish the original
application for the FCC license. On March 28, 1997, the Company received
$1,500,000 as a capital contribution from AMSC. During 1998 and 1999, AMSC
incurred general and administrative costs and professional fees for the Company
and established an intercompany balance of $458,000 and $62,000, respectively,
(see note 3). Effective January 15, 1999, the Company issued a convertible note
maturing on September 30, 2006 to AMSC for $21,419,000. (See note 4(d)).
F-11
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
(b)WSI
On March 28, 1997, the Company received $1,500,000 as a capital contribution
from WSI. The Company issued WSI 25 (6,689,250 post split) shares of common
stock for this consideration.
On April 16, 1997, the Company received $15,000,000 from WSI, which
represented $6,000,000 as an additional capital contribution and $9,000,000 as
a six-month bridge loan (see note 4).
On May 16, 1997, the Company obtained a $1,000,000 working capital loan
facility from WSI. During 1997, the Company drew down $663,000 against the
facility with the remaining $337,000 drawn in 1998 (see note 4).
On October 16, 1997, the Company received $71,911,000 from WSI, which
represented an additional $13,522,000 under the bridge loan and $58,389,000
under the additional amounts loan (see note 4).
On April 1, 1998, the Company entered into an agreement with WSI to issue
$54,536,000 in subordinated convertible notes. During 1998 and 1999, the
Company drew down $45,583,000 and $8,953,000, respectively, under the agreement
(see note 4).
As discussed in note 4(c) all amounts due to WSI under the debt agreements
were acquired by AMSC or repaid on July 9, 1999.
In July 1998, the Company acquired furniture and equipment from WSI for
$104,000 and established a due to WSI for the balance (see note 3).
In addition to financing, the Company has relied upon certain related
parties for legal and technical services. Total expenses incurred in
transactions with related parties are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-----------------------------
WSI AMSC Total
---------- ------------------
<S> <C> <C> <C>
Professional fees.......................... $ 960 $ 130 $ 1,090
General and administrative................. -- 20 20
---------- ------- ----------
Total.................................... $ 960 $ 150 $ 1,110
========== ======= ==========
<CAPTION>
Year Ended December 31, 1998
-----------------------------
WSI AMSC Total
---------- ------------------
<S> <C> <C> <C>
Research and development................... $ 6,624 $ -- $ 6,624
Professional fees.......................... 2,529 353 2,882
General and administrative................. 903 60 963
---------- ------- ----------
Total.................................... $ 10,056 $ 413 $ 10,469
========== ======= ==========
<CAPTION>
Year Ended December 31, 1999
-----------------------------
WSI AMSC Total
---------- ------------------
<S> <C> <C> <C>
Research and development................... $ 50 $ -- $ 50
Professional fees.......................... -- 219 219
General and administrative................. -- 5 5
---------- ------- ----------
Total.................................... $ 50 $ 224 $ 274
========== ======= ==========
</TABLE>
F-12
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
Additionally, during 1998 and 1999 the Company incurred $925,000 and $0,
respectively, of WSI project management costs that were capitalized to the
satellite system. With the WorldSpace Transaction, which is discussed in note
4, on July 7, 1999, WSI ceased to be a related party; therefore, the expenses
reflected for WSI are representative of the period from January 1, 1999 through
July 7, 1999.
(3) Due to Related Parties
Due to related parties included the following amounts (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
------- ----
<S> <C> <C>
Advances from WSI............................................ $ 7,405 $--
Due to WSI................................................... 5,904 --
Due to AMSC.................................................. 458 62
------- ----
$13,767 $ 62
======= ====
</TABLE>
Advances represented funding provided by WSI for 30 days. If amounts were
not repaid within this time period, additional subordinated convertible notes
were issued.
(4) Debt
(a)Loans Payable Due to Related Party
In March 1997, XMSR entered into a series of agreements (the "Participation
Agreement") with AMSC and WSI in which both companies provided various equity
and debt funding commitments to XMSR for the purpose of financing the
activities of XMSR in connection with the establishment of a DARS satellite
system in the United States. On May 16, 1997, certain portions of the
Participation Agreement were subsequently ratified with substantially the same
terms and conditions under the Bridge Loan, Additional Amounts Loan and Working
Capital Credit Facility (the "Loan Agreement").
The Company had loans payable of $91,546,000 at December 31, 1998
outstanding with WSI as follows (in thousands):
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Bridge loan...................................................... $25,556
Additional amounts loan.......................................... 64,875
Working capital loan............................................. 1,115
-------
$91,546
=======
</TABLE>
As discussed in note 4(c) all amounts due to WSI under the debt agreements
were acquired by AMSC or repaid on July 7, 1999.
Bridge Loan
The Company executed the bridge loan with WSI in two tranches. On April 16,
1997, the Company received proceeds of $8,479,000 for a loan with a face amount
of $9,000,000. On October 16, 1997, the
F-13
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
Company received proceeds of $12,771,000 for a loan with a face amount of
$13,522,000. The first tranche was a six-month loan at LIBOR plus five percent
per annum, equaling 11.03 percent. The first tranche was rolled over with the
establishment of the second tranche, which is a six-month loan at LIBOR plus
five percent per annum, equaling 9.94 percent at December 31, 1998. Interest of
$3,034,000 had been converted into additional loan balance through December 31,
1998.
Additional Amounts Loan
On October 16, 1997, the Company executed the additional amounts loan with
WSI and received proceeds of $58,219,000 for a loan with a face amount of
$58,389,000. This loan is a six-month loan at LIBOR plus five percent per
annum, equaling 9.94 percent at December 31, 1998. Interest of $6,486,000 had
been converted into additional loan balance through December 31, 1998.
Working Capital Loan
On May 16, 1997, the Company executed the working capital loan with WSI
whereby the Company would receive proceeds of $920,000 for a loan with a face
amount of $1,000,000. The Company drew down $663,000 and $337,000 against the
line of credit through December 31, 1997 and 1998, respectively. This loan is a
six-month loan at LIBOR plus five percent per annum, with an interest rate of
10.19 percent at December 31, 1998. Interest of $115,000 had been converted
into additional loan balance through December 31, 1998.
(b)Subordinated Convertible Notes Payable Due to Related Party
Effective April 1, 1998, the Company entered into a convertible note
agreement maturing on September 30, 2006 with WSI that provided for a maximum
of $54,536,000 through the issuance of subordinated convertible notes. The
notes carried an interest rate of LIBOR plus five percent per annum, which was
10.15 percent as of December 31, 1998. Under the terms of the note agreement,
WSI shall have the right to convert all or a portion of the aggregate principal
amount of the notes into shares of common stock at a conversion price of $16.35
per share. As of December 31, 1998 and July 7, 1999, $45,583,000 and
$54,536,000, respectively, had been drawn through the issuance of subordinated
convertible notes. As discussed in note 4(c), all amounts due to WSI under the
debt agreements were acquired by AMSC or repaid on July 7, 1999.
(c)Exchange of WSI's Interest in the Company (WorldSpace Transaction)
On July 7, 1999, AMSC acquired WSI's remaining debt and equity interests in
the Company in exchange for approximately 8.6 million shares of AMSC's common
stock. Additionally, the Company issued an aggregate $250.0 million of Series A
subordinated convertible notes (see note 4(e)) to several new investors and
used $75.0 million of the proceeds it received from the issuance of these notes
to redeem certain outstanding loan obligations owed to WSI. As a result of
these transactions, as of July 7, 1999, AMSC owned all of the issued and
outstanding stock of the Company. Concurrent with AMSC's acquisition of the
remaining interest in the Company, the Company recognized goodwill and
intangibles of $51,624,000, which has been allocated as follows (in thousands):
<TABLE>
<S> <C>
FCC license...................................................... $25,024
Goodwill......................................................... 13,738
Programming agreements........................................... 8,000
Receiver agreements.............................................. 4,600
Other intangibles................................................ 262
-------
$51,624
=======
</TABLE>
F-14
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
(d)Notes to Related Party
On January 15, 1999, the Company issued a convertible note maturing on
September 30, 2006 to AMSC for $21,419,000. This note carried an interest rate
of LIBOR plus five percent per annum and was convertible at a price of $16.35
per share. On July 7, 1999 the Company amended the convertible note agreement
with AMSC to change the maturity date to December 31, 2004, modified the
conversion provisions to Class B common stock at a price of $16.35 per share
and the conversion of the accrued interest in Class B common stock at a price
of $9.52 per share.
Following the WorldSpace Transaction, the Company issued a convertible note
maturing December 31, 2004 to AMSC for $81,676,000 in exchange for the
$54,536,000 subordinated convertible notes payable, $6,889,000 in demand notes,
$20,251,000 in accrued interest and all of WSI's outstanding options to acquire
the Company's common stock. This note bore interest at LIBOR plus five percent
per annum. The note was convertible at AMSC's option at $8.65 per Class B
common share. The Company took a one-time $5,520,000 charge to interest due to
the beneficial conversion feature of the new AMSC note.
These notes, along with $3,870,000 of accrued interest were converted into
11,182,926 shares of Class B common stock upon the initial public offering.
(e)Issuance of Series A Subordinated Convertible Notes of the Company to New
Investors
At the closing of the WorldSpace Transaction, the Company issued an
aggregate $250.0 million of Series A subordinated convertible notes to six new
investors--General Motors Corporation, $50.0 million; Clear Channel
Investments, Inc., $75.0 million; DIRECTV Enterprises, Inc., $50.0 million; and
Columbia Capital, Telcom Ventures, L.L.C. and Madison Dearborn Partners, $75.0
million. The Series A subordinated convertible notes issued by the Company are
convertible into shares of the Company's Series A convertible preferred stock
(in the case of notes held by General Motors Corporation and DIRECTV) or Class
A common stock (in the case of notes held by the other investors) at the
election of the holders or upon the occurrence of certain events, including an
initial public offering of a prescribed size. The conversion price is $9.52
aggregate principal amount of notes for each share of the Company's stock.
These notes, along with $6,849,000 of accrued interest, were converted into
16,179,755 shares of Class A common stock and 10,786,504 shares of Series A
preferred stock upon the initial public offering.
(5) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, short-term investments,
receivables, accounts payable, accrued expenses, royalty payable and the term
loan approximate their fair market value because of the relatively short
duration of these instruments as of December 31, 1998 and 1999, in accordance
with SFAS No. 107, Disclosures about Fair Value of Financial Instruments.
The fair value of the loans and subordinated convertible notes due to
related party at December 31, 1998 could not be estimated as such amounts are
due to the Company's stockholders.
(6) Equity
(a)Recapitalization
Concurrent with the WorldSpace Transaction discussed in note 4, the
Company's capital structure was reorganized. The Company's common stock was
converted into the newly authorized Class B common stock,
F-15
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
which has three votes per share. The Company also has authorized Class A common
stock, which is entitled to one vote per share and non-voting Class C common
stock. The Class B common stock is convertible into Class A common stock on a
one for one basis, as follows: (1) at any time at the discretion of AMSC, (2)
following the Company's initial public offering, at the direction of the
holders of a majority of the then outstanding shares of Class A common stock
(which majority must include at least 20 percent of the public holders of Class
A common stock), and (3) on or after January 1, 2002, at the direction of the
holders of a majority of the then outstanding shares of the Company's Class A
common stock. Such conversion will be effected only upon receipt of FCC
approval of AMSC's transfer of control of the Company to a diffuse group of
shareholders.
The Company also authorized 60,000,000 shares of preferred stock, of which
15,000,000 shares are designated Series A convertible preferred stock, par
value $0.01 per share. The Series A convertible preferred stock is convertible
into Class A common stock at the option of the holder. The Series A preferred
stock is non-voting and receives dividends, if declared, ratably with the
common stock.
On September 9, 1999, the board of directors of the Company effected a stock
split providing 53,514 shares of stock for each share owned.
(b)Initial Public Offering
On October 8, 1999, the Company completed an initial public offering of
10,000,000 shares of Class A common stock at $12.00 per share. The offering
yielded net proceeds of $111,437,000.
On October 17, 1999, the underwriters of the Company's initial public
offering exercised the over-allotment option for an additional 241,000 shares
of Class A common stock at $12.00 per share. This exercise yielded net proceeds
of $2,697,000.
F-16
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
(c)Stock-Based Compensation
The Company operates two separate stock option plans, the details of which
are described below.
1998 Shares Award Plan
On June 1, 1998, the Company adopted the 1998 Shares Award Plan (the "Plan")
under which employees, consultants, and non-employee directors may be granted
options to purchase shares of Class A common stock of the Company. The Company
initially authorized 1,337,850 shares of common stock under the Plan, which was
increased to 2,675,700 in July 1999. The options are exercisable in
installments determined by the compensation committee of the Company's board of
directors. The options expire as determined by the committee, but no later than
ten years from the date of grant. On July 8, 1999, the Company's board of
directors voted to reduce the exercise price of the options outstanding in the
shares award plan from $16.35 to $9.52 per share, which represented the fair
value of the stock on the date of repricing. Transactions and other information
relating to the Plan for the year ended December 31, 1998 and 1999 are
summarized below:
<TABLE>
<CAPTION>
Outstanding Options
-------------------
Weighted-
Average
Number of Exercise
Shares Price
--------- ---------
<S> <C> <C>
Balance, January 1, 1998.................................... -- --
Options granted........................................... 787,297 $16.35
Options canceled or expired............................... -- --
Options exercised......................................... -- --
--------- ------
Balance, December 31, 1998.................................. 787,297 $16.35
Options granted........................................... 2,188,988 10.50
Option repricing.......................................... 818,339 16.35
Options canceled or expired............................... 57,786 13.91
Options exercised......................................... 1,071 9.52
--------- ------
Balance, December 31, 1999.................................. 2,099,089 $10.32
========= ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ --------------------
Weighted-
Average Weighted Weighted-
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
------------ ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1998....... $16.35 787,297 9.5 years $16.35 -- $16.35
1999....... $9.52-$12.00 2,099,089 9.24 years $10.32 416,294 $ 9.52
</TABLE>
There were no and 416,294 stock options exercisable at December 31, 1998 and
1999, respectively. There were 575,540 shares available under the plan for
future grants at December 31, 1999. At December 31, 1999, all options have been
issued to employees, officers and directors.
F-17
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
The per share weighted-average fair value of employee options granted during
the year ended December 31, 1998 and 1999 was $10.54 and $6.21, respectively,
on the date of grant using the Black-Scholes Option Pricing Model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Expected dividend yield........................... 0% 0%
Volatility........................................ 56.23% 63.92%
Risk-free interest rate range..................... 4.53% to 5.57% 5.47% to 5.97%
Expected life..................................... 7.5 years 5 years
</TABLE>
Employee Stock Purchase Plan
In 1999, the Company established an employee stock purchase plan that
provides for the issuance of 300,000 shares of Class A common stock. All
employees whose customary employment is more than 20 hours per week and for
more than five months in any calendar year are eligible to participate in the
stock purchase plan, provided that any employee who would own five percent or
more of the Company's total combined voting power immediately after an offering
date under the plan is not eligible to participate. Eligible employees must
authorize the Company to deduct an amount from their pay during offering
periods established by the compensation committee. The purchase price for
shares under the plan will be determined by the compensation committee but may
not be less than 85 percent of the lesser of the market price of the common
stock on the first or last business day of each offering period. As of December
31, 1999, 28,791 shares had been issued by the Company under this plan.
The per share weighted-average fair value of purchase rights granted during
the year was $3.30 for the year ended December 31, 1999. The estimates were
calculated at the grant date using the Black-Scholes Option Pricing Model with
the following assumptions at December 31, 1999:
<TABLE>
<S> <C>
Expected dividend yield.............................................. 0%
Volatility........................................................... 63.92%
Risk-free interest rate range........................................ 4.73%
Expected life........................................................ 0.23 years
</TABLE>
The Company applies APB 25 in accounting for stock-based compensation for
both plans and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements other than for performance based
stock options and for options granted with exercise prices below fair value on
the date of grant. During 1999, the Company incurred $4,070,000 in compensation
cost for these options. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS 123, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts indicated below (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net loss;
As reported............. $ 16,167 $ 36,896
Pro forma............... 17,508 37,706
As reported--net loss
per share--basic and
diluted................ (2.42) (2.40)
Pro forma--net loss per
share--basic and
diluted................ (2.62) (2.46)
</TABLE>
F-18
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
(7) WSI Options
In 1997, the Company issued WSI three options. Under the first option, WSI
could have purchased 5,202,748 shares of common stock at $4.52 per share to
acquire common stock. The option could have been exercised in whole or in
incremental amounts between April 16, 1998 and October 16, 2002. Under certain
circumstances, AMSC could have required WSI to exercise the option in whole.
The Company allocated $1,250,000 to the option. Under the second option, WSI
could have purchased 6,897,291 shares at $8.91 per share. The option could have
been exercised between October 16, 1997 and October 16, 2003. The Company
allocated $170,000 to the option. Under the third option, WSI could have
purchased 187,893 shares of common stock at $5.32 per share. The option could
have been exercised between October 16, 1997 and October 17, 2002. The Company
allocated $80,000 to the option.
The options were acquired by AMSC and exchanged for the $81,676,000 note to
AMSC as part of the WorldSpace Transaction (see note 4(d)).
(8) Profit Sharing and Employee Savings Plan
On July 1, 1998, the Company adopted a profit sharing and employee savings
plan under Section 401(k) of the Internal Revenue Code. This plan allows
eligible employees to defer up to 15 percent of their compensation on a pre-tax
basis through contributions to the savings plan. The Company contributed $0.50
in 1998 and 1999 for every dollar the employees contributed up to 6 percent of
compensation, which amounted to $14,000 and $164,000, respectively.
(9) Interest Cost
The Company capitalizes a portion of interest cost as a component of the
cost of the FCC license and satellite system under construction. The following
is a summary of interest cost incurred during December 31, 1997, 1998 and 1999,
and for the period from December 15, 1992 (date of inception) to December 31,
1998 (in thousands):
<TABLE>
<CAPTION>
December 15, 1992
(date of inception) to
1997 1998 1999 December 31, 1999
------ ------- ------- ----------------------
<S> <C> <C> <C> <C>
Interest cost capitalization.... $1,901 $11,824 $15,343 $29,068
Interest cost charged to
expense........................ 549 -- 9,120 9,669
------ ------- ------- -------
Total interest cost incurred.. $2,450 $11,824 $24,463 $38,737
====== ======= ======= =======
</TABLE>
Interest costs incurred prior to the award of the license were expensed in
1997. During 1999, the Company exceeded its capitalization threshold by
$3,600,000 and incurred a charge to interest of $5,520,000 for the beneficial
conversion feature of the new AMSC note.
(10) Income Taxes
For the period from December 15, 1992 (date of inception) to October 8,
1999, the Company filed consolidated federal and state tax returns with its
majority stockholder AMSC. The Company generated net operating losses and other
deferred tax benefits that were not utilized by AMSC. As no formal tax sharing
agreement has been finalized, the Company was not compensated for the net
operating losses. Had the Company filed on a stand-alone basis for the three-
year period ending December 31, 1999, the Company's tax provision would be as
follows:
F-19
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
Taxes on income included in the statements of operations consists of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Current taxes:
Federal................................................. $ -- $ -- $ --
State................................................... -- -- --
------ ------ ------
Total current taxes................................... -- -- --
------ ------ ------
Deferred taxes:
Federal................................................. -- -- --
State................................................... -- -- --
------ ------ ------
Total deferred taxes.................................. -- -- --
------ ------ ------
Total tax expense (benefit)........................... $ -- $ -- $ --
====== ====== ======
</TABLE>
A reconciliation of the statutory tax expense, assuming all income is taxed
at the statutory rate applicable to the income and the actual tax expense is as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Income before taxes on income, as reported in the
statements of income............................ $(1,659) $(16,167) $(36,896)
======= ======== ========
Theoretical tax on the above amount at 35%....... (581) (5,658) (12,914)
State tax, net of federal benefit................ (165) (1,605) 701
Increase in taxes resulting from permanent
differences, net................................ -- 31 2,120
Adjustments arising from differences in the basis
of measurement for tax purposes and financial
reporting purposes and other.................... -- -- 13,252
Change in valuation allowance.................... 746 7,232 (3,159)
------- -------- --------
Taxes on income for the reported year............ $ -- $ -- $ --
======= ======== ========
At December 31, 1997, 1998 and 1999, deferred income tax consists of future
tax assets/(liabilities) attributable to the following (in thousands):
<CAPTION>
December 31,
---------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss/other tax attribute
carryovers.................................... $ 36 $ 477 $ 2,650
Start-up costs................................. 710 7,501 17,605
------- -------- --------
Gross total deferred tax assets.............. 746 7,978 20,255
Valuation allowance for deferred tax assets...... (746) (7,978) (4,819)
------- -------- --------
Net deferred assets.......................... -- -- 15,436
------- -------- --------
Deferred tax liabilities:
Fixed assets................................... -- -- (51)
FCC license.................................... -- -- (10,160)
Other intangible assets........................ -- -- (5,225)
------- -------- --------
Net deferred tax liabilities................. -- -- (15,436)
------- -------- --------
Deferred income tax, net..................... $ -- $ -- $ --
======= ======== ========
</TABLE>
F-20
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
(11) Accumulated Deficit
The Company is devoting its efforts to develop, construct and expand a
digital audio radio network. This effort involves substantial risk and future
operating results will be subject to significant business, economic,
regulatory, technical, and competitive uncertainties and contingencies. These
factors individually or in the aggregate could have an adverse effect on the
Company's financial condition and future operating results and create an
uncertainty as to the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
In order to commence satellite-based radio broadcasting services, the
Company will require substantial funds to develop and construct the DARS
system, develop and launch radio communications satellites, retire debt
incurred in connection with the acquisition of the DARS license and to sustain
operations until it generates positive cash flow.
At the Company's current stage of development, economic uncertainties exist
regarding successful acquisition of additional debt and equity financing and
ultimate profitability of the Company's proposed service. The Company is
currently constructing its satellites and will require substantial additional
financing before construction is completed. Failure to obtain the required
long-term financing will prevent the Company from realizing its objective of
providing satellite-delivered radio programming. Management's plan to fund
operations and capital expansion includes the additional sale of debt and
equity securities through public and private sources. There are no assurances,
however, that such financing will be obtained.
(12) Commitments and Contingencies
(a) FCC License
The FCC has established certain system development milestones that must be
met for the Company to maintain its license to operate the system. The Company
believes that it is proceeding into the system development as planned and in
accordance with the FCC milestones.
(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 AMSC and
WorldSpace Management Corporation ("WorldSpace MC"), an affiliate of WSI, in
which AMSC 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
F-21
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
satellite. There are no minimum services purchase requirements. The Company
incurred costs of $413,000 and $224,000 under its agreement with AMSC during
1998 and 1999, respectively. The Company incurred costs of $4,357,000 and $0
under its agreement with WorldSpace MC during 1998 and 1999, respectively.
(d) Technology Licenses
Effective January 1, 1998, XMSR entered into a technology licensing
agreement with AMSC and WorldSpace MC by which as compensation for certain
licensed technology currently under development to be used in the XM Radio
system, XMSR will pay up to $14,300,000 to WorldSpace MC over a ten-year
period. XMSR incurred costs of $6,624,000 and $50,000, payable to WorldSpace
MC, under the agreement during 1998 and 1999, respectively. Any additional
amounts to be incurred under this agreement are dependent upon further
development of the technology, which is at XMSR's option. No liability exists
to AMSC or WorldSpace MC should such developments prove unsuccessful. The
Company maintains an accrual of $5,046,000, 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 December 31, 1998 and 1999, the Company had paid $40,481,250
and $183,918,000, respectively, under this contract.
(f) LCC International Services Contract
In August 1999, the Company signed a contract with LCC International, Inc.,
a related party, for the engineering for its terrestrial repeater network.
Payments by the Company under this contract are expected to aggregate
approximately $115,000,000 through April 15, 2001. As of December 31, 1999, the
Company has paid $6,578,000 under this contract.
(g) 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
F-22
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
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 (formerly known as CD Radio) 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.
(h) Terrestrial Repeater Contract
In February 2000, the Company entered into a contract with Hughes
Electronics Corporation, a related party, for the design, development and
purchase of terrestrial repeater equipment. The total contract value is
$128,000,000 and the Company incurred and paid $3,500,000 under a letter
agreement in anticipation of this contract through December 31, 1999.
(i) 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.
(j) 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 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 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.
F-23
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
(k) Leases
The Company has three noncancelable operating leases for office space and
two noncancelable capital leases for equipment that expire over the next ten
years. The future minimum lease payments under noncancelable leases as of
December 31, 1999 are (in thousands):
<TABLE>
<CAPTION>
Operating Capital
leases leases
--------- -------
<S> <C> <C>
Year ending December 31:
2000....................................................... $ 755 $172
2001....................................................... 2,113 172
2002....................................................... 2,180 86
2003....................................................... 2,248 --
2004....................................................... 2,281 --
Thereafter................................................. 14,354 --
------- ----
Total.................................................... $23,931 $430
=======
Less amount representing interest.......................... (52)
----
Present value of net minimum lease payments.............. 378
Less current maturities.................................... (139)
----
Long-term obligations.................................... $239
====
</TABLE>
Rent expense for 1997, 1998 and 1999 was $0, $231,000 and $649,000,
respectively.
In January 2000, the Company established a $3,400,000 letter of credit as a
security deposit for one of its leases for office space.
(l) 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 12(i)). 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.
(13) Secondary Offering 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 $121,000,000. 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 $96,300,000. The Series B convertible redeemable preferred stock
F-24
<PAGE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the period from December 15, 1992 (date of inception) to December 31, 1999
provides for 8.25% cumulative dividends that may be paid in Class A common
stock or cash. The Series B convertible redeemable preferred stock is
convertible into Class A common stock at a conversion price of $40 per share
and is redeemable in Class A common stock on February 3, 2003.
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.
(14) Private Units Offering
On March 15, 2000 the Company closed a private placement 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
8,024,115 shares of the Company's Class A common stock at a price of $49.50 per
share. The Company realized net proceeds of $191.0 million, excluding $123.0
million used to acquire securities which will be used to pay interest payments
due under the notes for the first three years.
(15)Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
1997
----------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except for per
share data)
<S> <C> <C> <C> <C>
Revenues....................................... $ -- $ -- $ -- $ --
Operating loss................................. -- 51 185 874
Loss before income taxes....................... -- 270 459 930
Net loss....................................... -- 270 459 930
------ ------ ------ ------
Net loss per share--basis and diluted........ $ -- $(0.04) $(0.07) $(0.14)
====== ====== ====== ======
<CAPTION>
1998
----------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues....................................... $ -- $ -- $ -- $ --
Operating loss................................. 3,100 5,032 3,865 4,196
Loss before income taxes....................... 3,100 5,032 3,857 4,178
Net loss....................................... 3,100 5,032 3,857 4,178
------ ------ ------ ------
Net loss per share--basis and diluted........ $(0.46) $(0.75) $(0.58) $(0.62)
====== ====== ====== ======
<CAPTION>
1999
----------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues....................................... $ -- $ -- $ -- $ --
Operating loss................................. 4,421 4,020 9,374 12,876
Loss before income taxes....................... 4,367 3,999 17,402 11,128
Net loss....................................... 4,367 3,999 17,402 11,128
------ ------ ------ ------
Net loss per share--basis and diluted........ $(0.65) $(0.60) $(2.60) $(0.27)
====== ====== ====== ======
</TABLE>
The sum of quarterly per share net losses do not necessarily agree to the
net loss per share for the year due to the timing of stock issuances.
F-25
<PAGE>
Exhibit 4.3
XM SATELLITE RADIO HOLDINGS INC.
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
_________________________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
_________________________________________
<PAGE>
XM SATELLITE RADIO HOLDINGS INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Issuer"), does
hereby certify that (i) pursuant to authority conferred upon the Board of
Directors of the Issuer by its Restated Certificate of Incorporation, as amended
to date, and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors authorized the
creation and issuance of the Issuer's 8.25% Series B Convertible Redeemable
Preferred Stock (the "Preferred Stock"), and (ii) the following resolution
fixing the designations, preferences and rights of such Preferred Stock, which
was duly adopted by the Board of Directors, on January 25, 2000, remains in full
force and effect. Certain capitalized terms used herein are defined in Article
10.
RESOLVED, that pursuant to the authority expressly granted to and vested in
the Board of Directors of the Issuer by the provisions of the Restated
Certificate of Incorporation, as amended from time to time (the
"Certificate of Incorporation"), and pursuant to Section 151(g) of the
General Corporation Laws of the State of Delaware, there be from the
60,000,000 shares of preferred stock, $0.01 par value, of the Issuer,
authorized to be issued pursuant to the Certificate of Incorporation, a
series of preferred stock, consisting of 3,000,000 shares of 8.25% Series B
Convertible Redeemable Preferred Stock (referred to herein as the
"Preferred Stock"), having the number of shares and, to the extent that the
designations, powers, preferences and relative and other special rights and
the qualifications, limitations and restrictions of such Preferred Stock
are not stated and expressed in the Certificate of Incorporation, the
powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows:
1. Designation and Number of Shares
1.1 The series will be known as the 8.25% Series B Convertible Redeemable
Preferred Stock.
1.2 The Preferred Stock will be a series consisting of 3,000,000 shares
with a liquidation preference of $50 per share of the authorized but unissued
preferred stock of the Issuer.
2. Dividends
2.1 Payment of Dividends
(a) Holders of Preferred Stock will be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available
therefor, cumulative dividends from the issue date of the Preferred Stock (the
"Issuance Date") accruing at the rate per annum equal to 8.25% of the
liquidation preference per share, payable quarterly in arrears on February 1,
May 1, November 1 and August 1 of each year (each such date being referred to
herein as a "Dividend Payment Date"), commencing May 1, 2000. All dividends will
be cumulative, whether or not earned or declared.
(b) Each distribution in the form of a dividend shall be payable in
arrears to Holders of record as they appear on the stock books of the Issuer on
each record date as
<PAGE>
established by the Board of Directors of the Issuer (the "Dividend Payment
Record Date") not more than 60 nor less than ten days preceding a Dividend
Payment Date.
(i) Dividends payable on the Preferred Stock for each full dividend
period will be computed by dividing the annual dividend rate by four.
Dividends payable on the Preferred Stock for any period less than a full
dividend period will be computed on the basis of a 360-day year consisting
of twelve 30-day months.
(ii) The Preferred Stock will not be entitled to any dividends,
whether payable in cash, property or securities, in excess of the full
cumulative dividends.
(iii) No interest, or sum of money in lieu of interest, will be
payable in respect of any accumulated and unpaid dividends which may be in
arrears.
(c) Dividends, to the extent declared by the Issuer's Board of
Directors may, at the option of the Issuer, be paid in cash, by delivery of
fully paid and nonassessable shares of the Issuer's Class A common stock (the
"Common Stock"), or a combination thereof. If the Issuer elects to pay dividends
in shares of Common Stock, such shares of Common Stock shall be valued for such
purpose:
(i) If on the date of such payment, such shares of Common Stock are
freely tradable, such shares of Common Stock shall be valued at 95% of
Average Market Value.
(ii) If on the date of such payment, such shares of Common Stock are
not freely tradable, such shares of Common Stock shall be valued at 90% of
Average Market Value.
2.2 Declaration of Dividends
(a) No dividends or other distributions (other than a dividend or
distribution in Junior Securities) may be declared, made or paid or funds set
apart for payment on the Junior Securities or Parity Securities, and no Junior
Securities or any Parity Securities, including the Preferred Stock, may be
repurchased, redeemed or otherwise acquired for any consideration (or any money
paid to or made available for a sinking fund for the redemption of any shares of
any such stock) by the Issuer (except by conversion into or exchange for Junior
Securities or in the case that monies for such dividends, distributions,
redemptions, purchases, or other acquisitions are derived from the proceeds of a
substantially concurrent offering of such securities), unless full cumulative
dividends shall have been or contemporaneously are paid or declared and a sum
sufficient for the payment thereof is set apart for such payment on all
outstanding shares of Preferred Stock for all Dividend Payment Dates on or prior
to such declaration, payment, redemption, purchase or acquisition.
(b) No dividends may be declared, made or paid or funds set apart
for the payment of dividends upon any outstanding share of Preferred Stock with
respect to any dividend period unless all dividends for all preceding periods
have been paid or declared and a sum sufficient for the payment thereof is set
apart for the payment of such dividend upon all outstanding shares of Senior
Securities.
2
<PAGE>
(c) The holder of record of a share of Preferred Stock at the close
of business on a record date with respect to the payment of dividends on the
Preferred Stock will be entitled to receive such dividends with respect to such
share of Preferred Stock (except that Holders of shares called for redemption or
conversion on a Redemption Date or Conversion Date between the record date and a
date which is two days after the Dividend Payment Date will be entitled to
receive such dividend on such Redemption Date as indicated in Section 5.1 hereof
or such Conversion Date as indicated in Section 4 hereof, as applicable) on the
corresponding Dividend Payment Date, notwithstanding the conversion of such
share after such record date and prior to such Dividend Payment Date. A share of
Preferred Stock surrendered for conversion during the period from the close of
business on any record date for the payment of dividends to the opening of
business of the corresponding Dividend Payment Date must be accompanied by a
payment in cash, Common Stock or a combination thereof, depending on the method
of payment that the Issuer may choose to pay the dividend, in an amount equal to
the dividend payable on such dividend payment date, unless such share of
Preferred Stock has been called for redemption on a redemption date occurring
during the period from the close of business on any record date for the payment
of dividends to the close of business on the business day immediately following
the corresponding Dividend Payment Date. The dividend payment with respect to a
share of Preferred Stock called for redemption on a date during the period from
the close of business on any record date for the payment of dividends to the
close of business on the business day immediately following the corresponding
dividend payment date will be payable on such Dividend Payment Date to the
record holder of such share on such record date, notwithstanding the conversion
of such share after such record date and prior to such dividend payment date or
the Issuer's default in payment of the dividend due on that Dividend Payment
Date. No payment or adjustment will be made upon conversion of shares of
Preferred Stock for accumulated and unpaid dividends or for dividends with
respect to the Common Stock issued upon such conversion.
(d) Except as provided in Section 2.2(b) and in Section 4.2, the
Issuer shall make no payment or allowance for unpaid dividends, whether or not
in arrears, on converted shares or for dividends on the shares of Common Stock
issued upon conversion.
(e) The Issuer will take all actions required or permitted under
Delaware corporate law to permit the payment of dividends on the Preferred
Stock, including, without limitation, through the revaluation of its assets in
accordance with Delaware General Corporation Laws.
3. Ranking
3.1 The Preferred Stock will, with respect to dividend distributions and
distributions upon the liquidation, winding up or dissolution of the Issuer,
rank:
(a) senior to all classes of Common Stock, Series A Convertible
Preferred Stock and each other class of Capital Stock or series of preferred
stock issued by the Issuer, which is established after the date of this
Certificate of Designation, the terms of which do not expressly provide that
such class or series will rank senior to or on a parity with the Preferred Stock
as to dividend distributions and distributions upon the liquidation, winding up
or
3
<PAGE>
dissolution of the Issuer (collectively, with the Common Stock, referred to as
the "Junior Securities");
(b) on a parity with any class of Capital Stock or series of
preferred stock issued by the Issuer, which is established after the date of
this Certificate of Designation by the Board of Directors, the terms of which
expressly provide that such class or series will rank on a parity with the
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding up or dissolution of the Issuer (collectively referred to
as "Parity Securities"); and
(c) junior to each class of Capital Stock or series of preferred
stock issued by the Issuer, which is established after the date of this
Certificate of Designation by the Board of Directors, the terms of which
expressly provide that such class or series will rank senior to the Preferred
Stock as to dividend distributions and distributions upon liquidation, winding-
up or dissolution of the Issuer (collectively referred to as "Senior
Securities").
3.2 Except as otherwise provided herein, the Issuer is entitled to amend
its Certificate of Incorporation to authorize one or more additional series of
preferred stock, file certificates of designation, and issue without restriction
from time to time, any series of Junior Securities, Parity Securities, or Senior
Securities.
4. Conversion
4.1 Conversion Rights
(a) Each Holder of Preferred Stock shall have the right, at its
option, at any time and from time to time to convert, subject to the terms and
provisions of this Article 4, any or all of such Holder's shares of Preferred
Stock. In such case, the shares of Preferred Stock shall be converted into such
whole number of fully paid and nonassessable shares of Common Stock as is equal,
subject to Section 4.3, to:
the product of the number of shares of Preferred Stock being
so converted multiplied by the quotient of (i) the Liquidation
Preference divided by (ii) the Conversion Price then in effect,
except that with respect to any share which shall be called for redemption such
right shall terminate at the close of business on the Business Day prior to the
Redemption Date unless the Issuer shall default in making the payment due upon
redemption thereof.
(b) The conversion right of a Holder of Preferred Stock shall be
exercised by the Holder by the surrender of the certificate representing shares
to be converted to the Issuer or to the Transfer Agent accompanied by the
Conversion Notice.
(i) Immediately prior to the close of business on the Conversion
Date, each converting Holder of Preferred Stock shall be deemed to be the
Holder of record of Common Stock issuable upon conversion of such Holder's
Preferred Stock notwithstanding that the share register of the Issuer shall
then be closed or that certificates representing such Common Stock shall
not then be actually delivered to such person.
4
<PAGE>
(ii) Upon notice from the Issuer, each Holder of Preferred Stock so
converted shall promptly surrender to the Issuer or the Transfer Agent
certificates representing the shares so converted (if not previously
delivered), duly endorsed in blank or accompanied by proper instruments of
transfer.
(iii) On any Conversion Date, all rights with respect to the shares of
Preferred Stock so converted, including the rights, if any, to receive
notices, will terminate, except the rights of Holders thereof to: (1)
receive certificates for the number of shares of Common Stock into which
such shares of Preferred Stock have been converted; (2) receive the payment
in cash or shares of Common Stock of any accumulated and unpaid dividends
accrued thereon pursuant to Section 4.2 hereof; and (3) exercise the rights
to which they are entitled as Holders of Common Stock.
(c) If the Conversion Date shall not be a Business Day, then such
conversion right shall be deemed exercised on the next Business Day.
(d) When shares of Preferred Stock are converted pursuant to this
Section 4.1, all accumulated and unpaid dividends, including dividends payable
on the Conversion Date pursuant to Section 2.2, or liquidated damages (whether
or not in arrears or currently payable) on the Preferred Stock so converted to
(and not including) the Conversion Date shall immediately be due and payable, at
the Issuer's option:
(i) in cash;
(ii) by delivery of the Issuer's Common Stock; or
(iii) a combination thereof.
4.2 The Conversion Price shall be subject to adjustment from time to time
as follows:
(a) Stock Splits and Combinations. In case the Issuer shall at any
-----------------------------
time or from time to time after the Issuance Date (i) subdivide or split the
outstanding shares of Common Stock, (ii) combine or reclassify the outstanding
shares of Common Stock into a smaller number of shares or (iii) issue by
reclassification of the shares of Common Stock any shares of capital stock of
the Issuer, then, and in each such case, the Conversion Price in effect
immediately prior to such event or the record date therefor, whichever is
earlier, shall be adjusted so that the holder of any shares of Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock or other securities of the Issuer which such holder would
have owned or have been entitled to receive after the occurrence of any of the
events described above, had such shares of Preferred Stock been surrendered for
conversion immediately prior to the occurrence of such event or the record date
therefor, whichever is earlier. An adjustment made pursuant to this subparagraph
(a) shall become effective at the close of business on the day upon which such
corporate action becomes effective. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) Stock Dividends in Common Stock. In case the Issuer shall at any
time or from time to time after the Issuance Date pay a dividend or make a
distribution in shares of Common Stock on any class of capital stock of the
Issuer other than dividends or distributions of
5
<PAGE>
shares of Common Stock or other securities with respect to which adjustments are
provided in paragraph (a) above, the Conversion Price shall be adjusted so that
the holder of each share of Preferred Stock shall be entitled to receive upon
conversion thereof the number of shares of Common Stock determined by
multiplying (1) the applicable Conversion Price by (2) a fraction, the numerator
of which shall be the number of shares of Common Stock theretofore outstanding
and the denominator of which shall be the sum of such number of shares and the
total number of shares issued in such dividend or distribution.
(c) Issuance of Rights or Warrants. In case the Issuer shall issue
------------------------------
to all holders of Common Stock rights or warrants entitling such holders to
subscribe for or purchase Common Stock at a price per share less than the
Current Market Price, the Conversion Price in effect immediately prior to the
close of business on the record date fixed for determination of shareholders
entitled to receive such rights or warrants shall be reduced by multiplying such
Conversion Price by a fraction, the numerator of which is the sum of the number
of shares of Common Stock outstanding at the close of business on such record
date and the number of shares of Common Stock that the aggregate offering price
of the total number of shares of Common Stock so offered for subscription or
purchase would purchase at such Current Market Price, and the denominator of
which is the sum of the number of shares of Common Stock outstanding at the
close of business on such record date and the number of additional shares of
Common Stock so offered for subscription or purchase. For purposes of this
subparagraph (c), the issuance of rights or warrants to subscribe for or
purchase securities convertible into Common Stock shall be deemed to be the
issuance of rights or warrants to purchase the Common Stock into which such
securities are convertible at an aggregate offering price equal to the sum of
the aggregate offering price of such securities and the minimum aggregate amount
(if any) payable upon conversion of such securities into Common Stock. Such
adjustment shall be made successively whenever any such event shall occur.
(d) Distribution of Indebtedness, Securities or Assets. In case the
--------------------------------------------------
Issuer shall distribute to all holders of Common Stock (whether by dividend or
in a merger, amalgamation or consolidation or otherwise) evidences of
indebtedness, shares of capital stock of any class or series, other securities,
cash or assets (other than Common Stock, rights or warrants referred to in
subparagraph (c) above or a dividend payable exclusively in cash and other than
as a result of a Fundamental Change), the Conversion Price in effect immediately
prior to the close of business on the record date fixed for determination of
shareholders entitled to receive such distribution shall be reduced by
multiplying such Conversion Price by a fraction, the numerator of which is the
Current Market Price on such record date less the fair market value (as
determined by the Board of Directors of the Issuer, whose determination in good
faith shall be conclusive) of the portion of such evidences of indebtedness,
shares of capital stock, other securities, cash and assets so distributed
applicable to one share of Common Stock and the denominator of which is the
Current Market Price. Such adjustment shall be made successively whenever any
such event shall occur.
(e) Fundamental Changes. In case of any Fundamental Change, the
-------------------
holder of each share of Preferred Stock outstanding immediately prior to the
occurrence of such Fundamental Change shall have the right upon any subsequent
conversion to receive (but only out of legally available funds of the Issuer, to
the extent required by applicable law) the kind and
6
<PAGE>
amount of stock, other securities, cash and assets that such holder would have
received if such share had been converted immediately prior thereto.
(f) Anything in the above sections (a)-(e) to the contrary
notwithstanding, the Issuer shall not be required to give effect to any
adjustment in the Conversion Price unless and until the net effect of one or
more adjustments (each of which shall be carried forward until counted toward
adjustment), determined as above provided, shall have resulted in a change of
the Conversion Price by at least 1%, and when the cumulative net effect of more
than one adjustment so determined shall be to change the Conversion Price by at
least 1%, such change in the Conversion Price shall thereupon be given effect.
In the event that, at any time as a result of the provisions of this Section,
the holder of shares of Preferred Stock upon subsequent conversion shall become
entitled to receive any shares of capital stock of the Issuer other than Common
Stock, the number of such other shares so receivable upon conversion of shares
of Preferred Stock shall thereafter be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
contained herein.
(g) There shall be no adjustment of the Conversion Price in case of
the issuance of any stock of the Issuer in a merger, reorganization,
acquisition, reclassification, recapitalization or other similar transaction
except as set forth in the above paragraphs (a)-(e).
(h) In any case in which the above paragraphs (a)-(e) require that an
adjustment as a result of any event become effective from and after a record
date, the Issuer may elect to defer until after the occurrence of such event (i)
issuing to the holder of any shares of Preferred Stock converted after such
record date and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion over and above the shares issuable on
the basis of the Conversion Price in effect immediately prior to adjustment and
(ii) paying to such holder any amount in cash in lieu of a fractional share of
Common Stock.
(i) If the Issuer shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to shareholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the number of shares of Common
Stock issuable upon exercise of the right of conversion granted by the above
paragraphs (a)-(e) or in the Conversion Price then in effect shall be required
by reason of the taking of such record.
4.3 Upon a Change of Control, each Holder of Preferred Stock will have the
option, during the period commencing on the date that the applicable notice of
such Change of Control is mailed to Holders of Preferred Stock and ending on the
close of business on the 45/th/ day thereafter (the "Special Conversion Date")
to convert all, but not less than all, of such Holder's shares of Preferred
Stock into Common Stock at a conversion rate equal to the Liquidation Preference
divided by the Special Conversion Price.
(a) Within fifteen days after a Change of Control, notice of such
Change of Control shall be given by the Issuer by first-class mail to each
record Holder of shares of Preferred Stock, at such Holder's address as the same
appears on the books of the Issuer. Each such notice shall state: (i) that a
Change of Control has occurred; (ii) the last day on which the Change of Control
option may be exercised (the "Expiration Date"); (iii) the name and address of
7
<PAGE>
the paying agent; and (iv) the procedures that Holders must follow to exercise
the Change of Control option.
(b) On or before the Expiration Date, each Holder of shares of
Preferred Stock wishing to exercise the Change of Control option shall surrender
the certificate or certificates representing the shares of Preferred Stock to be
converted, in the manner and at the place designated in the notice described in
Section 4.3 and on such date the cash or shares of Common Stock due to such
Holder shall be delivered to the person whose name appears on such certificate
or certificates as the owner thereof and each surrendered certificate shall be
returned to authorized but unissued shares. Upon surrender (in accordance with
the notice described in Section 4.3(a)) of the certificate or certificates
representing any shares to be so converted (properly endorsed or assigned for
transfer, if the Issuer shall so require and the notice shall so state), such
shares shall be converted by the Issuer at the Conversion Price as adjusted.
(c) Exercise by a holder of such holder's special conversion right
following a change of control is irrevocable, except that a holder may withdraw
its election to exercise such holder's special conversion right at any time
prior to the close of business on the Special Conversion Date by delivering a
written or facsimile transmission notice to the transfer agent at the address or
facsimile number specified in the change of control notice. Such notice, to be
effective, must be received by the transfer agent prior to the close of business
on the Special Conversion Date. All shares of Preferred stock tendered for
conversion pursuant to holders' special conversion rights as described herein
and not withdrawn will be converted at the close of business on the Special
Conversion Date.
4.4 If, as a result of any Conversion Price Adjustment Event, a Holder of
the Preferred Stock becomes entitled to receive upon conversion shares of two or
more classes of Capital Stock, the Issuer shall determine the reasonable
allocation of the adjusted Conversion Price between the classes of Capital
Stock. After such allocation, the Conversion Price of each class of Capital
Stock shall thereafter be subject to adjustment on terms applicable to the
Preferred Stock in this Article 4.
4.5 The Issuer shall at all times reserve and keep available for issuance
upon the conversion of the Preferred Stock such number of its authorized but
unissued shares of Common Stock as will from time to time be sufficient to
permit the conversion of all outstanding shares of Preferred Stock, and shall
take all action required to increase the authorized number of shares of Common
Stock if at any time there shall be insufficient authorized unissued shares of
Common Stock to permit such reservation or to permit the conversion of all
outstanding shares of Preferred Stock.
4.6 The issuance or delivery of certificates for Common Stock upon the
conversion of shares of Preferred Stock shall be made without charge to the
converting Holder of shares of Preferred Stock for such certificates or for any
tax in respect of the issuance or delivery of such certificates or the
securities represented thereby, and such certificates shall be issued or
delivered in the respective names of, or in such names as may be directed by,
the Holders of the shares of Preferred Stock converted; provided, however, that
the Issuer shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the Holder of the shares of Preferred Stock
8
<PAGE>
converted, and the Issuer shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Issuer the amount of such tax or shall
have established to the reasonable satisfaction of the Issuer that such tax has
been paid.
5. Redemption of Preferred Stock
5.1 Optional Redemption of the Preferred Stock
(a) Shares of the Preferred Stock may not be required to be redeemed
prior to February 3, 2003.
(b) On or after February 3, 2003, the Preferred Stock may be redeemed
for cash, in whole or in part, at the option of the Issuer, at the following
Redemption Prices per share (expressed as percentages of the Liquidation
Preference), in each case, together with accumulated and unpaid dividends
(including an amount equal to a prorated dividend for any partial dividend
period), if any, to the Redemption Date, upon not less than 30 nor more than 60
days' prior written notice (the "Redemption Notice"), if redeemed during each
period set forth below, commencing on each of the dates set forth below:
Date Redemption
Price Per Share
February 3, 2003................... 105.775%
February 2, 2004................... 104.950%
February 2, 2005................... 104.125%
February 2, 2006................... 103.300%
February 2, 2007................... 102.475%
February 2, 2008................... 101.650%
February 2, 2009................... 100.825%
February 2, 2010 and thereafter.... 100.000%
(c) In the event that fewer than all the outstanding shares of the
Preferred Stock are to be redeemed, the shares to be redeemed will be determined
pro rata or by lot, as determined by the Issuer.
(d) From and after the applicable Redemption Date (unless the Issuer
shall be in default of payment of the Redemption Price), dividends on the shares
of the Preferred Stock to be redeemed on such Redemption Date shall cease to
accumulate, such shares shall no longer be deemed to be outstanding, and all
rights of the Holders thereof as stockholders of the Issuer (except the right to
receive the Redemption Price and accumulated dividend amounts and liquidation
penalties, if any through the Redemption Date) will cease.
(e) No such optional redemption may be authorized or made unless,
prior to giving the applicable Redemption Notice, all accumulated and unpaid
dividends for periods ended prior to the date of such Redemption Notice shall
have been paid in cash or Common Stock.
9
<PAGE>
5.2 (a) In the event the Issuer shall elect to redeem shares of the
Preferred Stock pursuant to Section 5.1 hereof:
(i) The Issuer must make a public announcement of the redemption and
provide the Holders with the Redemption Notice referred to in Section
5.1(b) not fewer than 30 days nor more than 60 days' prior to the
Redemption Date.
(ii) On or before any Redemption Date, each Holder of shares of
Preferred Stock to be redeemed shall surrender the certificate or
certificates representing such shares of Preferred Stock (properly endorsed
or assigned, or transferred, if the Issuer shall so require and the
Redemption Notice shall so state) to the Issuer or the Redemption Agent (if
appointed) in the manner and at the place designated in the Redemption
Notice.
(iii) On the Redemption Date, the Issuer or the Redemption Agent, as
applicable, shall pay or deliver to the Holder whose name appears on such
certificate or certificates as the owner thereof, the full Redemption Price
due such Holder in cash, in fully paid and nonassessable shares of Common
Stock or in a combination thereof.
(iv) The shares represented by each certificate to be surrendered
shall be automatically (and without any further action of the Issuer or the
Holder) canceled as of the Redemption Date whether or not certificates for
such shares are returned to the Issuer and returned to authorized but
unissued shares of preferred stock of no series.
(v) If fewer than all the shares represented by any such certificate
are to be redeemed, a new certificate shall be issued representing the
unredeemed shares, without cost to the Holder, together with the amount of
cash, if any, in lieu of fractional shares.
(b) If a Redemption Notice shall have been given as provided in
Section 5.1, all rights of the Holders thereof as stockholders of the Issuer
with respect to shares so called for redemption (except for the right to receive
from the Issuer the Redemption Price) shall cease either (i) from and after the
Redemption Date (unless the Issuer shall default in the payment of the
Redemption Price, in which case such rights shall not terminate at the
Redemption Date) or (ii) if the Issuer shall so elect and state in the
Redemption Notice, from and after the time and date (which date shall be the
Redemption Date or an earlier date not less than 20 days after the date of
mailing of the Redemption Notice) on which the Issuer shall irrevocably deposit
in trust for the Holders of the shares to be redeemed with a designated
Redemption Agent as paying agent sufficient to pay at the office of such paying
agent, on the Redemption Date, the Redemption Price. Any money or shares of
Common Stock so deposited with such Redemption Agent which shall not be required
for such redemption shall be returned to the Issuer forthwith. Subject to
applicable escheat laws, any moneys or shares of Common Stock so set aside by
the Issuer and unclaimed at the end of one year from the Redemption Date shall
revert to the general funds of the Issuer, after which reversion the Holders of
such shares so called for redemption shall look only to the general funds of the
Issuer for the payment of the Redemption Price without interest. Any interest
accrued on funds held by the Redemption Agent shall be paid to the Issuer from
time to time.
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(c) In the event that fewer than all the outstanding shares of the
Preferred Stock are to be redeemed, the shares to be redeemed shall be
determined pro rata or by lot, as determined by the Issuer, except that the
Issuer may redeem such shares held by any Holder of fewer than 100 shares (or
shares held by Holders who would hold fewer than 100 shares as a result of such
redemption), as may be determined by the Issuer.
5.3 Mandatory Redemption of Preferred Stock
(a) The Issuer will redeem all shares of Preferred Stock on February
1, 2012, at a Mandatory Redemption Price equaling 100% of the Liquidation
Preference, together with any accumulated and unpaid dividends to the date of
Mandatory Redemption, unless the Preferred Stock has already been redeemed or
converted. The Issuer shall send notice of such redemption to Holders upon not
less than 30 nor more than 60 days' prior written notice.
(b) The Issuer must make mandatory redemption payments on the
Preferred Stock by delivery of shares of Common Stock and makes such payments as
follows:
(i) If on the date of such payment, such shares of Common Stock are
freely tradable, such shares of Common Stock shall be valued at 95% of
Average Market Value.
(ii) If on the date of such payment, such shares of Common Stock are
not freely tradable, such shares of Common Stock shall be valued at 90% of
Average Market Value.
(c) If, as a matter of law, the Issuer is unable to issue Common
Stock in payment of the Mandatory Redemption Price, then the Issuer shall cause
the Preferred Stock to be converted on the date of such mandatory redemption
into the same number of shares of Common Stock as could otherwise have been
issued in satisfaction of the Mandatory Redemption Price, provided that the
Issuer shall have given the Holders of Preferred Stock notice of the exercise of
this option at least 30 days prior to the date of such mandatory redemption.
(d) The Issuer shall pay a Cash Adjustment, determined based on the
proceeds received by the Transfer Agent from the sale of that number of shares
of Common Stock, which the Issuer will deliver to the Transfer Agent for such
purpose, equal to the aggregate of all such fractions rounded up to the nearest
whole share, to each Holder that would otherwise be entitled to a fraction of a
share of Common Stock.
(i) The Transfer Agent shall sell such shares of Common Stock at the
best available prices and distribute the proceeds to the Holders in
proportion to their respective interests therein.
(ii) The Issuer will pay the expenses of the Transfer Agent with
respect to such sale, including brokerage commissions. Any portion of any
such payment that is declared and not paid through the delivery of shares
of Common Stock will be paid in cash. The Issuer shall make a public
announcement no later than the close of business on the tenth business day
prior to the record date for each dividend as to whether the Issuer
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will pay such dividend and, if so, the form of consideration the Issuer
will use to make such payment.
6. Liquidation Preference
6.1 Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Issuer or reduction or decrease in its capital stock resulting in a
distribution of assets to the holders of any class or series of the Issuer's
capital stock, Holders of the Preferred Stock will be entitled to be paid, out
of assets of the Issuer available for distribution, the Liquidation Preference
per share plus an amount in cash equal to all accumulated and unpaid dividends
thereon to the date fixed for liquidation, dissolution or winding up (including
an amount equal to a prorated dividend for the period from the last dividend
payment date to the date fixed for liquidation, dissolution or winding up),
before any distribution is made on any Junior Securities, including, without
limitation, the Common Stock.
6.2 If, upon any voluntary liquidation, dissolution or winding-up of the
Issuer, the amounts payable with respect to the liquidation performance of the
Preferred Stock and all other Parity Securities are not paid in full, the
Holders of the Preferred Stock and the Parity Securities will share pro rata in
proportion to the full distribution to which each is entitled.
6.3 After payment of the full amount of the Liquidation Preference to
which they are entitled, the Holders of shares of the Preferred Stock will have
no right or claim to any of the remaining assets of the Issuer.
6.4 Neither the voluntary sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Issuer nor the consolidation
or merger of the Issuer with or into one or more entities will be deemed to be a
voluntary or involuntary liquidation, dissolution or winding-up of the Issuer or
reduction or decrease in capital stock, unless such sale, conveyance, exchange
or transfer shall be in connection with a liquidation, dissolution or winding-up
of the business of the Issuer or reduction or decrease in capital stock.
7. Voting Rights
7.1 Holders of the Preferred Stock have no voting rights with respect to
general corporate matters except as provided by law or as set forth herein.
7.2 Special Voting Rights
(a) If dividends payable on the Preferred Stock are in arrears and
unpaid for six quarterly periods, whether or not consecutive, the Holders of a
majority of the outstanding Preferred Stock voting separately as a class with
the shares of any other subsequently issued Parity Securities then titled to
similar voting rights (the "Voting Rights Class") will be entitled at the next
regular or special meeting of stockholders of the Issuer to elect such number of
members to the board of directors constituting at least 20% of the then existing
board of directors before such election, rounded to the nearest whole number,
provided, however, that such number shall be no less than one nor greater than
two, and the number of members of the board of directors will be immediately and
automatically increased by one or two, as the case may be.
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(b) Such voting rights may be exercised at a special meeting of the
holders of the shares of the Voting Rights Class, called as hereinafter
provided, or at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at each such annual meeting until such time
as all dividends in arrears on the shares of Preferred Stock shall have been
paid in full, at which time or times such voting rights and the term of the
directors elected pursuant to Section 7.2(a) shall terminate and such directors
shall be deemed to have resigned.
(c) At any time when such voting rights shall have vested in holders
of shares of the Voting Rights Class described in Section 7.2(a), a proper
officer of the Issuer may call, and, upon the written request of the record
holders of shares representing twenty-five percent (25%) of the voting power of
the shares then outstanding of the Voting Rights Class addressed to the
Secretary of the Issuer, shall call a special meeting of the holders of shares
of the Voting Rights Class. Such meeting shall be held at the earliest
practicable date upon the notice required for annual meetings of stockholders at
the place for holding annual meetings of stockholders of the Issuer, or, if
none, at a place designated by the Board of Directors. Notwithstanding the
provisions of this Section 7.2(c), no such special meeting shall be called
during a period within the 60 days immediately preceding the date fixed for the
next annual meeting of stockholders, in which such case the election of
directors pursuant to Section 7.2(a) shall be held at such annual meeting of
stockholders.
(d) At any meeting held for the purpose of electing directors at
which the holders of the Voting Rights Class shall have the right to elect
directors as provided herein, the presence in person or by proxy of the holders
of shares representing more than fifty percent (50%) in voting power of the then
outstanding shares of the Voting Rights Class shall be required and shall be
sufficient to constitute a quorum of such class for the election of directors by
such class.
(e) Any director elected pursuant to the voting rights created under
this Section 7.2 shall hold office until the next annual meeting of stockholders
(unless such term has previously terminated pursuant to Section 7.2(b)) and any
vacancy in respect of any such director shall be filled only by vote of the
remaining director so elected by holders of the Voting Rights Class, or if there
be no such remaining director, by the holders of shares of the Voting Rights
Class at a special meeting called in accordance with the procedures set forth in
this Section 7.2, or, if no such special meeting is called, at the next annual
meeting of stockholders. Upon any termination of such voting rights, the term of
office of all directors elected pursuant to this Section 7 shall terminate and
such directors shall be deemed to have resigned.
7.3 The affirmative vote or consent of the Holders of at least 50% of the
outstanding Preferred Stock will be required for the issuance of any class of
Senior Securities (or security convertible into Senior Securities or evidencing
a right to purchase any shares or any class or series of Senior Securities), and
amendments to this Certificate of Designation that would affect adversely the
rights of Holders of Preferred Stock or authorize the issuance of any additional
shares of Preferred Stock.
7.4 The affirmative vote or consent of the Holders of at least 66 2/3% of
the outstanding Preferred Stock will be required for amendments to the Change of
Control
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provisions in this certificate. In all such cases each share of Preferred Stock
shall be entitled to one vote.
7.5 Except as set forth in this Certificate of Designation, the creation,
authorization or issuance of any shares of Junior Securities or Parity
Securities or an increase or decrease in the amount of authorized Capital Stock
of any class, including any preferred stock, shall not require the consent of
the Holders of the Preferred Stock and shall not be deemed to affect adversely
the rights, preferences, privileges or voting rights of Holders of shares of the
Preferred Stock.
7.6 The consent of the Holders of Preferred Stock shall not be required to
authorize (by way of reclassification or otherwise) or issue any Parity
Securities or any obligation or security convertible into or exchangeable into
or evidencing a right to purchase shares of any class or series of Parity
Securities.
8. Merger, Consolidation and Sale of Assets
8.1 Without the vote or consent of the Holders of at least 50% of the then
outstanding shares of Preferred Stock, the Issuer may not consolidate or merge
with or into, or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its assets to, any person unless (a) the entity
formed by such consolidation or merger (if other than the Issuer) or to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made (in any such case, the "resulting entity") is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (b) if the Issuer is not the resulting entity, the
Preferred Stock is converted into or exchanged for and becomes shares of such
resulting entity, having in respect of such resulting entity the same (or more
favorable) powers, preferences and relative, participating, optional or other
special rights thereof that the Preferred Stock had immediately prior to such
transaction; and (c) immediately after giving effect to such transaction, no
dividend arrearages which trigger voting rights have occurred and are
continuing. The resulting entity of such transaction shall thereafter be deemed
to be the issuer of the Preferred Stock or securities into which it is converted
for all purposes of this Certificate of Designation.
9. Amendment, Supplement and Waiver
9.1 Without the consent of any Holder of the Preferred Stock, subject to
the requirements of the Delaware General Corporation Law, the Issuer may amend
or supplement this Certificate of Designation to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Preferred Stock in addition to or
in place of certificated Preferred Stock, to provide for the assumption of the
Issuer's obligations to Holders of the Preferred Stock in the case of a merger
or consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Preferred Stock or that does not adversely affect
the legal rights under this Certificate of Designation of any such Holder.
10. Certain Definitions
Set forth below are certain defined terms used in this Certificate of
Designation.
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10.1 "Act" means the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
10.2 "Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement of or otherwise.
10.3 "Average Market Value" of Common Stock means the arithmetic average
of the current market value of the Common Stock for the ten trading days ending
on the fifth business day prior to (a) in the case of the payment of any
dividend, the record date for such dividend and (b) in the case of the mandatory
redemption payment, the date of such payment.
10.4 "Business Day" means any day other than a Legal Holiday.
10.5 "Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock or
partnership or membership interests, whether common or preferred.
10.6 "Cash Adjustment" will be determined based on the proceeds received
by the Transfer Agent from the sale of that number of shares of Common Stock,
which the Issuer will deliver to the Transfer Agent for such purpose, equal to
the aggregate of all such fractions rounded up to the nearest whole share.
10.7 "Closing Price" with respect to the Common Stock on any trading day,
means the last reported regular-way sale price of the Common Stock on the NYSE,
or if the Common Stock is not then listed on the NYSE, the last reported
regular-way sale price of the Common Stock on the principal stock exchange or
market of the Nasdaq Stock Market on which the Common Stock is then listed or
traded, or if the Common Stock is not then listed or traded on any such stock
exchange or market, the average of the closing bid and asked prices in the over-
the-counter market as furnished by any NYSE member firm selected from time to
time by the Issuer for that purpose.
10.8 "Change of Control" means: (a) the sale, lease, transfer, conveyance
or other disposition of all or substantially all of the assets of the Issuer to
any "person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of
the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), in
one transaction or a series of related transactions, other than a Permitted
Owner or (b) the acquisition of beneficial ownership of shares of the Issuer's
Capital Stock by any "person" or "group" (within a meaning of Sections 13(d)(3)
and 14(d)(2) of the Exchange Act or any successor provision to either of the
foregoing, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other a Permitted Owner, by means of an exchange offer,
liquidation, tender offer, consolidation,
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merger, combination, reclassification, recapitalization or otherwise of more
than fifty percent (50%) of the total voting power of all classes of the Voting
Stock of the Issuer or a successor and/or warrants or options to acquire such
Voting Stock, entitled to vote generally in elections of the Issuer's board of
directors.
Notwithstanding clause (b) above, a merger or consolidation that would otherwise
constitute a Change of Control hereunder shall not constitute a Change of
Control if (i) the closing price per share of Common Stock for any five trading
days within the period of ten consecutive trading days ending immediately after
the announcement of such change of control equals or exceeds 105% of the
conversion price of the Preferred Stock in effect on each such trading day or
(ii) at least 90% of the consideration in the transaction or transactions
constituting a change of control pursuant to this clause consists of shares of
Common Stock traded or to be traded immediately following such change of control
on a national securities exchange or the Nasdaq National Market and, as a result
of such transaction or transactions, the Preferred Stock becomes convertible
solely into such Common Stock (and any rights attached thereto).
However, a transaction of a type described above that results in the Common
Stock no longer being listed on a stock exchange or traded on the Nasdaq
National Market would also be treated as a change in control even if a Permitted
Owner were involved.
10.9 "Common Stock" means the Issuer's authorized $.01 par value Class A
Common Stock.
10.10 "Conversion Date" means the date the Issuer or the Transfer Agent
receives the Conversion Notice.
10.11 "Conversion Notice" means written notice from the Holder to the
Issuer stating that the Holder elects to convert all or a portion of the shares
of Preferred Stock represented by certificates delivered to the Issuer or the
Transfer Agent contemporaneously. The Conversion Notice will specify or include:
(i) The number of shares of Preferred Stock being converted by the
Holder,
(ii) The name or names (with address and taxpayer identification
number) in which a certificate or certificates for shares of Common Stock
are to be issued,
(iii) A written instrument or instruments of transfer in form
reasonably satisfactory to the Issuer or the Transfer Agent, duly executed
by the Holder or its duly authorized legal representative, or in blank, and
(iv) Transfer tax stamps or funds thereof, if required pursuant to
Section 4.6.
10.12 "Conversion Price" shall initially be $40.
10.13 "Conversion Price Adjustment Events" are any of those events
specified in Section 4.2.
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10.14 "Current Market Price" means, as of any date, the average of the
daily Closing Price for the five consecutive Trading Days selected by the Board
of Directors beginning not more than 20 trading days before, and ending not
later than the date of the applicable event described in Section 4.2(c) or
4.2(d) hereof and the date immediately preceding the record date fixed in
connection with that event.
10.15 "Current Market Value" of Common Stock means the average of the high
and low sale prices of the Common Stock as reported on the Nasdaq National
Market or such other SEC-recognized national securities exchange or trading
system which the Issuer may from time to time designate upon which the greatest
number of shares of the Common Stock is then listed or traded, for the trading
day in question.
10.16 "Dividend Payment Date" is as defined in Section 2.1, above.
10.17 "Dividend Payment Record Date" is as defined in Section 2.1, above.
10.18 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
10.19 "Expiration Date" is as defined in Section 4.4(a)(i), above.
10.20 "Fundamental Change" means any transaction or event, including,
without limitation, any merger, consolidation, sale of assets, tender or
exchange offer, reclassification, compulsory share exchange or liquidation, in
which all or substantially all outstanding shares of the Issuer's Common Stock
are converted into or exchanged for stock, other securities, cash or assets.
10.21 "Holder" means a Person in whose name shares of Capital Stock is
registered.
10.22 "Issuance Date" is as defined in Section 2.1
10.23 "Issuer" means XM Satellite Radio Holdings Inc., a Delaware
corporation.
10.24 "Junior Security" is as defined in Section 3.1, above.
10.25 "Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place payment is to be received are
authorized by law, regulation or executive order to remain closed. If a payment
date is Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
10.26 "Liquidation Preference" means $50 per share of Preferred Stock.
10.27 "Mandatory Redemption Price" is as defined in Section 5.4(a), above
10.28 "Market Capitalization" means the product of the then-current market
price times the total number of shares of Common Stock then outstanding.
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10.29 "Market Value" means the average of the Closing Prices of the Common
Stock for the five trading days ending on the last trading day preceding the
date of occurrence of a Change of Control.
10.30 "Notice Date" means the tenth day prior to a Deposit Payment Date.
10.31 "Parity Security" is as defined in Section 3.1, above.
10.32 "Permitted Owner" means American Mobile Satellite Corporation,
General Motors Corporation, DIRECTV and Clear Channel Communications, Inc. and
their respective affiliates.
10.33 "Person" means any individual, corporation, partnership, joint
venture, association, joint-stock issuer, interest, trust or unincorporated
organization (including any subdivision or ongoing business of any such entity
or substantially all of the assets of any such entity, subdivision or business).
10.34 "Preferred Stock" means the Preferred Stock authorized in this
Certificate of Designation.
10.35 "Redemption Agent" means that Person, if any, appointed by the
Issuer to hold funds deposited by the Issuer in trust to pay to the Holders of
shares to be redeemed.
10.36 "Redemption Date" means that certain date set forth in the
Redemption Notice on which date the redemption of the Preferred Stock is
completed.
10.37 "Redemption Notice" means that notice to be given by the Issuer to
the Holders notifying the Holders as to the redemption, in whole or in part, of
the Preferred Stock pursuant to Article 5 hereof. The Redemption Notice shall
include the following information: (i) the Redemption Date and the time of day
on such date; (ii) the total number of shares of Preferred Stock to be redeemed
and, if fewer than all the shares held by such Holder are to be redeemed, the
number of such shares to be redeemed from such Holder; (iii) the Redemption
Price (whether to be paid in cash or shares of Common Stock); (iv) the place or
places where certificates for such shares are to be surrendered for payment of
the Redemption Price and delivery of certificates representing shares of Common
Stock (if the Issuer so chooses); (v) that dividends on the shares to be
redeemed will cease to accrue on such Redemption Date unless the Issuer defaults
in the payment of the Redemption Price; and (vi) the name of any bank or trust
company, if any, performing the duties of Redemption Agent. Redemption Notice
shall be given by first-class mail to each record Holder of the shares to be
redeemed, at such holder's address as the same appears on the books of the
Issuer.
10.38 "Redemption Notice Date" means the date the Redemption Notice is
first mailed or delivered to any Holder.
10.39 "Redemption Price" means that price established for redemption of
the Preferred Stock established in Section 5.1(b) hereof.
10.40 "Special Conversion Date" is as defined in Section 4.3, above.
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10.41 "Special Conversion Price" is the higher of (a) the Market Value of
the Common Stock and (b) $21.3333 per share, which amount, in the case of this
clause (b), shall be adjusted each time that the conversion price is adjusted so
that the ratio of such amount (as so adjusted) to the conversion price (as so
adjusted) equals the ratio of $21.3333 to the initial conversion price.
10.42 "Subsidiary" means, with respect to any person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of such person or a combination
thereof.
10.43 The "Transfer Agent" shall be as established pursuant to Article 11
hereof.
10.44 "Trading Day" means any business day on which the Nasdaq National
Stock Market (or any U.S. national securities exchange or quotation system on
which the Common Stock is then listed) is open for the transaction of business.
10.45 "Voting Stock" means with respect to any Person, Capital Stock of
any class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
11. Transfer Agent and Registrar
The duly appointed Transfer Agent and registrar for the Preferred
Stock shall be BankBoston, N.A. The Issuer may, in its sole discretion, remove
the Transfer Agent in accordance with the agreement between the Issuer and the
Transfer Agent; provided that the Issuer shall appoint a successor transfer
agent who shall accept such appointment prior to the effectiveness of such
removal.
12. Other Provisions
12.1 With respect to any notice to a Holder of shares of the Preferred
Stock required to be provided hereunder, neither failure to mail such notice,
nor any defect therein or in the mailing thereof, to any particular Holder shall
affect the sufficiency of the notice or the validity of the proceedings referred
to in such notice with respect to the other Holders or affect the legality or
validity of any distribution, rights, warrant, reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any such action. Any notice which was mailed in the manner herein
provided shall be conclusively presumed to have been duly given whether or not
the Holder receives the notice.
12.2 Shares of Preferred Stock issued and reacquired will be retired and
canceled promptly after reacquisition thereof and, upon compliance with the
applicable requirements of Delaware law, have the status of authorized but
unissued shares of preferred stock of the Issuer undesignated as to series and
may with any and all other authorized but unissued shares of preferred stock of
the Issuer be designated or redesignated and issued or reissued, as the case may
be, as part of any series of preferred stock of the Issuer except that any
issuance or reissuance of shares of Preferred Stock must be in compliance with
this Certificate of Designation.
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12.3 In the Issuer's discretion, no fractional shares of Common Stock or
securities representing fractional shares of Common Stock will be issued upon
conversion, redemption, or as dividends payable in the Preferred Stock. Any
fractional interest in a share of Common Stock resulting from conversion,
redemption, or dividend payment will be paid in cash based on the last reported
sale price of the Common Stock on the Nasdaq National Stock Market (or any
national securities exchange or authorized quotation system on which the Common
Stock is then listed) at the close of business on the trading day next preceding
the date of conversion or such later time as the Issuer is legally and
contractually able to pay for such fractional shares.
12.4 The shares of Preferred Stock shall be issuable in whole shares.
12.5 All notices periods referred to herein shall commence on the date of
the mailing of the applicable notice.
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IN WITNESS WHEREOF, XM Satellite Radio Holdings Inc. caused this
Certificate to be signed this 25/th/ day of January, 2000.
XM SATELLITE RADIO HOLDINGS INC.
By: /s/ Joseph M. Titlebaum
Name: Joseph M. Titlebaum
Title: Senior Vice President, General
Counsel and Secretary
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EXHIBIT 10.28
CONFIDENTIAL
**** Confidential treatment has been requested for portions of this agreement.
The copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*****]. A complete version of this
agreement has been filed separately with the Securities and Exchange Commission.
CONTRACT FOR THE DESIGN, DEVELOPMENT AND PURCHASE
OF TERRESTRIAL REPEATER EQUIPMENT
By and Between
XM SATELLITE RADIO INC.
and
HUGHES ELECTRONICS CORPORATION
CONFIDENTIALITY NOTICE
----------------------
This attached Contract and the information contained herein is confidential to
XM Satellite Radio Inc. and Hughes Electronics Corporation and shall not be
published or disclosed to any third party without the express written consent of
a duly authorized representative of XM Satellite Radio Inc. and Hughes
Electronics Corporation.
<PAGE>
CONFIDENTIAL
TABLE OF CONTENTS
CONTRACT FOR THE DESIGN, DEVELOPMENT AND PURCHASE
OF TERRESTRIAL REPEATER EQUIPMENT
Terms and Conditions
Exhibit A - Design Specifications
Exhibit B - Statement of Work (SOW)
Exhibit C - Pricing, Milestones and Payment Plan
Exhibit D - Delivery Requirements and Schedule
Exhibit E - Test Plans and Procedures
Exhibit F - Quality Assurance Plan
Exhibit G - Key Contractor Personnel
Exhibit H - Technical Materials Escrow Agreement
Page i
<PAGE>
CONFIDENTIAL
CONTRACT
FOR THE DESIGN, DEVELOPMENT AND PURCHASE
OF TERRESTRIAL REPEATER EQUIPMENT
By and Between
XM SATELLITE RADIO INC.
and
HUGHES ELECTRONICS CORPORATION
TERMS AND CONDITIONS
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TABLE OF CONTENTS
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1. DEFINITIONS AND CONSTRUCTION................................................. 1
1.1 Certain Definitions........................................................ 1
1.2 Other Terms................................................................ 9
1.3 Integration and Construction............................................... 10
1.4 Headings; Number and Gender................................................ 10
2. SCOPE OF WORK................................................................ 11
2.1 General Scope.............................................................. 11
2.2 Statement of Work.......................................................... 11
2.3 Weight and Size of Standard Repeaters...................................... 11
3. STRATEGIC RELATIONSHIP....................................................... 14
3.1 Roof Rights................................................................ 14
3.2 Marketing Support.......................................................... 14
3.3 Alignment of Interests..................................................... 14
4. EFFECTIVE DATE OF CONTRACT ("EDC"); CONDITIONS PRECEDENT; TERM............... 15
4.1 Effective Date of Contract and Conditions Precedent........................ 15
4.2 ATP........................................................................ 15
4.3 Term....................................................................... 15
5. PRICING...................................................................... 16
5.1 Contract Price............................................................. 16
5.2 Changes in Contract Price.................................................. 16
5.3 Most-Favored Customer...................................................... 16
5.4 Taxes...................................................................... 17
6. INVOICING AND PAYMENT........................................................ 18
6.1 Invoicing.................................................................. 18
6.2 Escrow Account and Payment................................................. 20
6.3 Set Off.................................................................... 21
6.4 Late Payment............................................................... 21
6.5 Withholding of Payment..................................................... 22
7. DELIVERY AND TIME FOR PERFORMANCE............................................ 23
7.1 Repeater Category Selection................................................ 23
7.2 Time and Place of Delivery................................................. 23
7.3 Rescheduling of Production................................................. 25
7.4 Packing, Tracking and Shipping............................................. 25
7.5 Liquidated Damages for Late Delivery of Repeaters.......................... 27
7.6 Incentive for Timely Delivery of the Prototype Repeaters................... 28
7.7 Performance Award.......................................................... 28
7.8 Suspension of Work by Customer............................................. 29
7.9 Excusable Delay Defined.................................................... 29
7.10 Contract Adjustments....................................................... 30
8. TESTING CRITERIA AND ACCEPTANCE.............................................. 31
8.1 Testing.................................................................... 31
8.2 Acceptance of Repeaters.................................................... 31
8.3 Acceptance of the Network Management System................................ 33
8.4 Acceptance of Non-Repeater Deliverables.................................... 35
8.5 Title and Risk of Loss..................................................... 36
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9. PROJECT MANAGEMENT........................................................... 38
9.1 Contractor Personnel....................................................... 38
9.2 Material Subcontractors.................................................... 39
9.3 Subcontractor Relations.................................................... 39
9.4 Customer Third-Party Services and Products................................. 40
9.5 Quality Assurance.......................................................... 40
9.6 Accountability............................................................. 40
10. CHANGES IN SCOPE OF WORK..................................................... 41
10.1 Changes Requested by Customer.............................................. 41
10.2 Changes Requested by Contractor............................................ 41
10.3 Pricing of Changes......................................................... 42
11. SECURITY INTEREST............................................................ 43
12. ACCESS TO WORK............................................................... 44
12.1 Access to Work............................................................. 44
12.2 Documentation.............................................................. 44
12.3 Electronic Access.......................................................... 44
12.4 Meetings................................................................... 44
12.5 Financing Entities......................................................... 45
13. TECHNICAL MATERIALS ESCROW................................................... 46
14. INTELLECTUAL PROPERTY RIGHTS................................................. 50
14.1 Ownership of Intellectual Property Rights.................................. 50
14.2 Joint Inventions........................................................... 50
14.3 Intellectual Property Rights License Grant................................. 51
14.4 Third-Party Intellectual Property Rights................................... 51
14.5 Contractor Restriction on Use of Foreground Intellectual Property Rights... 52
15. CONFIDENTIALITY.............................................................. 53
15.1 Confidentiality Obligations................................................ 53
15.2 Exceptions................................................................. 53
15.3 No License................................................................. 54
15.4 Return of Confidential Information......................................... 54
15.5 Inconsistent Legends....................................................... 55
16. RECORDS RETENTION............................................................ 56
17. REPRESENTATIONS AND WARRANTIES............................................... 57
17.1 Work Standards............................................................. 57
17.2 Design and Performance Warranties.......................................... 57
17.3 Documentation.............................................................. 59
17.4 Inducements................................................................ 59
17.5 Viruses.................................................................... 59
17.6 Disabling Code............................................................. 59
17.7 Year 2000.................................................................. 60
17.8 Compliance with Applicable Law............................................. 60
17.9 Warranty Disclaimer........................................................ 60
17.10 Warranty Period............................................................ 60
17.11 Remedies (Repeaters)....................................................... 61
17.12 Remedies (Network Management System)....................................... 63
17.13 Pattern Defect............................................................. 63
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18. CONTRACTOR'S ADDITIONAL REPRESENTATIONS AND WARRANTIES........................ 65
19. CUSTOMER'S REPRESENTATIONS AND WARRANTIES..................................... 67
20. INSURANCE..................................................................... 68
20.1 General.................................................................... 68
20.2 Specific Insurance Requirements............................................ 68
20.3 Certificates of Insurance.................................................. 70
21. INDEMNIFICATION............................................................... 71
21.1 Indemnity by Contractor.................................................... 71
21.2 Indemnity by Customer...................................................... 71
21.3 Intellectual Property Infringement Indemnification......................... 71
21.4 Indemnification Procedures................................................. 72
21.5 Waiver of Subrogation...................................................... 73
22. LIABILITY..................................................................... 74
22.1 General Intent............................................................. 74
22.2 Liability Restrictions..................................................... 74
22.3 Contractor Responsibility for Certain Claims............................... 74
23. DISPUTE RESOLUTION............................................................ 76
23.1 Informal Dispute Resolution................................................ 76
23.2 Arbitration................................................................ 76
23.3 Litigation................................................................. 78
23.4 Continued Performance...................................................... 79
24. DEFAULT AND CORRECTION PLAN................................................... 80
24.1 Material Breach............................................................ 80
24.2 Key Tasks.................................................................. 81
25. TERMINATION................................................................... 82
25.1 Termination for Customer's Convenience..................................... 82
25.2 Termination For Contractor's Default....................................... 84
25.3 Termination for Customer's Default......................................... 86
25.4 Termination/Expiration Assistance.......................................... 89
26. OPTIONS....................................................................... 90
26.1 Option to Purchase Additional Repeaters.................................... 90
26.2 Network Management System - Video Wall..................................... 90
26.3 Annual Maintenance of [*****].............................................. 91
26.4 Contract Adjustments....................................................... 91
27. CONTRACTOR GUARANTEE.......................................................... 92
28. GENERAL....................................................................... 93
28.1 Assignment................................................................. 93
28.2 Entire Agreement........................................................... 94
28.3 Amendments................................................................. 94
28.4 Waiver of Breach of Contract............................................... 94
28.5 Remedies Cumulative........................................................ 94
28.6 Severability............................................................... 94
28.7 Applicable Law............................................................. 95
28.8 Notices.................................................................... 95
28.9 Relationship of the Parties................................................ 96
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28.10 Media Releases............................................................. 96
28.11 Calculation of Interest.................................................... 96
28.12 Survival................................................................... 96
28.13 No Third-Party Beneficiaries............................................... 97
28.14 Consents and Approvals..................................................... 97
28.15 Lender Requirements........................................................ 98
28.16 No Solicitation............................................................ 98
28.17 Time of the Essence........................................................ 98
28.18 Covenant of Good Faith..................................................... 98
28.19 Counterparts............................................................... 98
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CONTRACTFOR THE DESIGN, DEVELOPMENT AND PURCHASE OF
TERRESTRIAL REPEATER EQUIPMENT
THIS CONTRACT FOR THE DESIGN, DEVELOPMENT AND PURCHASE OF TERRESTRIAL
REPEATER EQUIPMENT (the "Contract") is made this 14th day of February 2000 (the
"Execution Date") by and between XM SATELLITE RADIO INC. ("Customer"), a
Delaware corporation with offices located at 1250 23/rd/ Street, N.W., Suite 57,
Washington, D.C. 20037, and HUGHES ELECTRONICS CORPORATION, a Delaware
corporation by and through its division, Hughes Network Systems ("Contractor"),
having a place of business at 10450 Pacific Center Ct., San Diego, CA 92121. As
used in this Contract, "Party" means either Customer or Contractor and "Parties"
means Customer and Contractor.
WHEREAS, Customer is implementing a satellite system designed to provide
digital audio radio services to the continental United States; and
WHEREAS, Customer anticipates providing the business referred to above
through two (2) geostationary satellites, a network of terrestrial repeaters
located in various cities within the continental United States and end-user
receivers; and
WHEREAS, Contractor has represented that it (together with its
Subcontractors) is qualified to design, develop, engineer, manufacture, and
deliver the terrestrial repeaters required for such networks and has the
necessary skill and experience to perform such other services as described in
this Contract in a cost-effective, professional and timely manner; and
WHEREAS, the Parties have reached agreement on the terms and conditions of
procurement by Customer from Contractor of the design, development, engineering,
and manufacturing services related to the terrestrial repeaters and to the other
services and activities as set forth and further defined in this Contract.
NOW THEREFORE, in consideration of the mutual promises and undertakings
contained herein, the Parties, intending to be legally bound, hereby agree as
follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Certain Definitions.
(a) "Acceptance" means, with respect to any item to be delivered
hereunder, written notification from Customer to Contractor stating that such
item has satisfied the testing and acceptance criteria applicable to that item
in accordance with Article 8 (Testing Criteria and Acceptance).
(b) "Affiliate" means, with respect to an entity, any other entity
Controlling or Controlled by or under common Control with such entity.
(c) "Amendment to this Contract" or "Amendment" means a written agreement
modifying the terms of this Contract executed in accordance with Article 28.3
(Amendments).
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(d) "Approval" means written approval. This term is as defined, whether or
not capitalized in this Contract.
(e) "Associates" means, with respect to an entity, its directors,
officers, employees agents, consultants, and assigns.
(f) "Background Intellectual Property Rights" means all Intellectual
Property Rights in or to the Work that came into existence prior to and/or apart
from this Contract.
(g) "Business Day" means any day other than the following: a Saturday,
Sunday, and any other day on which national banks are authorized to be closed in
New York City, New York.
(h) "Calendar Day" means any day.
(i) "Change Directive" means a written directive executed by Customer
directing Contractor to proceed with a change in the Work pending final
determination of the appropriate change, if any, in the Contract Price and/or
any applicable delivery dates hereunder.
(j) "Change Order" means a written document, executed by both Customer and
Contractor, setting forth a change in the Work and agreement between Customer
and Contractor as to the change in the Contract Price and/or any applicable
delivery dates hereunder associated with such change in the Work.
(k) "Confidential Information" means all information, of any nature and in
any form, whether written, oral or recorded or transmitted electronically or by
tape or other similar manner, regarding the business, finances, operations,
prospects, plans, or affairs of the Furnishing Party (including its Affiliates,
Subcontractors, or Consultants), and all data, processes, materials, and
software in source code and object code form, related documentation, and other
technical data that is confidential and embodies trade secrets or other
proprietary information of the Furnishing Party, which information is designated
in writing by the Furnishing Party as confidential; provided, however, that if
disclosed orally, such information must be confirmed and designated in writing
in summary form as confidential within five (5) Business Days of the time at
which oral disclosure took place. This Contract is deemed Confidential
Information of each Party.
(l) "Consultant" means a person or organization retained by Customer to
provide Customer with technical advice and related services and identified by
Customer to Contractor.
(m) "Contract" means the written instrument herein dated the day and year
first written above, including any Amendments made pursuant to Article 28.3
(Amendments), and Change Orders made pursuant to Article 10 (Changes in Scope of
Work), embodying the agreement between Contractor and Customer and including the
Terms and Conditions, attachments and Exhibits (and attachments thereto),
annexed hereto and made a part of this Contract.
(n) "Contractor Facility" means each facility at or from which Contractor
or its Subcontractors perform the Work.
(o) "Control" and its derivatives mean, with respect to an entity, the
legal, beneficial, or equitable ownership, directly or indirectly, of fifty
percent (50%) or more of the capital stock (or
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other ownership interest if not a corporation) of such entity ordinarily having
voting rights or the power to direct the management policies of such entity,
whether through the ownership of voting stock, by contract, or otherwise.
(p) "Correction Plan" means a plan submitted by Contractor that details
the means by which Contractor shall correct a failure to perform any material
duty or obligation under this Contract.
(q) "Customer Competitor" means any existing or future Satellite Digital
Radio Services (SDARS) licensee, including CD Radio. "Customer Competitor" shall
not include Contractor, Contractor's Affiliates or WorldSpace Satellite Company
(to the extent Customer sublicenses the Foreground Intellectual Property Rights
to WorldSpace).
(r) "Customer's Designated Representative" means Jack Wormington, Senior
Vice President of Engineering and Operations, or his successor or designee in
writing.
(s) "Customer Personnel" means Customer's employees, Consultants or
representatives, or Customer's Consultants' employees.
(t) "Data and Documentation" means that data and documentation to be
supplied by Contractor pursuant to the requirements of Exhibit B (Statement of
Work).
(u) "Defect" and its derivatives (such as "defective") means any failure
of any Repeater, the Network Management System or other deliverable item to
operate in conformance with its applicable specifications as set forth in
Exhibit A (Design Specifications) or in accordance with its applicable
acceptance criteria as set forth in Article 8 (Testing Criteria and Acceptance).
This term is as defined, whether or not capitalized in this Contract.
(v) "Delivery Requirements" means the delivery requirements for the
Repeaters and other deliverables set forth in Exhibit D (Delivery Requirements
and Schedule).
(w) "Detailed Delivery Schedule" means the detailed schedule for delivery
of the Repeaters and other deliverables as may be set forth in Exhibit D
(Delivery Requirements and Schedule)
(x) "Effective Date" or "EDC" has the meaning set forth in Article 4.1
(Effective Date of Contract and Conditions Precedent).
(y) "Enclosure Kit" means, in the case of Standard Repeaters, the Repeater
enclosure with all equipment contained therein, the enclosure door with air
conditioning unit and the plinth (the enclosure and enclosure door with air
conditioning unit to be shipped in separate containers for a total of two (2)
containers) and the plinths to be shipped, at Contractor's option, in a separate
container or in bulk), and, in the case of High-Power Repeaters, the Repeater
enclosure, including controller rack, coupler, transmit filter and all other
equipment contained therein.
(z) "Escrowed Materials" has the meaning set forth in Article 13
(Technical Materials Escrow).
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(aa) "Excusable Delay" has the meaning set forth in Article 7.9 (Excusable
Delay Defined).
(bb) "Execution Date" means the date first set forth above.
(cc) "Financing Agreements" means any and all documents and agreements
executed in connection with the debt or equity financing to be obtained by
Customer from Financing Entities to provide all or a substantial portion of the
funds to finance the Work, and all security instruments, mortgages, assignments
and related documentation executed or delivered to secure repayment of such
financing.
(dd) "Financing Entity" means any financial institution, bank, corporation,
partnership or other entity (other than Contractor, its Affiliates or
competitors of Contractor or Affiliates of such competitors), providing all or a
substantial portion of the debt or equity financing to Customer to provide funds
to finance the Work and any insurance companies or financial institutions
providing commercial credit insurance in support of such financing.
(ee) "Foreground Intellectual Property Rights" means all Intellectual
Property Rights in or to the Work which are not Background Intellectual Property
Rights (including those Intellectual Property Rights in and to the Work first
conceived of or first reduced to practice in the performance, execution and/or
completion of the Work).
(ff) "Furnishing Party" means the Party who furnishes Confidential
Information to the other Party.
(gg) "High-Power Installation Testing" has the meaning set forth in Article
8.2 (Acceptance of Repeaters).
(hh) "High-Power Redundant Repeater" means a High-Power Repeater that
utilizes an omni-directional antenna and has a back-up high-power amplifier
(HPA), as further described in Exhibit A (Design Specifications).
(ii) "High-Power Repeater" means a terrestrial repeater that has an RF
power of 2000 Watts evenly divided between two (2) MCM carriers, as further
described in Exhibit A (Design Specifications). High-Power Repeater refers
collectively to both High-Power Redundant Repeaters and High-Power Sectored
Redundant Repeaters.
(jj) "High-Power Sectored Redundant Repeater" means a High Power Repeater
that utilizes paneled/phased-array antennas typically in a 120 degree
application (e.g., an installation consisting of three paneled/phased-array
antennas) and has a redundant high-power amplifier (HPA), as further described
in Exhibit A (Design Specifications).
(kk) "Including" and its derivatives (such as "include" and "includes")
means including without limitation. This term is as defined, whether or not
capitalized in this Contract.
(ll) "Installation Site" means a building rooftop or other site (e.g.,
antenna site) located in any of various cities throughout continental United
States at which a Repeater is to be installed.
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(mm) "Intellectual Property Rights" means any and all common law and
statutory proprietary rights, including Patent Rights, Trademark Rights, Trade
Secret Rights and Copyrights Rights (each term as defined below), existing from
time to time under the intellectual property Laws of the United States, any
state or foreign jurisdiction or international treaty regime. The term "Patent
Rights" means any and all common law and statutory rights existing from time to
time under the Laws of the United States, any state or foreign jurisdiction or
international treaty regime with respect to patents, patent applications, and
patent registrations. The term "Trademark Rights" means any and all common law
and statutory rights existing from time to time under the Laws of the United
States, any state or foreign jurisdiction or international treaty regime with
respect to trademarks, service marks, trade names and trade dress. The term
"Trade Secret Rights" means any and all common law and statutory rights existing
from time to time under the Laws of the United States, any state or foreign
jurisdiction or international treaty regime with respect to trade secrets and
data rights. The term "Copyright Rights" means any and all common law and
statutory rights existing from time to time under the Laws of the United States,
any state or foreign jurisdiction or international treaty regime with respect to
copyrights, mask work rights, moral rights and rights in visual works.
(nn) "Joint Intellectual Property Rights" means Foreground Intellectual
Property Rights conceived or reduced to practice jointly by one or more
employees or contractors of both Parties.
(oo) "Joint Inventions" means Joint Intellectual Property Rights for which
patent protection may be sought.
(pp) "Jointly Owned" means, with respect to Joint Intellectual Property
Rights, an equal, undivided interest in and to the Joint Intellectual Property
Rights, as well as in and to patent applications and patents thereon in all
countries, without any obligation of accounting to the other Party.
(qq) "Key Contractor Personnel" has the meaning set forth in Article 9.1
(Contractor Personnel).
(rr) "Key Tasks" has the meaning set forth in Article 24 (Default and
Correction Plan).
(ss) "Klystron Kit" means two (2) Klystron power amplifier ("KPA") units.
(tt) "Law" or "Laws" means any and all laws, including rules, regulations,
codes, injunctions, judgments, orders, ordinances, decrees, rulings, licenses,
authorizations, approvals or consents and charges thereunder, of any federal,
state, local or municipal government of any country (and all agencies thereof)
having jurisdiction over any portion of the Work or the performance of any
portion of the Work.
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***** Certain information on this page has been with the Securities and Exchange
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CONFIDENTIAL
(uu) "Losses" means all losses, liabilities, damages, royalty payments and
claims, and all related costs and expenses (including reasonable legal fees and
disbursements and costs of investigation, expert fees, litigation, settlement,
judgment, interest, and penalties).
(vv) "Lowest Replaceable Unit" or "LRU" means each and any of the
individual block components composing each Repeater as specified in Exhibit A
(Design Specifications) and Exhibit B (Statement of Work).
(ww) "Material Adverse Effect" means any material adverse change in (i)
the legality, validity, or enforceability of this Contract or (ii) the ability
of Customer or Contractor to perform this Contract.
(xx) "Material Subcontract" has the meaning set forth in Article 9.2
(Material Subcontractors).
(yy) "Milestone" means a portion of the definitive, measurable Work, which
shall be completed in accordance with this Contract including Exhibit C
(Pricing, Milestones and Payment Plan) and upon completion of which a payment is
to be made in accordance with such Exhibit C.
(zz) "Milestone Payment" means any of those payments listed as specific
milestone payments in Exhibit C (Pricing, Milestones and Payment Plan).
(aaa) "Milestone Achievement Criteria" has the meaning set forth in
Exhibit C (Pricing, Milestones and Payment Plan).
(bbb) "Network Management System" or "NMS" means the system, comprising
hardware and Software, to be developed by Contractor to monitor the operation
and maintenance of the Repeaters, which system is further described in Exhibit A
(Design Specifications) and Exhibit B (Statement of Work).
(ccc) "Nominal Order" means Customer's initial order to purchase from
Contractor 1,578 Repeaters (excluding Prototype Repeaters) consisting of [*****]
High-Power Repeaters and [*****] Standard Repeaters.
(ddd) "Notice of Defects" means a written notice executed by Customer and
delivered to Contractor identifying any Defects in the Work setting forth in
reasonable detail a description of the Defect.
(zz) "PA Kit" has the meaning set forth in Article 2.3 (Weight and Size
of Repeaters).
(eee) "Pattern Defect" has the meaning set forth in Article 17.13 (Pattern
Defect).
(fff) "Payment Escrow Account" has the meaning set forth in Article 0
(Escrow Account and Payment).
(ggg) "Payment Escrow Agent" has the meaning set forth in Article 0
(Escrow Account and Payment).
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(hhh) "Performance Award" has the meaning set forth in Article 7.7
(Performance Award).
(iii) "Permitted Lien" means any lien, security interest, mortgage,
assignment, pledge, encumbrance or charge of any kind in favor of the Financing
Entities under the Financing Agreements.
(jjj) "Prototype Repeater" means the terrestrial repeaters, as further
described in Exhibit A (Design Specifications) and Exhibit B (Statement of
Work), that Contractor shall develop for the test network to be established in
Pittsburgh, Pennsylvania. Each Prototype Repeater shall include all working and
fully operational LRUs.
(kkk) "Project Completion Date" means the date upon which the Network
Management System, the last Repeater and all other deliverable items required to
be provided hereunder have been delivered and have achieved Acceptance.
(lll) "Regional Inventory Storage Facility" means a facility to be
maintained by Customer, or its designee(s), for storing an inventory of Lowest
Replaceable Units or other components for the Repeaters for use by Customer, or
its designee(s), in performing maintenance and repairs on installed Repeaters.
As of the Effective Date of Contract, a Regional Inventory Storage Facility will
be located in each of the following six (6) cities: San Francisco, California;
Los Angeles, California; Dallas/Ft. Worth, Texas; New York, New York;
Washington, DC; and Atlanta, Georgia.
(mmm) "Repeater" means collectively any Prototype Repeater, Standard
Repeater, High-Power Repeater, or other terrestrial repeater, the LRUs and other
components, parts and sub-parts contained therein, and any Software, all as
required to be delivered by Contractor to Customer hereunder.
(nnn) "Repeater Design Verification Testing" has the meaning set forth in
Article 8.2 (Acceptance of Repeaters).
(ooo) "Repeater In-Factory Testing" has the meaning set forth in Article
8.2 (Acceptance of Repeaters).
(ppp) "Rooftop Assembly" has the meaning set forth in Article 2.3 (Weight
and Size of Repeaters).
(qqq) "Rooftop Testing" has the meaning set forth in Article 2.3 (Weight
and Size of Repeaters).
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(rrr) "Software" means the machine readable computer code or embedded
code, used to instruct a processor to perform a task or series of tasks in
object code form including firmware, files, databases, interfaces, documentation
and other materials related thereto necessary to make each deliverable item
achieve its applicable specifications, as such Software may be revised, updated,
corrected and enhanced from time-to-time and provided to Customer pursuant to
this Contract.
(sss) "Staging Area" means each site to which Contractor shall deliver
Repeaters. The cities in which the Staging Areas shall be located are as
specified in Exhibit D (Delivery Requirements and Schedule).
(ttt) "Standard Non-Redundant Repeater" means a Standard Repeater that
utilizes an omni-directional antenna and has no redundant/back-up LRUs, as
further described in Exhibit A (Design Specifications).
(uuu) "Standard Repeater" means a terrestrial repeater that has an RF
power of 200 Watts evenly divided between two (2) MCM carriers, as further
described in Exhibit A (Design Specifications). Standard Repeater collectively
refers to both Standard Non-Redundant Repeaters and Standard Sectored Non-
Redundant Repeaters.
(vvv) "Standard Sectored Non-Redundant Repeater" means a Standard Repeater
that utilizes paneled/phased-array antennas typically in a 120 degree
application (e.g., an installation consisting of three paneled/phased-array
antennas) and has no redundant/back-up LRUs, as further described in Exhibit A
(Design Specifications).
(www) "Start of Production Date" means July 1, 2000, as such date may be
adjusted by the Parties in accordance with this Contract.
(xxx) "Statement of Work" or "SOW" means the Work described in Exhibit B
to this Contract which shall be provided and performed by Contractor.
(yyy) "Subcontract" means a contract awarded by Contractor to a
Subcontractor or a contract awarded by a Subcontractor for a portion of the
Work.
(zzz) "Subcontractor" means a person, firm, corporation, or business
entity that has been awarded a Subcontract.
(aaaa) "Technical Materials" means the detailed technical, engineering and
design information and specifications of any kind relating to the Prototype
Repeaters, Standard Repeaters, High-Power Repeaters, each LRU, and the Network
Management System, including Background and Foreground Intellectual Property,
specifications, functional specifications, interface specifications, hardware
and circuit diagrams, schematic diagrams, third-party supplier information
(including name, address, and parts numbers), and associated documentation.
(bbbb) "Terrestrial Repeater Network System" means the two (2)
geostationary satellites and the system of terrestrial repeater networks located
in various cities within the continental United States owned and operated by
Customer.
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(cccc) "Virus" means: (i) program code, programming instruction or set of
instructions intentionally constructed with the ability to damage, interfere
with or otherwise adversely affect the performance or operation of any
deliverable item, including the Repeaters, any LRU, the Network Management
System, computer programs, embedded code or chips, data files or operations; or
(ii) other code typically designated to be a virus (including, for example,
"worms," "Trojan horses" and similar items).
(dddd) "Work" means all services (including design, development,
engineering, manufacturing, testing and management services), labor, equipment,
materials, articles, matters, acts (including tests to be performed), and things
to be furnished by Contractor, including Repeaters, and rights to be transferred
by Contractor in the performance of this Contract, all as described in Exhibit B
(Statement of Work) and Exhibit E (Test Plans and Procedures). "Work" also
includes Contractor's warranty obligations set forth herein and any services and
things to be furnished pursuant to any options that may be exercised by Customer
hereunder.
(eeee) "Year 2000 Compliant" means, with respect to the Work, including
Repeaters, that the Work (i) is capable of properly accepting, recording,
storing, processing, displaying and outputting calendar dates falling before, on
or after January 1, 2000, (ii) is either capable of (A) accepting, recording,
storing, processing, displaying and outputting data containing a four-digit year
date format without any loss of functionality and in a manner that correctly
interprets the data or (B) responding to two-digit year inputs in a way that
resolves any ambiguity as to the century in a disclosed, defined and pre-
determined manner, (iv) includes date data century recognition calculations that
accommodate same century and multi-century formulae and date values and date
data interface values that reflect the century, and (v) is capable of accounting
for the fact that the year 2000 is a leap year, as well as identifying
subsequent leap years.
1.2 Other Terms.
Other terms in this Contract are defined in the context in which they are
used and shall have the meanings there indicated.
1.3 Integration and Construction.
(a) The documents listed below in this Article 1.3 (Integration and
Construction), including any Exhibits, attachments, and schedules, as amended
from time to time in accordance with Article 28.3 (Amendments), constitute this
Contract and shall be deemed to constitute one fully integrated agreement
between the Parties. In the event of any conflict or inconsistency among the
provisions of the various documents of this Contract, such conflict or
inconsistency shall be resolved by giving a descending level of precedence to
the documents in the order set forth below:
(1) Terms and Conditions
(2) Exhibit A - Design Specifications
(3) Exhibit B - Statement of Work (SOW)
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(4) Exhibit C - Pricing, Milestones and Payment Plan
(5) Exhibit D - Delivery Requirements and Schedule
(6) Exhibit E - Test Plans and Procedures
(7) Exhibit F - Quality Assurance Plan
(8) Exhibit G - Key Contractor Personnel
(9) Exhibit H - Technical Materials Escrow Agreement
(b) Exhibits A, B, C, D, E, F, G and H are attached to and incorporated
into these Terms and Conditions.
1.4 Headings; Number and Gender.
The article headings are for convenience of reference only and shall not be
considered in interpreting the text of this Contract. Words in the singular
include the plural and vice versa, and words imputing the masculine gender
include the feminine and neuter genders where the context so requires.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2. SCOPE OF WORK
2.1 General Scope.
(a) In accordance with the requirements of this Contract, Contractor shall
furnish and perform and Customer shall purchase the Work.
(b) Without limiting the generality of the foregoing, Contractor shall
furnish the following in accordance with this Contract:
(1) Seven (7) Prototype Standard Repeaters;
(2) One (1) Prototype High-Power Repeater;
(3) [*****] Standard Repeaters;
(4) [*****] High-Power Repeaters;
(5) Training;
(6) Data and Documentation; and
(7) Network Management System.
2.2 Statement of Work.
The Statement of Work attached hereto as Exhibit B includes descriptions of
certain of the Parties' roles and responsibilities with respect to the design,
development, manufacture, delivery and testing of the Repeaters. Any role or
responsibility not specifically described in Exhibit B (Statement of Work) that
is implied by or required for the proper performance of any role or
responsibility expressed in the Statement of Work shall be deemed included as
part of such expressed role or responsibility.
2.3 Weight and Size of Standard Repeaters.
This Article 2.3 (Weight and Size of Standard Repeaters) applies only to
Standard Repeaters.
(a) The Parties acknowledge and agree that the weight and dimensions for
the Standard Repeaters as set forth in Exhibit A (Design Specifications) are
heavier and larger than the Parties originally anticipated under the ATP and
that each of the Parties has agreed to undertake certain responsibilities
relating to the increased weight and dimensions to facilitate the installation
of the Standard Repeaters by Customer's Terrestrial Repeater Network System
integrator at Installation Sites.
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(b) Regarding Standard Repeaters, upon completion of the Repeater In-
Factory Testing pursuant to Article 8.2(a)(2), Contractor shall disassemble the
Repeaters so that the disassembled Repeaters may be shipped in multiple
containers. The Standard Repeaters shall be disassembled into two (2) separate
kits as follows:
(1) The Enclosure Kit; and
(2) The "PA Kit" which shall consist of the power amplifier (to be
shipped separately), the filter and the coupler (to be shipped
together).
(c) Contractor shall ship the plinths to the Staging Areas in accordance
with Article 7.4 (Packing, Tracking and Shipping) as reasonably directed by
Customer, or its designee, so that the plinths arrive at the Staging Areas on or
before five (5) Business Days prior to the arrival of the balance of the
Enclosure Kits to the Staging Areas to facilitate the early site preparation
work being performed by Customer's Terrestrial Repeater Network System
integrator. Contractor shall ship the Enclosure Kits (less the plinths) to the
Staging Areas in accordance with Article 7.2 (Time and Place of Delivery) and
Article 7.4 (Packing, Tracking and Shipping).
(d) Contractor shall ship the PA Kits in accordance with Article 7.4
(Packing, Tracking and Shipping) directly to the Installation Sites. Customer
shall inform Contractor in writing on a weekly basis of the Installation Sites
where an Enclosure Kit has been installed by Customer's Terrestrial Repeater
Network System integrator. Customer shall arrange for such installation to
include the assembly of the Repeater enclosure on the plinth and the
reattachment of the enclosure door to the enclosure (without connection of the
air conditioning unit). Within five (5) Business Days of Contractor's receipt of
such notice, Contractor shall deliver the PA Kit to the Installation Site and
perform all work necessary to reassemble the PA Kit with the Enclosure Kit (the
"Rooftop Assembly") to allow the Repeater to function in accordance with the
requirements set forth in Exhibit A (Design Specifications).
(e) To ensure that the Repeater functions in accordance with the
requirements set forth in Exhibit A (Design Specifications), Contractor shall,
immediately upon completion of the Rooftop Assembly, conduct Rooftop Testing.
Such Rooftop Testing shall be performed by Contractor in accordance with Exhibit
E (Test Plans and Procedures) (to be developed hereunder) and Article 8.2
(Acceptance of Repeaters) and shall be completed within the five (5) Business
Day period set forth above.
(f) Contractor shall be responsible for the difference, if any, in the
cost of a load spreader required to install the Repeater, at its actual weight,
over and above the cost that would have been incurred for a load spreader
required to install a 180 kg. Repeater. Such amount shall be determined without
any mark-up or additional charge to Contractor and shall be treated as a credit
pursuant to Article 6.1(b). If Customer believes a credit is due under this
paragraph, then Customer shall provide, along with the written notice to
Contractor required by Article 6.1(b), such supporting documentation as may be
reasonably required to determine the amount of such credit.
(g) Contractor shall be responsible for the difference, if any, in the
cost required to ship the Enclosure Kit, at its actual weight, from the Staging
Areas to the Installation Sites over and
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above the cost that would have been incurred for shipping a 180 kg. Standard
Repeater from the Staging Areas to the Installation Sites. Such amount shall be
determined without any mark-up or additional charge to Contractor and shall be
treated as a credit pursuant to Article 6.1(b). If Customer believes a credit is
due under this paragraph, then Customer shall provide, along with the written
notice to Contractor required by Article 6.1(b), such supporting documentation
as may be reasonably required to determine the amount of such credit.
(h) The Parties believe that the need for structural analysis at the
Installation Sites due to the increased weight of the Standard Repeaters will be
greatly minimized if a proper load spreading device is used. Based on this
belief, Customer agrees to assume the costs associated with such structural
analyses; provided, however, if, after the first fifty (50) Installation Sites
are selected by Customer's Terrestrial Repeater Network System integrator, it is
determined that a structural analysis was required on in excess of seventy (70%)
of such Installation Sites, the Parties agree to meet and discuss, in good
faith, an equitable division of the costs associated with the increased need for
such structural analyses.
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3. STRATEGIC RELATIONSHIP
3.1 Roof Rights.
In the event Customer desires to locate a Repeater on the roof of a
building owned, leased or managed by Contractor, Customer shall make such
request to Contractor in writing, indicating the location of such building.
Contractor shall promptly respond in writing to Customer's request to indicate
whether Contractor is willing to grant such roof rights to Customer, in which
event the Parties shall negotiate reasonable terms and conditions applicable to
such roof rights.
3.2 Marketing Support.
Where requested by Customer, Contractor will provide reasonable technical
marketing support to Customer, in accordance with Exhibit B (Statement of Work),
including in support of Customer's business opportunities consistent with
Contractor's other obligations.
3.3 Alignment of Interests.
Contractor agrees to cooperate with Customer and to take no materially
adverse position (in trade associations, regulatory bodies, the press, and
otherwise) with respect to the FCC spectrum assigned and designated for use by
Customer.
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4. EFFECTIVE DATE OF CONTRACT ("EDC"); CONDITIONS PRECEDENT; TERM
4.1 Effective Date of Contract and Conditions Precedent.
(a) This Contract shall be effective as of October 22, 1999 ("Effective
Date or "EDC").
(b) Contractor shall have no obligation to commence the Work until
Contractor's receipt of Milestone Payment No. 1.
4.2 ATP.
The Parties acknowledge and agree that, as of the Execution Date of this
Contract, (i) all Contractor effort in respect of the Work pursuant to the ATP
shall be deemed performed under this Contract; (ii) there are no unfulfilled
obligations or claims under the ATP; (iii) in the event the ATP has not expired
or terminated as of the Execution Date of this Contract, the ATP is hereby
terminated; and (iv) the provisions of this Contract shall govern the rights and
obligations of the Parties with respect to matters arising under the ATP.
4.3 Term.
The term of this Contract shall commence on EDC and continue until all the
Work is completed in accordance with this Contract, unless terminated earlier in
accordance with Article 25 (Termination) (the "Term").
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5. PRICING
5.1 Contract Price.
In consideration of Contractor's performance of the Work in accordance with
this Contract, Customer shall pay Contractor the amounts determined in
accordance with Exhibit C (Pricing, Milestones and Payment Plan) (collectively
the "Contract Price") and in accordance with the payment conditions and
Milestones set forth therein, as may be adjusted pursuant to this Contract. For
the Work provided or to be provided under this Contract, Customer shall not be
obligated to pay Contractor any amounts in addition to the Contract Price,
except as otherwise specifically provided in this Contract.
5.2 Changes in Contract Price.
Except pursuant to Article 10 (Changes in Scope of Work), Exhibit C
(Pricing, Milestones and Payment Plan), or as otherwise expressly set forth in
this Contract, the Contract Price is not subject to any escalation or to any
adjustment or revision.
5.3 Most-Favored Customer.
(a) If Contractor provides services to, or performs work for, another
customer that are similar to the Work (in nature, scope, volume and duration) to
be provided and performed hereunder, and the prices charged to such customer are
lower than the prices charged to Customer under this Contract, the prices
charged to Customer shall be equitably adjusted to provide to Customer the
benefit of such lower prices. Such adjustment shall be retroactive to the first
date on which the lower charges to such other customer became effective.
(b) Customer may from time to time conduct an audit to examine and assess
Contractor's compliance with the provisions of paragraph (a) above, provided
Customer engages an external auditor, at Customer's expense, to conduct such
audit. Contractor shall cooperate with the audit initiated by Customer and
shall provide the information reasonably requested by Customer to verify its
compliance with paragraph (a) above, provided (i) Contractor shall only provide
such information, including pertinent financial information, to Customer's
designated external auditor and (ii) such external auditor shall execute a
confidentiality agreement reasonably satisfactory to Contractor.
(c) In the event the external auditor determines that Contractor is
providing services to, or is performing work for, another customer that are
similar to the Work (in nature, scope, volume and duration) and the prices
charged for such services or work for the other customer are lower than the
prices charged to Customer hereunder, the external auditor shall provide notice,
in writing, to both Contractor and Customer of its determination and shall
include with such notice any supporting documentation of such pricing
discrepancy. Such documentation provided to Customer shall be sufficiently
redacted to conceal the identity of Contractor's other customer and shall only
include such information as is directly pertinent to the determination made by
the external auditor. Upon receipt of notice of such pricing discrepancy,
Contractor shall promptly implement the lower price adjustment and provide
Customer with appropriate credits in accordance with paragraph (a) above.
5.4 Taxes.
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(a) Contractor shall be responsible for any sales, use, excise, value-
added, services, consumption and other taxes payable by Contractor on any goods
or services used or consumed by Contractor in providing the Work where such tax
is imposed on Contractor's acquisition or use of such goods or services and the
amount of such tax is measured by Contractor's costs in acquiring such goods or
services.
(b) Customer shall be responsible for any applicable sales and use taxes
on any deliverable item, including Repeaters. Contractor shall include on each
invoice, as a separate line item, any such applicable sales and/or use taxes and
Contractor shall remit all such taxes to the appropriate taxing authorities
without any mark-up or other additional charge to Customer. All other excise,
value-added, services, consumption, export, import and other taxes, duties, fees
or charges shall be included in the Contract Price.
(c) Contractor agrees to act as the "Importer of Record" for all the Work,
if required or as applicable. This includes arranging for a customs broker to
record the entry of the goods. As "Importer of Record," Contractor will be
responsible for remitting to customs all appropriate duty and excise tax and all
such duty and excise taxes are included in the Contract Price.
(d) Each Party shall consult and cooperate with the other to minimize the
other's tax liability to the extent legally permissible.
(e) Each Party shall cooperate with the other in the settlement of any
claim for taxes asserted by applicable taxing authorities.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
6. INVOICING AND PAYMENT
6.1 Invoicing.
(a) Contractor shall invoice Customer monthly for all Milestones completed
in accordance with the applicable Milestone Achievement Criteria and all other
applicable requirements of this Contract during the period covered by the
invoice and any other charge permitted by this Contract; provided, however, with
respect to [*****] Milestones set forth in Table 3.2 of Exhibit C (Pricing,
Milestones and Payment Plan), Contractor may invoice Customer [*****] for
Milestones completed during the applicable invoicing period. The invoice shall
show details and supporting documentation as to amounts invoiced as reasonably
required by Customer. Each invoice shall state the number of shipped Enclosure
Kits and/or Accepted Repeaters and shall be accompanied by Contractor's written
certification that the Milestone(s) to which the invoice relates was/were fully
and successfully completed in accordance with the Milestone Achievement Criteria
set forth in Exhibit C (Pricing, Milestones and Payment Plan). Such
certification for Enclosure Kits shall also specify the applicable waybill
number. Each invoice shall also be accompanied by conditional releases of claims
and waivers of liens, in form and substance reasonably satisfactory to Customer,
executed by Contractor and all Subcontractors with respect to the portion of
Work for which payment is sought. With respect to invoices for shipped Enclosure
Kits and Accepted Repeaters, each such invoice shall also specify the pertinent
bar-coded serial number for the LRUs of each such shipped Enclosure Kit and/or
the LRUs of each such Accepted Repeater, pursuant to Article 7.4(b) (Labeling
and Electronic Tracking).
(b) In the event a Party determines a credit is due Customer pursuant to
this Contract, such Party shall notify the other Party in writing. To the extent
the Parties agree on the amount of the credit, if any, due to Customer,
Contractor shall provide Customer with such credit against amounts then due and
owing; if no further payments are due to Contractor, Contractor shall pay the
amount of such credit to Customer within thirty (30) Calendar Days after such
credit becomes due. To the extent the Parties do not agree on the amount of the
credit due to Customer, the matter shall be resolved pursuant to Article 23
(Dispute Resolution).
(c) Contractor shall deliver a copy of each invoice and all details and
supporting documentation to:
XM Satellite Radio Inc.
1250 23rd Street, NW
Suite 57
Washington, DC 20037
Tel: 202-969-7100
Fax: 202-969-7050
Attention: Chief Financial Officer
Copy to: Royce Kincaid
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Vice President, Terrestrial Repeater Program
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
6.2 Escrow Account and Payment.
(a) On or before [*****], Customer shall establish an interest-bearing
escrow account (the "Payment Escrow Account") with a bank or other financial
institution of Customer's choice, and Customer, Contractor and the agent (the
"Payment Escrow Agent") for the Payment Escrow Account shall enter into an
escrow agreement pursuant to which Customer shall pay amounts into the Payment
Escrow Account in accordance with the schedule of escrow payments set forth in
Exhibit C (Pricing, Milestones and Payment Plan). Customer shall maintain such
escrow account until the earlier to occur of the following: (i) all amounts
required to be deposited therein by Customer have been drawn down by Contractor,
(ii) termination of this Contract and payment of Customer's obligations
hereunder, or (iii) July 31, 2001. The costs of establishing and maintaining the
Payment Escrow Account shall be shared equally by the Parties. Customer shall be
entitled to retain all interest and income earned on amounts deposited into the
escrow account.
(b) Customer shall pay Contractor [*****] Milestone Payment No. 1 within
five (5) Business Days after the Execution Date provided Contractor first
furnishes Customer with an invoice therefor. Subject to Article 6.5 (Withholding
of Payment), with respect to [*****] Milestone Payment Nos. 2-5 set forth in
Table 3.1 of Exhibit C (Pricing, Milestones and Payment Plan) and [*****]
Milestone Payments 1-2 in Table 3.3 of Exhibit C, Customer shall pay Contractor
within thirty (30) Calendar Days after receipt from Contractor of an invoice in
accordance with the requirements of Article 6.1 (Invoicing). With respect to the
[*****] Milestone Payments set forth in Table 3.2 of Exhibit C, and subject to
Article 6.5 (Withholding of Payment), within three (3) Business Days after
receipt of an invoice (and required supporting documentation) meeting the
requirements of Article 6.1 (Invoicing) and, with respect to Accepted Repeaters,
Article 8.2 (Acceptance of Repeaters), Customer shall authorize the Payment
Escrow Agent to permit Contractor to draw down from the Payment Escrow Account
the amount invoiced. With respect to invoices for any other charges hereunder,
Customer shall pay Contractor within thirty (30) Calendar Days after receipt
from Contractor of an invoice in accordance with the requirements of Article 6.1
(Invoicing). Notwithstanding the foregoing, all payments made under the
Authorization to Proceed (ATP), executed by the Parties and dated October 22,
1999, shall be credited in full against the Milestone Payments set forth in
Exhibit C (Pricing, Milestones and Payment Plan) until such ATP payments have
been exhausted. Contractor may deliver its invoices and supporting documentation
to Customer via facsimile.
(c) To secure Contractor's interest in Customer's payment of its
obligations hereunder, Customer hereby grants to Contractor a security interest,
which Customer represents and warrants is and shall at all times be a first
priority security interest, in Customer's right, title and interest in and to
amounts deposited by Customer into the Payment Escrow Account (but not interest
or income thereon). Customer hereby agrees to take, at Contractor's expense, all
such actions as may be reasonably requested by Contractor to create, perfect,
maintain and preserve
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
such security interest, including the execution and delivery of such uniform
commercial code financing statements, continuation statements, if any, and
similar documents or instruments as may be required by applicable law as
Contractor may reasonably request. The security interest created herein shall
terminate upon the earlier to occur of the following: (i) all amounts required
to be deposited therein by Customer have been drawn down by Contractor, (ii)
termination of this Contract and payment of Customer's obligations hereunder, or
(iii) July 31, 2001. Upon termination of such security interest, Contractor
shall release and terminate such security of record by filing termination
statements or similar documents in accordance with applicable law. Customer
hereby acknowledges and agrees that the provisions of this paragraph constitute
a security agreement under the provisions of the uniform commercial code in
effect in the jurisdiction applicable to this transaction pursuant to which
Customer has granted a security interest in the Payment Escrow Account.
Notwithstanding the foregoing, Contractor agrees that any security interest
granted hereunder shall be structured in a manner reasonably satisfactory to the
Financing Entities.
(d) Customer shall make, or shall instruct the Payment Escrow Agent to
make, as applicable, payments on account of invoices by wire transfer to the
following bank account (or to such other account as Contractor shall request by
written instruction to Customer signed by Contractor's Chief Executive Officer
or President):
Bank: Allfirst (to the account of Hughes Network Systems)
Address: Baltimore, MD 21203
Account No.: [*****]
ABA No.: [*****]
(e) No payment by Customer shall constitute an Acceptance of any Work not
in accordance with this Contract.
(f) Customer shall have no obligation to pay or be responsible in any way
for payment to a Subcontractor. Contractor shall pay each Subcontractor all
undisputed amounts in accordance with the applicable Subcontract.
6.3 Set Off.
In the event Contractor has not paid Customer any amount due and payable to
Customer under this Contract, or if Customer is entitled to a credit under this
Contract (for example, for overcharges that have been paid by Customer),
Customer shall have the right to set off such amount against payments due to
Contractor.
6.4 Late Payment.
For any payment under this Contract that is overdue, the Party entitled to
such payment shall also be entitled to interest on such payment for each
Calendar Day the payment is overdue
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until the date payment is made, such interest to be calculated in accordance
with Article 28.11 (Calculation of Interest), unless expressly provided
otherwise in this Contract.
6.5 Withholding of Payment.
If Customer, in good faith, does not agree that a Milestone associated with
an invoice has been completed in accordance with this Contract or that such
invoice is otherwise inaccurate, (i) Customer shall pay or authorize payment of,
as the case may be, the undisputed part of such invoice in the time period
required by this Contract and (ii) Customer shall have the right to withhold
payment or authorization of payment, as the case may be, of the disputed portion
of such invoice provided Customer gives to Contractor written notice stating in
reasonable detail the reason for withholding such amount within ten (10)
Business Days after receipt by Customer of the applicable invoice. Upon receipt
of such notice, the Parties shall initiate Dispute Resolution in accordance with
Article 23 (Dispute Resolution).
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
7. DELIVERY AND TIME FOR PERFORMANCE
7.1 Repeater Category Selection.
(a) On or before [*****], Customer shall provide to Contractor, in
writing, a baseline estimate of the distribution of the Nominal Order over the
four (4) categories of Repeaters (i.e., an estimate of how many of the total
number of Standard Repeaters will be Standard Non-Redundant Repeaters and
Standard Sectored Non-Redundant Repeaters and an estimate of how many of the
total number of High-Power Repeaters will be High-Power Redundant Repeaters and
High-Power Sectored Redundant Repeaters) (the "Initial Baseline Estimate").
(b) On or before [*****], Customer shall provide to Contractor, in
writing, an update of the Initial Baseline Estimate, which updated Initial
Baseline Estimate will reflect the definitive distribution of the Nominal Order
over the four (4) categories of Repeaters (the "Definitive Baseline Estimate").
For each category of Repeater, the Definitive Baseline Estimate may differ from
the Initial Baseline Estimate by up to plus or minus [*****]. By way of
illustration and as an example only, if the Initial Baseline Estimate requires
Contractor to manufacture and deliver [*****] Standard Sectored Non-Redundant
Repeaters, Customer may increase or decrease that estimate in the Definitive
Baseline Estimate by up to [*****], such that the Definitive Baseline Estimate
may range from and including [*****] to and including [*****] Standard Sectored
Non-Redundant Repeaters.
7.2 Time and Place of Delivery.
(a) Set forth in Exhibit D (Delivery Requirements and Schedule) are
Customer's Delivery Requirements. The Parties acknowledge that as of the
Effective Date of Contract, however, Customer is unable to establish a detailed
Delivery Schedule for the Enclosure Kits that specifies the timing, quantity and
type of Enclosure Kits to be delivered to each Staging Area in the case of
Standard Repeaters and Installation Sites in the case of High-Power Repeaters.
Accordingly, the Parties are attaching to Exhibit D (Delivery Requirements and
Schedule) a model Delivery Schedule, which model Delivery Schedule shall be
completed and updated from time to time as Customer is able to refine its
Enclosure Kit delivery requirements. As Customer completes and updates the model
Delivery Schedule, it shall provide a copy to Contractor and each such completed
and updated Delivery Schedule shall be called the Detailed Delivery Schedule, be
added to Exhibit D and become a part of and modify this Contract; provided,
however, (i) except as expressly provided in this Contract, including Article
7.3 (Rescheduling of Production), for each month, the total number of Enclosure
Kits to be delivered in such month shall not exceed the total quantity of
Enclosure Kits set forth in the Delivery Requirements for such month and (ii) in
no month will the total number of Enclosure Kits for Standard Sectored Non-
Redundant Repeaters and Enclosure Kits for High-Power Sectored Redundant
Repeaters included in Customer's Monthly Delivery Notice (as defined in
paragraph (b) below) to
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Contractor exceed in the aggregate [*****] for such month ((i) and (ii) together
the "Delivery Schedule Restrictions"). With respect to any calendar month, the
Detailed Delivery Schedule shall apply to that month provided Customer furnished
the Detailed Delivery Schedule to Contractor not less than thirty (30) Calendar
Days prior to the beginning of such month.
(b) Unless and until a Detailed Delivery Schedule is established with
respect to the Nominal Order, Customer shall provide prior written notice to
Contractor of not less than thirty (30) Calendar Days prior to the beginning of
each month in which Enclosure Kits are to be delivered by Contractor pursuant to
this Contract (each a "Monthly Delivery Notice"). Such notice shall specify the
quantity of Enclosure Kits to be delivered to each of the specified Staging
Areas in the case of Standard Repeaters and Installation Sites in the case of
High-Power Repeaters in such month; provided, however, the notice shall comply
with the Delivery Schedule Restrictions set forth in paragraph (a) above.
(c) Contractor shall use its best commercial efforts to deliver the
Enclosure Kits in accordance with the Delivery Requirements set forth in Exhibit
D (Delivery Requirements and Schedule) and, as applicable, the Detailed Delivery
Schedule and each Monthly Delivery Notice provided by Customer pursuant to
paragraph (b) above. In the case of Standard Repeaters, Contractor shall deliver
the PA Kits in accordance with Article 2.3(d) above and in accordance with the
Delivery Requirements set forth in Exhibit D (Delivery Requirements and
Schedule). In the case of High-Power Repeaters, within thirty (30) Calendar Days
after receipt of the Detailed Delivery Schedule or Monthly Delivery Notice
provided by Customer pursuant to paragraph (b) above, Contractor shall (i) ship
to, and install at, the Installation Sites identified in such schedule or notice
the Enclosure Kit and Klystron Kit and (ii) successfully complete High-Power
Installation Site Testing of the complete High-Power Repeater installed at such
Installation Sites. Contractor shall deliver the Network Management System and
other deliverables to be provided pursuant to this Contract in accordance with
the Delivery Requirements set forth in Exhibit D (Delivery Requirements and
Schedule). The Parties acknowledge and agree that the delivery times set forth
in Exhibit D (Delivery Requirements and Schedule), as may be amended, are firm
and time is of the essence.
(d) In the event Contractor is prepared to deliver Enclosure Kits earlier
than required by the Delivery Requirements set forth in Exhibit D (Delivery
Requirements and Schedule) or, as applicable, the Detailed Delivery Schedule or
a Monthly Delivery Notice, Contractor shall promptly provide prior notice to
Customer as to the quantity of Enclosure Kits available for early delivery by
Contractor and the proposed delivery dates therefor. Customer shall, within five
(5) Business Days following receipt of Contractor's notice, provide written
notice to Contractor of Customer's agreement with or rejection of the early
delivery of such Enclosure Kits, which agreement or rejection shall be in
Customer's sole discretion. If Customer agrees to accept early delivery of such
Enclosure Kits, Customer shall also specify in its notice to Contractor the
Staging Area(s) and Installation Site(s) to which such Enclosure Kits should be
delivered.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(e) Contractor shall deliver the Enclosure Kits, in the case of Standard
Repeaters, to the loading dock or other such delivery receiving area of each
Staging Area as specified in the Detailed Delivery Schedule or each Monthly
Delivery Notice, as applicable, and in the case of High-Power Repeaters, to the
Installation Site specified in the Detailed Delivery Schedule or each Monthly
Delivery Notice, as applicable. Contractor shall deliver the PA Kits to each of
the Installation Sites as specified in Customer's notice as provided in Article
2.3(d). Contractor shall deliver the Klystron Kits as set forth in paragraph (c)
above. Contractor shall deliver all other deliverables to the persons and at
the address indicated in Article 28.8 (Notices), except as may otherwise be
required and directed by Customer or specified in the Detailed Delivery
Schedule.
7.3 Rescheduling of Production.
(a) Subject to paragraph (c) below and also in recognition of the
potential for changes in Customer's business or logistical requirements,
Contractor agrees to accommodate a rescheduling of the Start of Production Date
for the Nominal Order of Repeaters to allow for a delay of the start of
production of the Repeaters and an extension of the Start of Production Date for
a period, at Customer's election, of one (1) to three (3) months, provided:
(1) Customer provides Contractor with prior written notice of its
desire to delay the Start of Production Date, such notice to be
given by no later than [*****]; and
(2) Customer takes delivery of the entire Nominal Order by no later
than the last day of the [*****] month following the original
Start of Production Date.
(b) Subject to paragraph (c) below, upon thirty (30) Calendar Days prior
notice, Customer may direct Contractor to defer delivery of up to [*****] of the
total number of Repeaters to be delivered in any month during the Term, provided
that Customer agrees to take delivery of such deferred Repeaters by no later
than the last day of the [*****] month following the Start of Production Date.
(c) Contractor shall in no event be required to manufacture or deliver to
Customer in excess of [*****] Repeaters in any month during the Term of this
Contract.
(d) In the event Customer exercises its right under this Article 7.3
(Rescheduling of Production) to delay the Start of Production Date, the
applicable delivery dates hereunder and dates of Key Tasks shall be adjusted on
a day-for-day basis, and the date of July 31, 2001 set forth in paragraphs (a)
and (c) of Article 0 (Escrow Account and Payment) shall be adjusted on a day-
for-day basis.
7.4 Packing, Tracking and Shipping.
(a) Packing. All deliveries pursuant to this Contract shall be preserved,
-------
packed and crated by Contractor to ensure safe delivery to their destinations
without damage due to shipment.
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(b) Labeling and Electronic Tracking.
--------------------------------
(1) On or before February 4, 2000, the Parties will agree upon
appropriate labeling and electronic asset-tracking requirements
and procedures. Such requirements and procedures will include at
a minimum the labeling of Repeaters and LRUs with bar-coded
serial numbers consistent with the Parties' business requirements
and asset tracking practices. Contractor shall label each
Repeater and LRU, container and packing documentation in
accordance with such requirements and procedures.
(2) Contractor shall notify Customer at least thirty (30) Calendar
Days in advance of any administrative changes with respect to any
Repeater or LRU, such as changes in product part numbers or
descriptions, product discontinuances or substitutions, and newly
compatible or substitute components.
(c) Shipping. Unless otherwise instructed by Customer, Contractor shall:
--------
(1) Arrange for the transportation and shipment of the Repeaters and
other deliverables required to be delivered by Contractor
pursuant to this Contract, such shipments to be made using fully
licensed, bonded and insured common carriers, which carriers
shall have substantial experience in the shipment of electronic
equipment;
(2) Fully insure each Repeater against all risks, in accordance with
Article 20 (Insurance), and maintain such insurance until the
following times: in the case of Standard Repeaters, (i) until
delivery of the Enclosure Kits to the loading dock or other such
delivery receiving area of each Staging Area and (ii) during the
period of Rooftop Assembly and Rooftop Testing until Acceptance;
in the case of PA Kits, until Acceptance of the Standard Repeater
in which the PA Kit is incorporated; and in the case of High-
Power Repeaters, until Acceptance of such Repeaters;
(3) Enclose packing documentation with each shipment and, when more
than one package is shipped, identify the one that contains the
memorandum;
(4) Render invoices in duplicate or as otherwise specified by
Customer;
(5) Verify that bills of lading match corresponding shipping
invoices; and
(6) Forward applicable bills of lading and shipping notices with
items shipped.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
CONFIDENTIAL
7.5 Liquidated Damages for Late Delivery of Repeaters.
(a) The Parties acknowledge and agree that failure to meet the Liquidated
Damages Schedule, as defined and set forth below, on or before the last day of
the month in which delivery of Enclosure Kits is required pursuant to that
Schedule will cause substantial financial loss to, or damage sustained by,
Customer. The Parties further acknowledge and agree that the following
liquidated damages are believed to represent a genuine estimate of the loss (due
to non-productive time and increased cost of money) that would be suffered by
Customer by reason of any such delay (which losses are difficult or impossible
to calculate with reasonable certainty).
(b) Notwithstanding the Delivery Requirements set forth in Exhibit D
(Delivery Requirements and Schedule) and for purposes of calculating liquidated
damages only, in the event the sum of Enclosure Kits for Standard Repeaters
Contractor delivers to Staging Areas plus Enclosure Kits with Klystron Kits for
High-Power Repeaters Contractor ships to Installation Sites is less than the
total number required by the monthly schedule set forth below (the "Liquidated
Damages Schedule"), then, for each such Enclosure Kit in the case of Standard
Repeaters and Enclosure Kit together with Klystron Kit in the case of High-Power
Repeaters not so delivered or shipped, as applicable, Contractor shall pay
Customer, as liquidated damages and not as a penalty, the daily amounts set
forth in the Liquidated Damages Schedule for each Calendar Day following the
last day of the month in which such Enclosure Kit in the case of Standard
Repeaters and Enclosure Kit together with Klystron Kit in the case of High-Power
Repeaters was to be delivered or shipped, as applicable, in accordance with the
Liquidated Damages Schedule below until the date such Enclosure Kit in the case
of Standard Repeaters and Enclosure Kit together with Klystron Kit in the case
of High-Power Repeaters is delivered or shipped, as applicable.
- --------------------------------------------------------------------------------
Liquidated Damages Schedule
- --------------------------------------------------------------------------------
Month Total Quantity of Enclosure Daily Amount of the
Kits and Enclosure Kits with Liquidated Damages for Each
Klystron Kits Subject to Enclosure Kit Delivered/
Liquidated Damages for Late Shipped after the Last Day
Delivery/ of such Month
Shipment if not delivered/
shipped by the last day of
such Month
- --------------------------------------------------------------------------------
[*****] [*****] [*****]
- --------------------------------------------------------------------------------
(c) The monthly quantities of Enclosure Kits subject to liquidated damages
shall not include (i) any Enclosure Kits in excess of the Nominal Order as may
be ordered by Customer pursuant to Article 0 (Options) and (ii) any Enclosure
Kits Customer requires to be delivered or shipped, as applicable, on an
accelerated schedule as against the Delivery Requirements set forth in Exhibit D
(Delivery Requirements and Schedule), provided that, in any event, the
liquidated
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with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
CONFIDENTIAL
damages associated with the quantities set forth in the Liquidated Damages
Schedule shall continue to apply with respect to any Enclosure Kits
delivered/shipped late, as determined under such Liquidated Damages Schedule.
(d) The total amount of liquidated damages for which Contractor may be
liable under paragraph (b) above shall not exceed Three Million Dollars
($3,000,000) in the aggregate.
(e) Customer may deduct any liquidated damages from any amounts due
Contractor, or Customer may require Contractor to pay any liquidated damages
that exceed amounts due Contractor, within thirty (30) Calendar Days after such
request.
(f) As soon as Contractor anticipates or becomes aware of a delay in the
delivery of any Enclosure Kit in the case of Standard Repeaters and/or shipment
of Enclosure Kit together with Klystron Kit in the case of High-Power Repeaters,
Contractor shall, as promptly as possible in the circumstances, notify Customer
by telephone, to be followed by written notice, of such anticipated or actual
delay in the delivery/shipment of any such Enclosure Kit. Such notice shall
indicate the cause of the delay and the expected delivery date of the Enclosure
Kit in the case of Standard Repeaters and shipment date for Enclosure Kit
together with Klystron Kit in the case of High-Power Repeaters. Following
delivery of such notice, Contractor shall provide frequent (e.g., daily) updates
as to the status of and timeframe for delivery/shipment. Such notice of
anticipated or actual delay shall in no way reduce Contractor's liability for
liquidated damages, nor shall it reduce, eliminate, or modify any other rights
or remedies available to Customer pursuant to this Contract or at law or equity.
7.6 Incentive for Timely Delivery of the Prototype Repeaters.
In the event that Contractor achieves timely delivery and Acceptance of all
of the Prototype Repeaters in accordance with the requirements of this Contract
on or before [*****], Customer shall award to Contractor an additional amount of
[*****].
7.7 Performance Award.
(a) In Customer's reasonable discretion, Customer may pay to Contractor a
monetary award in recognition of Contractor's exceptional performance under this
Contract (the "Performance Award"). Such Performance Award may be in an amount
up to, but shall not exceed, the sum of [*****] (the "Available Award Amount").
(b) In making its determination as to whether Contractor shall receive a
Performance Award, Customer shall give consideration to certain factors with
respect to Contractor's performance hereunder, including the following:
(1) Contractor's delivery of high quality Repeaters, Network
Management System and other deliverables;
(2) Contractor's timely performance;
(3) Contractor's efforts and success in recovering from its failure
to meet the applicable delivery dates hereunder;
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(4) Contractor's flexibility, creativity, support, accommodation and
reasonableness in working with Customer and its third-party
service providers (including the Terrestrial Repeater Network
System integrator) to meet the applicable delivery dates
hereunder or Customer's accelerated program requirements and to
adapt to changes in the requirements of Customer's program;
(5) Contractor's demonstrated commitment to Customer's program; and
(6) Contractor's exceptional performance hereunder.
(c) Customer shall make its determination as to whether to make a
Performance Award to Contractor promptly after the Project Completion Date.
Contractor acknowledges and agrees that it is within Customer's sole reasonable
discretion to award any or all of the Available Award Amount and Contractor has
no contractual or legal right to receive a Performance Award. Customer shall pay
to Contractor the Performance Award, if any, within sixty (60) Calendar Days
after the Project Completion Date.
7.8 Suspension of Work by Customer.
Customer, in its sole discretion, may suspend performance of the Work, in
whole or in part, upon written notice to Contractor, and Contractor shall
suspend performance of the Work to the extent specified in such notice within
twenty-four (24) hours thereof. If, within four (4) months of Customer's notice
to suspend the Work, Customer fails to notify Contractor to resume performance
of the Work suspended, Contractor may, at any time thereafter, terminate the
Contract, but only to the extent the Work was suspended, upon ten (10) Business
Days written notice to Customer and shall be entitled to the remedies set forth
in Article 25.3(c) only to the extent of the Work so terminated. In the event
of a suspension under this Article 7.8 (Suspension of Work by Customer), the
Parties shall work together to minimize the impact of such suspension on the
Contract Price, applicable delivery dates hereunder and Contractor's performance
hereunder (and Customer's liability in the event of termination) and Contractor
shall be entitled to an equitable adjustment in the Contract Price and
applicable delivery dates hereunder.
7.9 Excusable Delay Defined.
(a) With respect to Contractor's performance of its obligations under this
Contract, an "Excusable Delay" shall be any delay in the performance of the
Work, in whole or in part, caused by an event that is beyond the reasonable
control of Contractor, its Subcontractors or their respective Affiliates,
including (i) war (whether declared or undeclared), outbreak of national
hostilities, invasion or sabotage; (ii) fire, earthquake, flood, hurricane,
tornado, cyclone, monsoon, epidemic, explosion, or quarantine restriction; (iii)
strike or work slow-down (other than by the employees of Contractor or any
Subcontractor at any Contractor Facility) not reasonably within Contractor's
control; (iv) freight embargoes; (v) acts of God; (vi) governmental action in
its sovereign capacity; and (vii) Customer's failure to perform its obligations
hereunder; provided, however, that no delay shall be an Excusable Delay unless
Contractor gives Customer prompt written notice of the delay and the reasons
therefor and such
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delay could not have been either (x) avoided by Contractor, its Subcontractors
or their respective Affiliates through the exercise of reasonable foresight or
reasonable precautions or (y) circumvented by Contractor, its Subcontractors or
their respective Affiliates through the use of reasonable efforts to establish
work-around plans, alternate sources, or other means. Upon Customer's written
request, Contractor shall provide Customer a Correction Plan. Contractor shall
also provide Customer prompt written notice when the event constituting an
Excusable Delay has ended.
(b) In the event Customer disputes any Excusable Delay asserted by
Contractor, Customer shall notify Contractor in writing within ten (10) Business
Days from the date of notice thereof and, if the Parties have not resolved the
dispute within ten (10) Business Days of Contractor's receipt of written notice
from Customer, the dispute shall be resolved pursuant to Article 23 (Dispute
Resolution).
7.10 Contract Adjustments.
In the event of an Excusable Delay under Article 7.9 (Excusable Delay
Defined), there shall be an equitable adjustment to the applicable delivery
dates hereunder. Contractor acknowledges and agrees the occurrence of an
Excusable Delay shall not entitle Contractor to an increase in the Contract
Price, except for those Excusable Delays caused by Customer's failure to perform
its obligations hereunder, in which case there shall be an equitable adjustment
to the Contract Price.
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8. TESTING CRITERIA AND ACCEPTANCE
8.1 Testing.
Contractor shall develop and provide test plans and procedures in
accordance with Exhibit B (Statement of Work) for Prototype Repeaters on or
before February 28, 2000 and for all other Repeaters (i.e., production
Repeaters) on or before March 31, 2000. Upon Customer's approval of the
applicable test plans and procedures in accordance with Exhibit B, such test
plans and procedures shall be attached hereto and incorporated herein as Exhibit
E (Test Plans and Procedures). Contractor shall test each LRU, Repeater, the
Network Management System and other deliverable items to be provided hereunder
in accordance with such Exhibit E (Test Plans and Procedures).
8.2 Acceptance of Repeaters.
(a) A Repeater shall be deemed to have achieved Acceptance only upon the
occurrence of the following events with respect to such Repeater ("Repeater
Acceptance Criteria"):
(1) With respect to Standard and High-Power Repeaters (including all
Prototype Repeaters), successful completion of Repeater design
verification testing and review ("Repeater Design Verification
Testing") in accordance with the requirements of Exhibit E (Test
Plans and Procedures) (to be developed hereunder). Within five
(5) Business Days following successful completion of the Repeater
Design Verification Testing, Contractor shall provide to Customer
its written certification, in accordance with Exhibit E, that the
Repeater Design Verification Testing has been successfully
completed, together with all test data, results and reports
generated as a result of such Repeater Design Verification
Testing. Unless subsequent design Defects or Pattern Defects are
detected, once the Design Verification Testing has been
successfully completed in accordance with Exhibit E and
Contractor has provided its written certification pursuant to the
preceding sentence, such Repeater Design Verification Testing
shall be deemed to apply to each Repeater of the same type
thereafter delivered by Contractor to Customer pursuant to this
Contract and such Testing need not be re-performed on an
individual basis for each Repeater of the same type;
(2) With respect to Standard Repeaters only (including Prototype
Repeaters), successful completion of (i) a functionality test of
each LRU incorporated in the Repeater and (ii) an overall,
integrated system functionality test of the Repeater. Such
functionality testing shall be performed by Contractor in
accordance with Exhibit E (Test Plans and Procedures) (to be
developed hereunder) prior to shipment of the Repeater from a
Contractor Facility ("Repeater In-Factory Testing"). Contractor
shall deliver with the applicable invoice, its written
certification that Repeater In-Factory Testing has been
successfully completed, together with all test data, results and
reports generated as a result of such In-Factory Testing.
Contractor's certification shall also indicate the pertinent
Repeater's serial or other tracking number, as
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well as the serial or other tracking number of each LRU
incorporated within that Repeater; and
(3) With respect to Standard Repeaters (including Prototype
Repeaters) delivery of the Enclosure Kit and PA Kit relating to
such Repeater as provided in Article 7.2 (Time and Place of
Delivery) and successful completion of the Rooftop Assembly in
accordance with Article 2.3 (Weight and Size of Repeaters) and
successful completion of Rooftop Testing in accordance with
Exhibit E (Test Plans and Procedures) (to be developed
hereunder). Contractor shall provide to Customer with the
applicable invoice its written certification that the Rooftop
Testing has been successfully completed, together with all test
data, results and reports generated as a result of such Rooftop
Testing. Contractor's certification shall also include the
pertinent Repeater's serial or other tracking number, as well as
the serial or other tracking number of each LRU incorporated
within that Repeater.
(4) With respect to High-Power Repeaters, delivery of the High-Power
Repeater's kits (i.e., the Enclosure Kit and Klystron Kit) to the
Installation Site, assembly of such kits at the Installation Site
and successful completion of testing at the Installation Site
("High-Power Installation Site Testing") in accordance with
Exhibit E (Test Plans and Procedures) (to be developed
hereunder). Contractor shall provide to Customer with the
applicable invoice its written certification that the High-Power
Installation Site Testing has been successfully completed,
together with all test data, results and reports generated as a
result of such Testing. Contractor's certification shall also
include the pertinent Repeater's serial or other tracking number,
as well as the serial or other tracking number of each LRU
incorporated within that Repeater.
(b) Customer may, at its election and expense, have its Associates,
Consultants, or other designees attend the Repeater Design Verification Testing,
any Repeater In-Factory Testing, any Rooftop Testing and any High-Power
Installation Site Testing. Attendance by Customer shall be for purposes of
monitoring and observation and shall be on a non-interference basis; provided,
however, Customer may ask questions, make suggestions, or otherwise comment on
the proceedings. Contractor shall notify Customer reasonably in advance of the
time and place for any such testing activities and Customer shall promptly
inform Contractor of its intent to attend the testing. Contractor shall make
arrangements for Customer's entrance and access into Contractor Facility(ies)
for purposes of attending the testing. Customer attendance at any such test
shall in no way be construed or deemed to represent Customer's acceptance of the
items being tested or Customer's waiver of any claims or rights hereunder.
(c) For each Repeater, Customer or its designee shall provide Contractor
written notification of its acceptance or rejection of such Repeater within five
(5) Business Days after receipt of Contractor's written certification that the
Rooftop Testing or High-Power Installation Site Testing, as applicable, has been
successfully completed in accordance with Exhibit E (Test Plans and Procedures)
and provision of all certifications required by paragraph (a) above. Customer
shall accept each Repeater if the Repeater meets the Repeater Acceptance
Criteria as set forth in paragraph (a) above. In the event Customer provides to
Contractor a notice of
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Customer's Acceptance of a Repeater, the Accepted Repeater shall be deemed
Accepted as of the date of such notice.
(d) In the event Customer rejects a Repeater, Customer shall provide
Contractor with a Notice of Defects. If Contractor disputes the contents of a
Notice of Defects, Contractor shall notify Customer in writing of the basis for
its dispute within five (5) Business Days of receipt of Customer's Notice of
Defects.
(e) Where Customer fails to provide Contractor written Acceptance or
Notice of Defects within the five (5) Business-Day Period specified in paragraph
(c) above, that Repeater shall be deemed to have achieved Acceptance as of the
date Contractor delivered the certifications required by paragraph (a) above.
(f) In the event Contractor does not dispute such Notice of Defects,
Contractor shall promptly (but within no more than forty-eight (48) hours after
receipt of the applicable Notice of Defects) ship the conforming replacement for
the defective Repeater or defective LRU, as applicable, and all delivery dates
hereunder shall remain in effect. The replacement Repeater shall be subject to
the Repeater Acceptance Criteria and procedures set forth in this Article 8.2
(Acceptance of Repeaters). Any Repeater repaired or reconstructed with a
replacement LRU shall also be subject to the Repeater Acceptance Criteria and
procedures set forth in this Article 8.2 (Acceptance of Repeaters) (except the
requirements of paragraph (a)(1) shall not apply). Such procedures shall be
repeated until such time as Contractor delivers a Repeater that meets the
Repeater Acceptance Criteria set forth herein. Contractor shall be responsible,
at its expense, for packing, crating and shipping the defective Repeater or
defective LRU for return to Contractor. Contractor shall be responsible for
costs related to delivering any replacement Repeaters or LRUs to the appropriate
Staging Area or Installation Site, as appropriate, including the costs of
packing, crating, transportation, shipping and insurance. Upon receipt of a
returned defective Repeater, Contractor may elect to correct its Defects, if
possible, and deliver such corrected Repeater to Customer in satisfaction of a
subsequent Repeater delivery requirement, subject to the Repeater Acceptance
Criteria and procedures set forth in this Article 8.2 (Acceptance of Repeaters).
8.3 Acceptance of the Network Management System.
(a) Contractor shall test the Network Management System to be provided
hereunder in accordance with Exhibit E (Test Plans and Procedures).
(b) The Network Management System shall be deemed to have achieved
Acceptance only upon the occurrence of the following events with respect to such
System ("NMS Acceptance Criteria"):
(1) Successful completion of NMS design verification testing ("NMS
Design Verification Testing"), which testing shall be performed
by Contractor in accordance with the requirements of Exhibit E
(Test Plans and Procedures). Within five (5) Business Days
following successful completion of the NMS Design Verification
Testing, Contractor shall provide to Customer its written
certification that the NMS Design Verification Testing has been
successfully
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completed, together with all data, results and reports generated
as a result of such NMS Design Verification Testing, also as
specified in Exhibit E.
(2) Successful completion of system functionality test for the
Network Management System to be performed by Contractor in
accordance with Exhibit E (Test Plans and Procedures) prior to
shipment of the Network Management System (the "NMS In-Factory
Testing"). Contractor shall also deliver with the Network
Management System its written certification that the NMS In-
Factory Testing has been successfully completed, together with
all test data, results and reports generated as a result of such
NMS In-Factory Testing;
(3) Delivery of the Network Management System to the place and in the
manner specified in Exhibit D (Delivery Requirements and
Schedule), as may be amended in accordance with Article 7.2 (Time
and Place of Delivery); and
(4) Successful completion of an overall, integrated system
functionality test of the Network Management System following
delivery of the System to Customer at the designated location and
successful installation by Contractor (the "NMS Acceptance
Testing"), which testing shall be performed by Customer or its
designee in accordance with Exhibit E (Test Plans and
Procedures); provided, however, that Contractor may, at its
election and expense, have its representative present during such
NMS Acceptance Testing.
(c) Customer shall provide Contractor written notification of its
Acceptance or rejection of the Network Management System within fourteen (14)
Calendar Days after delivery of the Network Management System and provision of
all certifications required by paragraph (b) above. Customer shall accept the
Network Management System if the System meets the NMS Acceptance Criteria set
forth in paragraph (b) above. In the event Customer provides to Contractor a
notice of Customer's Acceptance of the Network Management System, the accepted
System shall be deemed accepted as of the date of such notice.
(d) In the event Customer rejects the Network Management System, Customer
shall provide Contractor with a Notice of Defects. If Contractor disputes the
contents of a Notice of Defects, Contractor shall notify Customer in writing of
the basis for its dispute within fourteen (14) Calendar Days of receipt of
Customer's Notice of Defects.
(e) Where Customer fails to provide Contractor written Acceptance or
Notice of Defects within the said fourteen (14) Calendar-Day Period specified in
paragraph (c) above, the Network Management System shall be deemed accepted as
of the date Contractor delivered and installed the Network Management System in
accordance with this Article 8.3 (Acceptance of the Network Management System).
(f) In the event Contractor does not dispute such Notice of Defects,
Contractor shall repair or replace the defective Network Management System
promptly after receipt of the Notice of Defects and all delivery dates hereunder
shall remain in effect. The repaired or replaced Network Management System
shall be subject to the NMS Acceptance Criteria and procedures
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set forth in this Article 8.3 (Acceptance of the Network Management System) and
such procedure shall be repeated until such time as Contractor delivers a
Network Management System that meets the NMS Acceptance Criteria set forth
herein. Contractor may repair the defective NMS at the location in which the NMS
is installed, subject to advance notice to Customer so that Customer may make
reasonable arrangements for access by Contractor. In the event the NMS is not
repaired on site, Customer shall be responsible for packing and crating the
Network Management System and making such System available to the common carrier
or other shipper that delivered such System to Customer for return to
Contractor, all at Contractor's expense, including the costs of de-installation,
packing, crating, transportation, shipping and insurance. Contractor shall also
be responsible for costs related to delivering the replacement or repaired NMS
to Customer, including the costs of packing, crating, transportation, shipping,
insurance and re-installation of the NMS.
8.4 Acceptance of Non-Repeater Deliverables.
(a) Customer shall provide Contractor written notification of its
acceptance or rejection of each item to be furnished by Contractor to Customer
pursuant to this Contract, but excluding Repeaters and the Network Management
System (each, a "Non-Repeater Deliverable"), within fourteen (14) Calendar Days
after Customer has received such item from Contractor. Customer shall accept
each Non-Repeater Deliverable if such item is in a condition fully conforming to
the provisions of this Contract. In the event Customer provides Contractor a
written notice of Acceptance with respect to such Non-Repeater Deliverable, such
item shall be deemed accepted as of the date of such notice.
(b) In the event Customer rejects a Non-Repeater Deliverable, Customer
shall provide Contractor with a Notice of Defects. If Contractor disputes the
contents of a Notice of Defects, Contractor shall notify Customer in writing of
the basis for its dispute within fourteen (14) Calendar Days of receipt of
Customer's Notice of Defects.
(c) Where Customer fails to provide Contractor written Acceptance or a
Notice of Defects within the fourteen (14) Calendar-Day Period specified in
paragraph (a) above, that Non-Repeater Deliverable shall be deemed accepted as
of the date Contractor furnished such item to Customer in accordance with
Article 7.2 (Time and Place of Delivery).
(d) In the event Contractor does not dispute such Notice of Defects,
Contractor shall promptly correct any Defects in the Non-Repeater Deliverable
and all delivery dates hereunder shall remain in effect. Upon correcting such
Defect(s), Contractor shall re-submit the Non-Repeater Deliverable to Customer
and the provisions of this Article 8.3 (Acceptance of Non-Repeater
Deliverables) shall apply again.
8.5 Title and Risk of Loss.
(a) For each item of Work, title, free and clear of all liens and
encumbrances of any kind (except for Permitted Liens), shall pass to Customer as
provided below:
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requested with respect to the omitted portions.
CONFIDENTIAL
(1) For each Enclosure Kit, upon shipment from Contractor's Facility
in accordance with the Milestone Achievement Criteria applicable
to [*****] set forth in Exhibit C (Pricing,
Milestones and Payment Plan);
(2) For each PA Kit, upon Customer's Acceptance of the Repeater in
which such PA Kit is incorporated in accordance with Article 8.2
(Acceptance of Repeaters);
(3) For each Klystron Kit, upon Customer's Acceptance of the Repeater
in which such Klystron Kit is incorporated in accordance with
Article 8.2 (Acceptance of Repeaters);
(4) For the Network Management System, upon Customer's Acceptance of
the NMS in accordance with Article 8.3 (Acceptance of the
Network Management System); and
(5) For any Non-Repeater Deliverables, upon Customer's Acceptance in
accordance with Article 8.4 (Acceptance of Non-Repeater
Deliverables).
(b) For each item of the Work, risk of loss or damage shall pass to
Customer as provided below:
(1) For each Enclosure Kit for a Standard Repeater, upon delivery to
the loading dock or other such delivery receiving area of the
applicable Staging Area in accordance with Article 0 (Delivery
and Time for Performance) until such time that Contractor
performs the Rooftop Assembly and Rooftop Testing, during which
time the risk of loss or damage shall pass back to Contractor and
then the risk of loss or damage shall again pass to Customer upon
completion of the Rooftop Assembly and Rooftop Testing by
Contractor;
(2) For each PA Kit for a Standard Repeater, upon delivery to the
appropriate Installation Site in accordance with Article 2.3
(Weight and Size of Repeaters) and Acceptance of the Repeater in
which such PA Kit is incorporated in accordance with Article 8.2
(Acceptance of Repeaters);
(3) For each High-Power Repeater, upon delivery to the appropriate
Installation Site in accordance with Article 0 (Delivery and Time
for Performance) and Acceptance of such Repeater in accordance
with Article 8.2 (Acceptance of Repeaters);
(4) For the Network Management System, upon Acceptance in accordance
with Article 8.3 (Acceptance of the Network Management System);
and
(5) For Non-Repeater Deliverables, upon delivery of such item to
Customer, all deliveries in accordance with this Contract.
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9. PROJECT MANAGEMENT
9.1 Contractor Personnel.
(a) As of the Effective Date, Contractor shall appoint:
(1) a project executive with responsibility for Customer's account
and who shall (i) be an officer of Contractor and (ii) have
authority to act for and bind Contractor in connection with all
aspects of this Contract (the "Contractor Project Executive");
(2) a business line manager with responsibility for Customer's
account and who shall be the primary executive level contact
point for Customer communications ("Contractor Business Line
Manager");
(3) a project manager whose primary responsibility shall be to
Customer's account and who shall (i) remain dedicated to managing
Contractor's responsibilities under this Contract, (ii) serve as
the single point of accountability for Contractor's performance
under this Contract, (iii) serve as the point of contact for all
Customer communications, (iv) have authority to act for
Contractor in connection with all aspects of this Contract, and
(v) have day-to-day authority for undertaking to ensure Customer
satisfaction (the "Contractor Project Manager"); and
(4) a technical manager whose primary responsibility shall be to
Customer's account and who shall (i) serve as the point of
accountability for technical, design and operational issues,
working in coordination with the Contractor Project Manager and
(ii) have authority to act for Contractor with respect to
technical issues (the "Contractor Technical Manager").
(b) The individuals filling the positions identified in paragraph (a)
above shall be deemed to be "Key Contractor Personnel." The Key Contractor
Personnel that have been approved as of the Effective Date are listed in Exhibit
G (Key Contractor Personnel).
(c) In the event of any conflict between the commitments and
responsibilities to Customer and the commitments or responsibilities to any
other customers, the Contractor Business Line Manager, Contractor Project
Manager and Contractor Technical Manager shall each give priority to his or her
commitments and responsibilities to Customer.
(d) Before assigning an individual to any position described in Exhibit G
(Key Contractor Personnel), whether as an initial assignment or a subsequent
assignment, Contractor shall notify Customer of the proposed assignment, shall
introduce the individual to appropriate Customer representatives, and shall
provide Customer with a resume and other information about the individual as
reasonably requested by Customer. If Customer in good faith objects to the
proposed assignment, the Parties shall attempt to resolve Customer's concerns on
a mutually agreeable basis. If the Parties have not been able to resolve
Customer's concerns after engagement of senior management within five (5)
Business Days, Contractor shall not assign the
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individual to that position and shall propose to Customer the assignment of
another individual of suitable ability and qualifications. Key Contractor
Personnel may not be transferred or re-assigned until a suitable replacement has
been approved by Customer. Contractor shall conduct an exit interview with all
Key Contractor Personnel who terminate their employment with Contractor to
review their confidentiality and non-disclosure obligations as provided herein.
9.2 Material Subcontractors.
(a) Contractor has represented that in the performance of the Work, it
will be necessary for Contractor to enter into the Subcontracts ("Material
Subcontracts") listed below:
- --------------------------------------------------------------------------------
Name of Material Subcontractor Description of Work
- --------------------------------------------------------------------------------
Unique Broadband Systems High-Power Amplifier (HPA)
development and manufacture
- --------------------------------------------------------------------------------
Unique Broadband Systems Transcoder development and manufacture
- --------------------------------------------------------------------------------
Unique Broadband Systems Filters
- --------------------------------------------------------------------------------
(b) Contractor shall provide Customer a copy of the technical content of
all Material Subcontracts (with financial details redacted). Customer shall
treat the information contained in such Subcontracts confidentially and shall
execute any reasonable confidentiality agreement requested by the relevant
Subcontractor.
(c) In the event Contractor desires to replace a Material Subcontractor,
Contractor shall provide Customer with reasonable prior notice thereof, and
shall consult with Customer concerning the selected replacement.
(d) Customer's consultation with Contractor concerning any Material
Subcontractor shall not relieve Contractor from any obligations or
responsibilities under this Contract.
9.3 Subcontractor Relations.
(a) Nothing in this Contract shall be construed as creating any
contractual relationship between Customer and any Subcontractor, including
Material Subcontractors. Contractor acknowledges and agrees that it is the prime
contractor under this Contract and as such, assumes full responsibility and
liability for the performance of all suppliers, Subcontractors, or third parties
used by Contractor hereunder to the same extent as if such obligations were
performed by Contractor. Further, Contractor is fully responsible to Customer
for the acts or omissions of Subcontractors and all persons used by Contractor
or a Subcontractor in connection with performance of the Work. Any failure by a
Subcontractor to meet its obligations to Contractor shall not constitute a basis
for Excusable Delay, except as expressly permitted in Article 7.9 (Excusable
Delay Defined), and shall not relieve Contractor from meeting any of its
obligations under this Contract. Without limiting the generality of the
foregoing, Contractor shall be responsible for discharging any liens (including
Subcontractor mechanic liens) or encumbrances placed by any Subcontractor on any
component or part purchased by Customer hereunder.
(b) Contractor shall include in each of the Material Subcontracts and
shall use commercially reasonable efforts to include in all other Subcontracts,
that any such Subcontract
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include provisions substantially similar to Article 12 (Access to Work), Article
14 (Intellectual Property Rights), Article 15 (Confidentiality), and Article 23
(Dispute Resolution).
9.4 Customer Third-Party Services and Products.
Contractor agrees that during the Term of this Contract it shall provide
all necessary and reasonable cooperation with the agents, Consultants,
subcontractors and third-party suppliers of Customer as requested by Customer to
achieve functional compatibility of the Repeaters with Customer's Terrestrial
Repeater Network System.
9.5 Quality Assurance.
Contractor shall perform the Work in accordance with Exhibit F (Quality
Assurance Plan) and all applicable industry standards, including applicable US
Federal Communications Commission (FCC) regulations, NEBS (1, 2 and 3),
Underwriters Laboratory, EIA/TIA, Bellcore, ANSI, IEEE, ATM-Forum, NESC, ITU-T,
NEC, and ISO 9000 requirements, all as may be amended from time to time.
9.6 Accountability.
Notwithstanding anything to the contrary contained in this Contract,
Customer's participation in, or approval of, the design or testing of Repeaters
hereunder shall not be construed or interpreted as Customer having
accountability for the Repeaters to perform in accordance with this Contract.
Without limiting the generality of the preceding sentence, Contractor shall
remain responsible for designing, developing, manufacturing, and delivering
Repeaters that are compliant with this Contract.
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10. CHANGES IN SCOPE OF WORK
10.1 Changes Requested by Customer.
(a) Subject to Article 7.2 (Time and Place of Delivery) and paragraphs
(b), (c) and (d) below, Customer shall be entitled to direct, during the
performance of this Contract, any change within the general scope of this
Contract, including any change that will add, delete, or change the Work, affect
the design or construction of any Repeater, the time for performance of the Work
and/or the delivery dates hereunder.
(b) Any changes directed by Customer as described in paragraph (a) above
shall be submitted in writing to Contractor. Contractor shall respond to such
directed change in writing to Customer within fourteen (14) Calendar Days after
receipt of such directed change and shall include in such response the details
of the impact of such change in the Work on the Contract Price and/or the
delivery dates hereunder.
(c) If Customer and Contractor agree upon the change in the Contract Price
and/or the delivery dates hereunder caused by the change in Work, Contractor
shall proceed with the performance of this Contract as changed immediately upon
the execution by both Parties of a Change Order reflecting such change.
(d) If the Parties cannot agree on a change to the Contract Price and/or
the delivery dates hereunder, as occasioned by the additions or changes in the
Work directed by Customer pursuant to paragraph (a) above, Customer may issue a
Change Directive for such additions or changes. Contractor shall proceed with
the Work in accordance with the Change Directive and Customer may dispute the
reasonableness of Contractor's determination with respect to the appropriate
change to the Contract Price and/or the delivery dates hereunder pursuant to
Article 23 (Dispute Resolution). Pending resolution of such dispute, Customer
shall pay Contractor a reasonable amount. If it is determined by written
agreement of the Parties or pursuant to Article 23 (Dispute Resolution) that
Contractor is entitled to an amount other than the amount paid by Customer,
Customer shall pay to Contractor the amounts of the shortfall or Contractor
shall refund to Customer the amount of the excess, as the case may be, with
interest on such amount running from the date of initial payment by Customer to
the date of additional payment or refund, as the case may be, at the interest
rate set forth in Article 28.11 (Calculation of Interest).
10.2 Changes Requested by Contractor.
(a) Subject to paragraphs (b) and (c) below, Contractor may request,
during the performance of this Contract, any change within the general scope of
this Contract, including any change that will add or delete Work, cause a
revision to the delivery dates hereunder or affect any other requirement of this
Contract.
(b) Any changes as described in paragraph (a) above requested by
Contractor shall be submitted in writing to Customer at least thirty (30)
Calendar Days prior to the proposed date of the change. If such Contractor-
requested change causes an increase or decrease or other impact on the Work,
Contract Price, or delivery dates hereunder or other terms of this Contract,
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Contractor shall submit, with such request, a written proposal identifying such
change and the impact thereof on the Contract Price, delivery dates hereunder,
or other terms of this Contract.
(c) Customer may accept or reject such request in Customer's sole
discretion. Customer shall notify Contractor in writing, within fourteen (14)
Calendar Days after receipt of the requested change proposal. If Customer agrees
with and accepts Contractor's requested change and such impact thereof,
Contractor shall proceed with the performance of this Contract as changed upon
the execution by both Parties of a written Change Order reflecting such changes.
If Customer does not agree to the requested change, Contractor shall continue
performance in accordance with this Contract without regard to such requested
change.
10.3 Pricing of Changes.
(a) When calculating the change in the Contract Price caused by changes in
the Work pursuant to this Article 10 (Changes in Scope of Work), such
calculation shall be consistent with general administrative and overhead rates
then in effect at the time of the change and Contractor's labor rates, which
labor rates shall be subject to the most favored customer provisions of Article
5.3 (Most Favored Customer).
(b) Any adjustment made pursuant to this Article 10 (Changes in the Scope
of Work) shall be set forth in an Amendment to this Contract in accordance with
Article 28.3 (Amendments).
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11. SECURITY INTEREST
(a) To secure Customer's interest in the Work arising from Customer's
payment of NRE Milestone Payment Nos. 1, 2, 3, 4 and 5 and all amounts due
Customer under this Contract in the event of Contractor's default, Contractor
hereby grants to Customer a security interest, which Contractor represents and
warrants is and shall at all times be a first priority security interest, in
Contractor's right, title and interest in, to and under this Contract and the
Work. Contractor hereby agrees to take, at Customer's expense, all such actions
as may be reasonably requested by Customer to create, perfect, maintain and
preserve such security interest, including the execution and delivery of such
uniform commercial code financing statements, continuation statements, if any,
and similar documents or instruments as may be required by applicable law as
Customer may reasonably request.
(b) The security interest created herein shall terminate upon Acceptance
of the Work by Customer. Upon termination of such security interest, Customer
shall release and terminate such security of record by filing termination
statements or similar documents in accordance with applicable law.
(c) Contractor hereby acknowledges and agrees that the provisions of this
Article 11 (Security Interest) constitute a security agreement under the
provisions of the uniform commercial code in effect in the jurisdiction
applicable to this transaction pursuant to which Contractor has granted a
security interest in the collateral described in paragraph (a) above.
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12. ACCESS TO WORK
12.1 Access to Work.
Contractor shall provide Customer Personnel access to all Work (including
Work-in-progress, documentation, and testing) at each Contractor Facility on a
non-interference basis during business hours.
12.2 Documentation.
(a) Subject to Article 12.1 (Access to Work), Customer Personnel will at
all times have access to (i) the Data and Documentation and (ii) Work-in-
progress, technical and schedule data and documentation relevant to the Work. To
facilitate Customer's rights hereunder, Contractor will allow Customer Personnel
access to all indices related to the materials referenced in this paragraph (a).
(b) Where the materials described in paragraph (a) are necessary for
evaluation of designs, performance considerations, assessment of test plans and
test results, or for any other purpose connected with the design, qualification,
testing, acceptance, or operation of the Work, or any part thereof, Contractor
will, subject to Article 15 (Confidentiality), make available to Customer
Personnel copies of such documentation on the reasonable request of Customer
Personnel.
(c) Any data provided by a Party to the other Party in electronic form
shall be embodied in, or be in a form compatible with, commercially available
software.
12.3 Electronic Access.
With respect to electronically generated information, Contractor will
provide Customer with a copy of and/or electronic access (via the Internet,
Contractor's email, or as agreed upon) to such information as is necessary to
keep Customer advised, on a current basis, of program issues, decisions, and
problems.
12.4 Meetings.
(a) Contractor shall hold progress meetings in accordance with the
requirements of Exhibit B (SOW).
(b) Customer Personnel shall be entitled, at Customer's expense, to
participate in the meetings (including in person, or through teleconference,
video conference or internet) of Contractor and of Contractor with any
Subcontractor(s) where such meetings (or portions of such meetings) are related
to the Work, and shall have the right to participate in and make
recommendations, but not to control, give directions or assign actions, in all
such meetings. Contractor shall provide Customer with reasonable prior written
notice of the date and time of scheduled meetings.
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(c) In the event a meeting is convened at a Contractor Facility or another
Contractor or Subcontractor controlled site, Contractor shall make appropriate
arrangements to ensure the entry of Customer Personnel to the meeting place.
12.5 Financing Entities.
Each Financing Entity shall have access to the Work in the same manner and
to the same extent as Customer Personnel under this Article 12 (Access to Work).
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13. TECHNICAL MATERIALS ESCROW
(a) Within thirty (30) Calendar Days following the Execution Date,
Contractor, Customer and Escrow Agent will enter into a written escrow agreement
substantially in the form attached hereto in Exhibit H (Technical Materials
Escrow Agreement) pursuant to which Contractor will deposit with Escrow Agent
all the Technical Materials available at that time (the "Escrowed Materials").
Customer shall pay the applicable escrow fees to Escrow Agent. Contractor
represents and warrants that the Escrowed Materials shall, immediately upon the
Start of Production Date, be sufficient for an individual reasonably experienced
in the design and manufacture of terrestrial repeaters or similar electronic
equipment technology to understand and utilize such materials to construct,
manufacture, support and/or maintain the Repeaters, Network Management System
and other deliverables as contemplated herein. During the Term, Contractor will
maintain such Escrowed Materials current and provide updates thereto to Escrow
Agent as appropriate. Escrow Agent will make the Escrowed Materials available to
Customer upon Customer's notice to Escrow Agent that one of the following has
occurred:
(1) the institution by Contractor of insolvency, receivership or
bankruptcy proceedings;
(2) a general assignment by Contractor for the benefit of creditors;
(3) the appointment of a receiver for Contractor;
(4) the filing by creditors of Contractor of a petition in bankruptcy
against Contractor that is not stayed or dismissed within sixty
(60) Calendar Days; or
(5) Customer's termination of this Contract for cause in accordance
with Article 25.2 (Termination for Contractor's Default).
(items (1) through (5) hereinafter referred to as the "Release
Conditions").
(b) In accordance with Exhibit H (Technical Materials Escrow Agreement),
Escrow Agent will give written notice to Contractor prior to the delivery of the
Escrowed Materials to Customer. Notwithstanding the provisions of Article 23
(Dispute Resolution) of this Contract, disputes concerning whether or not the
Release Condition set forth in paragraph (a)(5) (i.e., with respect to Article
25.2 (Termination for Contractor's Default)) has occurred shall be subject
exclusively to the arbitration provisions and processes set forth below.
Disputes and remedies relating to Article 25.2 (Termination for Contractor's
Default) other than as set forth in the preceding sentence will remain subject
to Article 23 (Dispute Resolution).
(1) In the event Customer is of the opinion that the Release
Condition set forth in paragraph (a)(5) above has occurred, and
Customer has given notice to Escrow Agent in accordance with the
Technical Materials Escrow Agreement that Customer desires
release of the Escrowed Materials from escrow upon the occurrence
of that Release Condition, Escrow Agent shall deliver a notice to
that effect to Contractor in accordance with the requirements of
the Technical Materials Escrow Agreement.
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(2) If Contractor is of the opinion that it has a reasonable basis to
challenge Customer's request for release of the Escrowed
Materials, it shall deliver a notice ("Notice of Objection")
setting out its objections to Customer's request to Customer and
Escrow Agent simultaneously in accordance with the time limits
set forth in the Technical Materials Escrow Agreement.
(3) Upon receipt of the Notice of Objection by Customer, an expedited
arbitration process ("Escrow Arbitration") shall immediately be
commenced for the purpose of establishing whether or not the
alleged Release Condition pursuant to paragraph (a)(5) above has
occurred. Customer shall be entitled to select any of the
following arbitrators as the sole arbitrator ("Arbitrator")
conducting the Escrow Arbitration:
-----------------------------------------------------------------
Arbitrator 1 Arbitrator 2 Arbitrator 3
Kenneth R. Feinberg Jonathan B. Marks John E. Nolan
The Feinberg Group LLP MarksADR, LLC Steptoe & Johnson
Washington, DC Washington, DC Washington, DC
-----------------------------------------------------------------
(4) If none of these three individuals is immediately available to
conduct the Escrow Arbitration, Customer may ask any one of the
said three individuals to appoint another individual as
Arbitrator. However, under no circumstance shall any person be
appointed as Arbitrator of the Escrow Arbitration unless the
person: (A) has not previously been engaged by Customer,
Contractor or any affiliate of either one of those two parties in
any capacity (other than as a mediator or arbitrator for a third-
party dispute); (B) has not had any relationship with Customer,
Contractor or any affiliate of either of those two parties (other
than as a mediator or arbitrator of a third-party dispute); and
(C) has had a significant degree of prior experience in
conducting commercial arbitration.
(5) respect to the Escrow Arbitration:
(i) If Contractor and Customer ("Arbitration Parties")
cannot agree on a procedural matter on a timely basis
to ensure completion of the arbitration within thirty
(30) Calendar Days after Customer's selection of the
Arbitrator, the matter shall be resolved expeditiously
by the Arbitrator at the request of either Arbitration
Party;
(ii) The Arbitrator's fees shall be paid for equally by the
Arbitration Parties, unless otherwise ordered or
directed by the Arbitrator;
(iii) The procedural rules and rules of evidence adopted for
the Escrow Arbitration shall be determined by the
Arbitrator with a view to affording both Arbitration
Parties a fair hearing and always
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observing the strict timeframe for the completion of
the Escrow Arbitration set out herein;
(iv) Article 28.7 (Applicable Law) shall apply to the
Escrow Arbitration;
(v) The Escrow Arbitration hearing(s) shall take place at
such time(s) and place(s) in Washington, DC as the
Arbitrator determines;
(vi) The Arbitrator shall have all of the powers required
to determine whether or not the pre-conditions for
the conduct of the Escrow Arbitration have been met,
to conduct the Escrow Arbitration, and he or she
shall be empowered to make any necessary procedural
or substantive rulings and may proceed with the
Escrow Arbitration if an Arbitration Party refuses to
participate or co-operate in the conduct of the
Escrow Arbitration.
(vii) The Arbitrator's decision ("Award") shall be in
writing, shall be accompanied by written reasons,
shall be made within thirty (30) Calendar Days after
the date that the Arbitrator is appointed to conduct
the Escrow Arbitration, and shall be evidenced by a
dated certificate bearing the signature of the
Arbitrator issued within the same timeframe
specifying whether or not the Release Condition
specified in Customer's request for the release of
the Escrowed Materials has occurred ("Escrow
Arbitration Award Certificate");
(viii) The Arbitrator's Award shall be final and binding on
the Arbitration Parties; and
(ix) The Arbitration proceedings are private and
confidential, unless an appeal is taken to a court of
competent jurisdiction.
(c) In any event, if it is determined that a Release Condition did not
occur, Customer shall promptly return the Escrowed Materials to Escrow Agent;
provided, however, Customer may retain any portion of the Technical Materials
for which Customer has ownership or license rights as granted pursuant to
Article 14 (Intellectual Property Rights).
(d) In the event a Release Condition has occurred (including as determined
pursuant to Escrow Arbitration above), Customer shall be entitled to use, or
have used, the Escrowed Materials as necessary to support and maintain its
purchased Repeaters, Network Management System and other deliverables hereunder
and to construct or manufacture, or have constructed or manufactured, such
Repeaters, Network Management System and other deliverables. Such use shall
include the right to copy, disclose, modify, enhance, upgrade, revise, and
create derivative works of such Escrowed Materials. Customer shall be entitled
to permit its Associates, Consultants, and third-party service providers to use
the Escrowed Materials on behalf of Customer. With respect to Customer
disclosures to third parties, Customer agrees to disclose the Escrowed Materials
only to third parties that are working for Customer pursuant to a
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confidentiality agreement. Subject to Article 14 (Intellectual Property Rights),
Customer will immediately return the Escrowed Materials, including all copies
thereof, to Escrow Agent when Customer no longer requires the Escrowed Materials
for the purposes permitted hereunder.
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14. INTELLECTUAL PROPERTY RIGHTS
14.1 Ownership of Intellectual Property Rights.
(a) All Background Intellectual Property Rights of Contractor shall remain
the sole and exclusive property of Contractor.
(b) All Background Intellectual Property Rights of Customer shall remain
the sole and exclusive property of Customer.
(c) Notwithstanding the definition of "Joint Intellectual Property
Rights", all Foreground Intellectual Property Rights first conceived or first
reduced to practice solely by Contractor or Customer as part of the Work or
otherwise pursuant to the Statement of Work, shall become Joint Intellectual
Property Rights and shall be Jointly Owned.
14.2 Joint Inventions.
(a) An assignment of rights in all Joint Inventions shall be executed in
the names and for the benefit of both Contractor and Customer, or their
designees.
(b) With respect to Joint Inventions first conceived or reduced to
practice by Contractor as part of the Work, Contractor shall have the first
right of election to file patent applications in any country, including the
selection of the attorney or agent to prepare the patent application, and
Customer shall have a second right of election. Each Party in turn shall make
its election at the earliest practicable time, and shall notify the other Party,
in writing, of its decision.
(c) With respect to Joint Inventions first conceived or reduced to
practice by Customer as part of the Work, Customer shall have the first right of
election to file patent applications in any country, including the selection of
the attorney or agent to prepare the patent application, and Contractor shall
have a second right of election. Each party in turn shall make its election at
the earliest practicable time, and shall notify the other Party, in writing, of
its decision.
(d) The expenses for preparing, filing and securing each Joint Invention
patent application subject to paragraphs (b) or (c) above, and for issuance of
the respective patent, shall be borne by the Party that prepares and files the
application. The other Party shall furnish the filing Party with all documents
or other assistance that may be necessary for the filing and prosecution of each
application. Where such Joint Invention application for patent is filed by
either Party in a country that requires the payment of taxes, annuities or
maintenance fees on a pending application or on an issued patent, the Party that
files the application shall, prior to filing, request the other Party to
indicate whether it will agree to pay one-half of such taxes, annuities or
maintenance fees. If, within sixty (60) Calendar Days of receiving such
request, the non-filing Party fails to assume in writing the obligation to pay
its proportionate share of such taxes, annuities or maintenance fees, or if
either Party subsequently fails to continue such payments within sixty (60)
Calendar Days of demand, it shall forthwith relinquish to the other Party,
providing that said other Party continues such payments, its share of the title
to such application and patent, subject, however, to retention of an
irrevocable, fully paid-up, non-exclusive, non-assignable, non-sublicensable
license in favor of the relinquishing Party and its
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Affiliates to make, have made, use, lease and sell, apparatus and/or methods
under said application and patent.
(e) With respect to Joint Inventions first conceived or reduced to
practice jointly by Customer and Contractor, the Parties shall determine, on a
case-by-case basis, the priority of election rights with respect to the filing
of patent applications and responsibility for expenses therefor.
14.3 Intellectual Property Rights License Grant.
(a) Contractor hereby grants to Customer a non-transferable, perpetual,
irrevocable, fully paid-up, royalty-free, non-exclusive, world wide license in
and to Contractor's Background Intellectual Property Rights solely as necessary
for Customer, its Affiliates or their respective designee(s) (only on Customer's
or its Affiliates' behalf): (i) to use, copy, modify and/or prepare derivative
works of the Work in connection with Customer's business as such is constituted
from time to time; and (ii) to make, use, sell, import and export, operate,
maintain, modify, prepare derivative works of, offer, market, display, reproduce
and license the Repeaters, Network Management System and other deliverables
hereunder and related equipment and services similar to such Repeaters, Network
Management System and other deliverables hereunder, all in connection with
Customer's business as such is constituted from time to time. Customer may
sublicense its Affiliates and Customer and its Affiliates' respective designees,
and Customer may not otherwise sublicense the rights granted under this
paragraph (a) without the express written authorization of Contractor. Subject
to Article 13 (Technical Materials Escrow) and notwithstanding anything to the
contrary contained in this paragraph (a), the license in and to Contractor's
Background Intellectual Property Rights shall not extend to the manufacturing
for the marketing or sale by Customer or its Affiliates of Repeaters, the
Network Management System and the other deliverable items hereunder, to any
unrelated third parties.
(b) Customer hereby grants to Contractor a royalty-free, non-exclusive,
world wide license to use Customer's Background Intellectual Property Rights and
Customer's Foreground Intellectual Property Rights solely as necessary for
Contractor's performance and/or execution of the Work, and solely as necessary
to make, use, have made, sell, import and export the Repeaters, Network
Management System and other deliverables hereunder on Customer's behalf.
Contractor may not otherwise sublicense the rights granted under this paragraph
without the express written authorization of Customer, which authorization may
be granted or withheld at Customer's sole discretion.
14.4 Third-Party Intellectual Property Rights.
(a) Each Party hereby represents and warrants to the other that it will
not knowingly design or otherwise incorporate any third-party Intellectual
Property Rights into the Work, without: (i) a license to do so from the third
party; and (ii) the express written authorization of the other Party. Customer
hereby authorizes Contractor to incorporate into the Work the repeater design
developed by Unique Broadband Systems, Inc. pursuant to the Interim Services
Agreement by and between Customer and Unique Broadband Systems, Inc. dated
August 9, 1999 to the extent Contractor obtains license rights from Unique
Broadband Systems, Inc. to so incorporate such design.
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(b) In the event that either Party has secured a license to any third-
party Intellectual Property Rights that are designed or otherwise incorporated
into the Work, that Party shall offer to the other Party any such license rights
that it is legally or contractually permitted to offer at terms no less
favorable than its own license grant.
14.5 Contractor Restriction on Use of Foreground Intellectual Property Rights.
Notwithstanding any provision herein to the contrary, without the prior
written approval of Customer, which approval Customer may grant or withhold in
its sole discretion, neither Contractor, nor any Affiliate of Contractor, nor
any other entity in which Contractor has an ownership interest, shall: (i) (A)
license, lease or otherwise transfer, furnish or convey any of the Foreground
Intellectual Property Rights to, (B) provide any equipment or services that use
or require any of the Foreground Intellectual Property Rights to, or (C)
otherwise provide any other benefits of use of the Foreground Intellectual
Property Rights to, any existing or future Customer Competitor; or (ii)
directly, or indirectly through any third party, contact, negotiate with or
contract with any person, corporation, partnership, limited liability company or
other entity for the purpose of (A) licensing, leasing or otherwise
transferring, furnishing or conveying any of the Foreground Intellectual
Property Rights to, (B) providing any equipment, services or other materials
that use or require any of the Foreground Intellectual Property Rights to, or
(C) otherwise providing any other benefits of use of the Foreground Intellectual
Property Rights to, any existing or future Customer Competitor.
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15. CONFIDENTIALITY
15.1 Confidentiality Obligations.
(a) Any Confidential Information shall be maintained in strict confidence
by the Receiving Party. Except as provided in this Article 15 (Confidentiality),
the Receiving Party shall not use, or disclose in any manner to any third party,
Confidential Information of the Furnishing Party without the prior express
written consent of the Furnishing Party. The obligation of confidentiality shall
not be limited in time except to the extent the Receiving Party can establish
one of the exceptions set forth in Article 15.2 (Exceptions) below by clear and
convincing evidence.
(b) Access to and use of the Furnishing Party's Confidential Information
shall be restricted to those employees and persons within the Receiving Party's
organization (including its Consultants, attorneys, Subcontractors,
shareholders, representatives, and Financing Entities) with a need to use such
Confidential Information for the purpose of performing this Contract or any
transaction contemplated hereby or, in the case of Customer, obtaining debt or
equity financing. The Receiving Party's Consultants, Subcontractors,
shareholders and representatives and the Financing Entities may be included
within the meaning of "persons within the Receiving Party's organization,"
provided that such persons have executed a non-disclosure or confidentiality
agreement no less stringent than this Article 15 (Confidentiality). In addition,
all information provided is to be subject to the provisions of paragraph (c)
below.
(c) Each Party shall use the other's Confidential Information solely for
the purpose of performing this Contract or any transaction contemplated hereby
or, in the case of Customer, obtaining debt or equity financing.
(d) Data and Documentation shall be deemed Confidential Information and
shall be subject to the obligations of this Article 15 (Confidentiality) with
respect thereto.
15.2 Exceptions.
(a) Subject to paragraph (b) below, the obligations set forth in Article
15.1 (Confidentiality Obligations) shall not apply to information that is:
(1) Already known to or otherwise in the possession of the Receiving
Party at the time of receipt from the Furnishing Party and that
was not so known or received in violation of any confidentiality;
(2) Publicly available or otherwise in the public domain prior to
disclosure by the Receiving Party or becomes publicly available
or otherwise in the public domain after receipt by the Receiving
Party without breach of this Contract;
(3) Rightfully obtained by the Receiving Party from any third party
without restriction and without breach of any confidentiality
obligation by such third party;
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(4) Developed by the Receiving Party independent of any disclosure
hereunder, as evidenced by written records; or
(5) Disclosed pursuant to the order of a court or administrative body
of competent jurisdiction or a government agency or required to
be released pursuant to Law, or as the Receiving Party may
reasonably determine advisable or necessary under the Securities
Act of 1933, as amended, the Securities Act of 1934, as amended,
NASDAQ, NYSE or any other national securities exchange, provided
the Receiving Party shall notify the Furnishing Party prior to
such disclosure and shall cooperate with the Furnishing Party in
the event the Furnishing Party elects to contest legally, request
confidential treatment, or otherwise avoid such disclosure.
(b) The burden shall be on the Receiving Party to demonstrate the
applicability of one or more of the foregoing exceptions by documentary evidence
in the event the Furnishing Party questions the applicability of any such
exceptions.
15.3 No License.
Except as expressly provided in this Contract, nothing in this Contract
shall be construed as granting the Receiving Party, whether by implication,
estoppel, or otherwise, any license or any right to use any Confidential
Information received from the Furnishing Party, or use any Intellectual Property
Right now or hereafter owned or controlled by the Furnishing Party.
15.4 Return of Confidential Information.
All Confidential Information disclosed pursuant to this Contract is
considered loaned for use solely in connection with this Contract. All
Confidential Information in tangible form of expression that has been disclosed
to or thereafter created, whether by copy or reproduction, by the Receiving
Party shall be and remain the property of the Furnishing Party, except to the
extent the Receiving Party has ownership or license rights in such Confidential
Information pursuant to Article 14 (Intellectual Property Rights). All such
Confidential Information and any and all copies and reproductions thereof shall,
within thirty (30) Calendar Days of written request by the Furnishing Party, be
either promptly returned to the Furnishing Party or destroyed at the Furnishing
Party's direction, except to the extent the Receiving Party has ownership or
license rights in such Confidential Information pursuant to Article 14
(Intellectual Property Rights). In the event of such requested destruction, the
Receiving Party shall provide to the Furnishing Party written certification of
compliance therewith within thirty (30) Calendar Days of such written request.
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15.5 Inconsistent Legends.
This Article 15 (Confidentiality) shall control in lieu of and
notwithstanding any proprietary or restrictive legend or statements inconsistent
with this Article that may be printed on or associated with any particular
information disclosed pursuant to this Contract.
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16. RECORDS RETENTION
Contractor will maintain and provide access upon request to the records,
documents and other information required to meet Customer's access to work and
audit rights under this Contract until the later of (i) three (3) years after
expiration or termination of this Contract, (ii) all pending matters relating to
this Contract (e.g., disputes) are closed, or (iii) such records, documents and
other information are no longer required to meet Customer's records retention
policy as such policy may be adjusted from time to time, which Customer record
retention policy shall not exceed seven (7) years.
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17. REPRESENTATIONS AND WARRANTIES
17.1 Work Standards.
Contractor represents and warrants that it shall perform the Work hereunder
in a manner to ensure that such Work is rendered with promptness and diligence
and shall be executed in a workmanlike manner, in accordance with the practices
and high professional standards used in well-managed operations performing Work
similar to the Work performed hereunder. Contractor agrees that it shall use
adequate numbers of qualified individuals with suitable training, education,
experience, and skill to perform the Work.
17.2 Design and Performance Warranties.
(a) Contractor hereby represents and warrants for the benefit of Customer
as follows:
(1) that the Work shall be free from Defects in design, material and
workmanship;
(2) that the Network Management System and each Repeater shall
conform to and operate in accordance with this Contract,
including without the need for any additional equipment, software
or other materials, except as expressly specified in Exhibit A
(Design Specifications) or Exhibit B (Statement of Work);
(3) that the Network Management System and the Repeaters shall
perform at normal levels with no more than the levels of standard
and preventive maintenance as may be specified in Exhibit B
(Statement of Work);
(4) that the Network Management System, Repeaters and LRUs provided
hereunder (excluding as warranty replacements) shall be new and
of recent manufacture, not refurbished;
(5) that each replacement Repeater, LRU or other component, part or
sub-part supplied by Contractor in the performance of its
warranty obligations hereunder shall conform to the requirements
of this Contract as if it were an original part;
(6) subject to paragraphs (b) and (c) below, that it shall maintain
the availability of LRUs, components, parts and sub-parts for a
period of seven (7) years after the Project Completion Date and
that replacement Repeaters and such replacement LRUs, parts and
sub-parts shall be made available as needed in accordance with
the requirements of Article 17.11 (Remedies (Repeaters));
(7) that all upgrades to the Network Management System, Repeaters and
LRUs shall be backward compatible to the then-existing Repeaters
in use by Customer; and
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(8) that the Technical Materials shall, at all times, be sufficient
for an individual reasonably experienced in the design and
manufacture of terrestrial repeaters or similar electronic
equipment technology to understand and utilize such materials to
support and/or manufacture the Repeaters.
(b) In the event Contractor (and not its suppliers or Subcontractors) is
the manufacturer of any LRUs, components, parts and sub-parts of the Repeaters,
Contractor shall continue to manufacture, and make available to Customer, such
LRUs, components, parts and sub-parts for a period of seven (7) years as set
forth in paragraph (a)(6) above; provided such items shall be available to
Customer, without additional charge, during the Warranty Period in accordance
with Article 17.11 (Remedies (Repeaters)).
(c) In the event an LRU, component, part or sub-part is manufactured or
otherwise available by an entity other than Contractor, including Contractor's
suppliers and Subcontractors, Contractor shall:
(1) Use best commercial efforts to include in each supplier agreement
or Subcontract an obligation that the supplier or Subcontractor
provide to Contractor reasonable advance notice of its decision
to cease production, or otherwise limit or eliminate the
availability, of the LRU, component, part or sub-part that such
supplier or Subcontractor provides, including due to obsolescence
of such item;
(2) Upon receipt of notice from a supplier or Subcontractor pursuant
to paragraph (c)(1) above, Contractor shall promptly, but in no
event later than the third (3/rd/) Business Day following the
date of receipt of such notice from its supplier or
Subcontractor, provide written notice to Customer of the
impending unavailability of the LRU, component, part or sub-part
related to the Repeaters, such notice to also include any other
pertinent information related to the availability of such items
prior to the impending date of unavailability;
(3) Advise Customer, in writing and at no charge to Customer, of
commercially available alternatives to the LRUs, components,
parts or sub-parts of the Repeaters, which commercially available
alternative is technically and functionally compatible with the
Repeaters and will cause the Repeaters to function in accordance
with requirements specified in this Contract. Contractor shall
so advise Customer from time to time during the Term of this
Contract as it becomes aware of such alternatives, but also at
the time Contractor gives notice to Customer pursuant to
paragraph (c)(2) above of the impending unavailability of an LRU,
component, part or sub-part;
(4) In the event there is no viable commercially available
alternative to replace the unavailable LRU, component, part or
sub-part, at Customer's request, Contractor shall design,
engineer, develop and manufacture (or have manufactured) a viable
alternative or other work-around solution to the unavailable LRU,
component, part or sub-part, subject to the Parties'
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negotiation and agreement as to reasonable terms and conditions
and charges therefor (except where such situation arises prior to
the expiration of the applicable Warranty Period for the
Repeaters).
(d) The warranties provided under this Article 17.2 (Design and
Performance Warranties) do not cover defects or damage resulting from (i) the
use of any Work in any manner which is not normal or customary; (ii) misuse,
accident or neglect including dropping or spills of liquid; (iii) improper
testing, operation, maintenance, installation or adjustment (unless performed by
or on behalf of Contractor); or (iv) any alteration or modification of any kind
(unless performed by or on behalf of Contractor).
17.3 Documentation.
Contractor represents and warrants that all Documentation provided by
Contractor pursuant to this Contract shall be accurate, complete and written in
a manner understood by Customer, and shall be updated from time to time to
reflect any changes in the Work or to the Repeaters.
17.4 Inducements.
Contractor represents and warrants that it has not violated any applicable
laws or regulations or any Customer policies of which Contractor has been given
notice regarding the offering of unlawful inducements in connection with this
Contract. If at any time during the Term of this Contract, Customer determines
that the foregoing warranty is inaccurate, then, in addition to any other rights
Customer may have at law or in equity, Customer shall have the right to
terminate this Contract for cause without affording Contractor an opportunity to
cure.
17.5 Viruses.
Contractor represents and warrants that it shall use its best commercial
efforts to ensure that no Viruses are coded or introduced into the Work or in
any systems used to perform the Work. Contractor agrees that, in the event a
Virus is found to have been introduced into the systems used to perform the
Work, Contractor shall use its best commercial efforts at no additional charge
to eliminate the effects of the Virus and, if the Virus causes a loss of
operational capability or efficiency of any Repeater, to use best efforts to
mitigate and restore such losses.
17.6 Disabling Code.
Contractor represents and warrants that, without the prior written consent
of Customer, Contractor shall not insert into the Work any code that would have
the effect of disabling or otherwise shutting down the NMS or any Repeater.
Contractor further represents and warrants that, with respect to any disabling
code that may be part of any code (embedded or otherwise) to
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be delivered hereunder, Contractor shall not invoke such disabling code at any
time, including upon expiration or termination of this Contract for any reason,
without Customer's prior written consent.
17.7 Year 2000.
Contractor represents and warrants that the Work and all items to be
delivered hereunder, including Repeaters, are and shall continue to be Year 2000
Compliant.
17.8 Compliance with Applicable Law.
Contractor represents and warrants that it shall perform its obligations in
a manner that complies with all applicable Laws, including export, import and
foreign controls, the Foreign Corrupt Practices Act, the U.S. Export
Administration Act, and requirements of the FCC (including RF human exposure
emission requirements and harmful interference standards), EPA, and OSHA, all as
may be amended from time to time. If Contractor is charged with the failure to
comply with any of such laws, Contractor shall promptly notify Customer of such
charges in writing.
17.9 Warranty Disclaimer.
EXCEPT AS SPECIFICALLY SET FORTH IN THIS CONTRACT, NEITHER PARTY MAKES ANY
OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY WARRANTY OF
INTELLECTUAL PROPERTY NON-INFRINGEMENT.
17.10 Warranty Period.
(a) Subject to Article 17.11 (Remedies (Repeaters)) and Article 17.12
(Remedies (Network Management System)), Contractor shall be liable to Customer
for a breach of the warranties set forth in Article 17.2 (Design and Performance
Warranties) only if written notice of such alleged breach is given to Contractor
prior to the expiration of the [*****] period following the Project Completion
Date (the "Warranty Period").
(b) Upon Customer's written notice given to Contractor at least thirty
(30) Calendar Days prior to the expiration of the applicable Warranty Period for
each Repeater, Customer may elect to extend the Warranty Period for each
Repeater for an additional [*****] period, subject to payment by Customer of the
charges for such optional extended coverage as set forth in Exhibit C (Pricing,
Milestones and Payment Plan). In the event Customer notifies Contractor of its
interest in purchasing from Contractor additional extended warranty coverage for
any period following the expiration of the [*****] optional warranty coverage
period specified in the preceding sentence, Contractor shall propose, in writing
within thirty (30) Calendar Days following the date of Customer's notice, a
price for such extended warranty coverage, such price to take into account the
actual annual failure rates in the deployed Repeaters experienced prior to
Customer's request for additional extended warranty coverage.
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17.11 Remedies (Repeaters).
(a) In the event a Repeater requires maintenance or repair, Customer, or
its designee(s), shall perform such maintenance or repair.
(b) Customer, or its designee(s), shall maintain, at the Regional
Inventory Storage Facilities, an inventory of the Lowest Replaceable Units with
respect to Repeaters, such inventory to be utilized by Customer, or its
designee(s), to maintain or repair Repeaters. Customer, or its designee(s),
shall be responsible, at Customer's expense, for returning to Contractor, in a
reasonably prompt manner, any defective LRU, provided that Contractor, at
Contractor's expense, shall provide Customer with all necessary and appropriate
packing and crating materials. In the event Contractor tests the returned LRU
and is able to demonstrate, to Customer's reasonable satisfaction, that the
returned LRU is in good working order in accordance with its specifications (or,
"no trouble found" ("NTF")), Customer shall pay Contractor the amount of [*****]
for each returned LRU demonstrated to be NTF and shall reimburse Contractor for
the actual costs incurred by Contractor with respect to the round-trip shipment
of the LRU, as established by supporting shipping invoices.
(c) During the Warranty Period for each Repeater (as such period may be
extended), Contractor shall provide the following items or perform the following
services at no additional charge to Customer:
(1) Training in accordance with Exhibit B (Statement of Work);
(2) Subject to paragraph (d) below, an initial written inventory plan
for inventories of replacement LRUs to be maintained by Customer,
or its designee(s), pursuant to paragraph (b) above. Contractor
shall propose such inventory plan to Customer on or before the
ninetieth (90th) Calendar Day following EDC, and shall reasonably
consider incorporating Customer's reasonable comments thereto.
In no event shall Contractor's proposed inventory plan provide
for a sparing level that is less than the preliminary sparing
level set forth in Exhibit B (Statement of Work). Such plan
shall specify the total number of LRUs to be maintained in
Customer's inventory of spare LRUs, which Customer shall
reasonably allocate among each of its Regional Inventory Storage
Facilities. The total sparing level proposed by Contractor shall
be sufficient so that appropriate LRUs are immediately available
to Customer, or its designee, as they perform maintenance and
repair on the Repeaters. Such inventory plan shall also specify
the environmental and maintenance requirements for the proper
storage of such LRUs;
(3) Replacement LRUs as may be actually required by Customer to
repair defective Repeaters, even if the number of LRUs provided
by Contractor exceeds the sparing levels indicated in the
inventory plan;
(4) Re-stock of the LRU inventory on an as-needed basis to maintain
the sparing levels indicated in the inventory plan, as it may be
updated from time to time;
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(5) On-going consultation services and advice to Customer, or its
designee(s), on the proper methods of performing maintenance and
repair functions for the Repeaters, including telephonic trouble-
shooting of defective units and, if necessary, on-site diagnostic and
remedial services;
(6) Repair or disposal of a defective LRU returned to Contractor by
Customer or its designee(s). If Contractor repairs the returned LRU
such that the LRU performs in accordance with its applicable technical
specifications, Contractor may use such repaired LRU for inventory re-
stocking purposes; and
(7) Replacement of Repeaters, if it is reasonably determined by Customer,
or its designee(s), after consultation with Contractor, that repair of
a Repeater cannot be accomplished using the LRUs or other components
or parts available at the Regional Inventory Storage Facility. In such
event, Customer may, at its option:
(i) require Contractor to ship a replacement Repeater, at its
expense, within twenty-four (24) hours after receipt of
notice of such determination so that the replacement
Repeater shall arrive at the interior of its designated
place of installation as soon as commercially practicable,
but in no event later than fourteen (14) Calendar Days
after the date of Customer's notice to Contractor; or
(ii) require Contractor to ship a replacement Repeater within
twenty-four (24) hours after receipt of notice of such
determination and use air shipment for delivery of such
replacement Repeater so that the replacement Repeater is
received by Customer as soon as commercially possible,
provided that Customer shall reimburse Contractor for the
incremental difference in the shipping charges incurred by
Contractor for air shipment over Contractor's reasonable
expenses for surface delivery; or
(iii) assemble a complete Repeater using the LRU's in stock at
Customer's Regional Inventory Storage Facilities. Customer,
or its designee, shall install the replacement Repeater and
arrange for the return of the replaced Repeater to
Contractor, subject to reimbursement by Contractor to
Customer for the costs of shipping (including packing,
crating, shipping, transportation and insurance).
(d) Following implementation of the inventory plan specified in paragraph
(c)(2) above, Customer may, from time to time, propose changes to the inventory
plan, provided such changes are based upon the actual failure rates experienced
with respect to Repeaters or LRUs. Contractor shall revise the inventory plan
to incorporate and accommodate Customer's proposed reasonable changes and shall
promptly implement the revised inventory plan. Similarly, following Customer's
initial allocation of spare LRUs among the Regional Inventory Storage
Facilities, Contractor may, from time to time, propose changes to the manner in
which Customer
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allocates such spare LRUs, provided such proposed changes are based upon actual
LRU replacement requirements experienced with respect to the Repeaters. Customer
shall revise the method of allocating spare LRUs among the Regional Inventory
Storage Facilities to incorporate Contractor's proposed reasonable changes and
shall promptly implement the revised allocation scheme.
(e) Customer may, in addition to the remedies provided by Contractor
hereunder and at no additional charge to Customer,
(1) seek recourse pursuant to such other warranties as may be
provided by the original equipment manufacturers (O.E.M.),
Subcontractors, or other warranties on any materials or equipment
furnished by Contractor, all in accordance with the respective
terms of such warranties; and
(2) request Contractor and/or its Subcontractors to provide, and
Contractor shall provide, reasonable on-site support at
Customer's facilities or other system-related sites as necessary
to complete the Work ("Field Support"), including to assist
Customer in the identification and remediation of significant
systems engineering problems relating to the Work and with
respect to installed Repeaters.
17.12 Remedies (Network Management System).
Contractor shall maintain, repair or replace the Network Management System
during the Warranty Period so that the Network Management System shall at all
times be fully operational in accordance with all applicable specifications and
warranties and available for use by Customer at all times. If circumstances
arise where Contractor is unable to maintain or repair the NMS, or any part or
portion thereof, so that it operates in accordance with the above standard,
Contractor shall replace such item at Contractor's expense. Subject to Article
14 (Intellectual Property Rights), Customer shall own any such replacement item.
For purposes hereof, Contractor shall be deemed to be unable to maintain or
repair the NMS, or any part or portion thereof, if it fails more than three (3)
times during any three (3) consecutive month period during the Warranty Period.
17.13 Pattern Defect.
(a) In addition to the other warranties and remedies set forth herein, in the
event that any LRU is determined to have a Pattern Defect during the applicable
Warranty Period, as may be extended, Contractor will promptly modify the design,
material and/or manufacturing process such that the Pattern Defect is eliminated
and deliver, at its expenses (including packing, crating, transportation,
shipping and insurance) replacements for all affected LRUs to eliminate such
Pattern Defect. During the period that any LRU is determined to have a Pattern
Defect, Contractor shall regularly advise Customer of the status of remedial
efforts being undertaken with respect to such problem. A "Pattern Defect" will
be determined to exist in any LRU when three percent (3%) or more of the total
number of Repeaters purchased hereunder experience failures with respect to such
LRUs within any rolling three (3) month period, due to the same Defect in
design, material or manufacturing process carried out by Contractor or its
Subcontractors
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(b) Customer, or its designee, at Customer's expense, shall install the
replacement LRU and shall pack and crate for return to Contractor the replaced
LRU, provided that Contractor, at Contractor's expense, shall provide Customer
with all necessary and appropriate packing and crating materials.
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18. CONTRACTOR'S ADDITIONAL REPRESENTATIONS AND WARRANTIES
(a) Contractor additionally represents and warrants:
(1) Contractor is a corporation duly organized, validly existing and
in good standing under the Laws of Delaware;
(2) it has all requisite power and authority to own and operate its
material properties and assets and to carry on its respective
business as now conducted in all material respects;
(3) it is duly qualified to transact business and is in good standing
in each jurisdiction in which the failure to so qualify would
have a Material Adverse Effect;
(4) it is, or at the time of performance of the Work will be, fully
licensed and authorized to perform the Work in each jurisdiction
in which the Work is to be performed;
(5) it has all requisite corporate power and authority to enter into
this Contract and to carry out the transactions contemplated by
this Contract;
(6) the execution, delivery, and performance of this Contract and the
consummation of the transactions contemplated by this Contract
have been duly authorized by all requisite corporate action of
Contractor;
(7) this Contract is a valid and binding obligation of Contractor,
enforceable in accordance with its terms, except Contractor makes
no representation or warranty as to the enforceability of
remedies due to applicable bankruptcy, insolvency, moratorium,
reorganization, or similar laws relating to or affecting the
enforcement of creditor's rights or by reason of general
principles of equity;
(8) in the event Contractor becomes a party to any legal,
administrative, arbitral, investigatory or other proceeding or
controversy pending or, to the best of its knowledge, threatened,
which reasonably would be expected to have a Material Adverse
Effect, Contractor will notify Customer as soon as practicable;
and
(9) it is not subject to any contractual or other obligation that
would prevent it from entering into this relationship and the
execution and delivery of this Contract by Contractor and the
performance by Contractor of its obligations hereunder will not
result in or constitute a breach or violation of, or a default
under, any provision of any lease, license, contract, agreement
or any other document to which it is a party or by which it is
bound.
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(b) Contractor represents that it is not a party to any legal,
administrative, arbitral, investigatory or other proceeding or controversy
pending or, to the best of its knowledge, threatened, which reasonably would be
expected to have a Material Adverse Effect.
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19. CUSTOMER'S REPRESENTATIONS AND WARRANTIES
(a) Customer represents and warrants:
(1) it is duly organized, validly existing and in good standing under
the Laws of the State of Delaware;
(2) it has all requisite power and authority to own and operate its
material properties and assets and to carry on its respective
business as now conducted in all material respects;
(3) it is duly qualified to transact business and is in good standing
in each jurisdiction in which the failure to so qualify would
have a Material Adverse Effect;
(4) it has all requisite corporate power and authority to enter into
this Contract and to carry out the transactions contemplated by
this Contract;
(5) the execution, delivery, and performance of this Contract and the
consummation of the transactions contemplated by this Contract
have been duly authorized by the requisite corporate action of
Customer and do not conflict with any other agreement or
obligation to which it is a party or which binds its assets;
(6) this Contract is a valid and binding obligation of Customer,
enforceable in accordance with its terms, except Customer makes
no representation or warranty as to the enforceability of
remedies due to applicable bankruptcy, insolvency, moratorium,
reorganization, or similar laws relating to or affecting the
enforcement of creditor's rights or by reason of general
principles of equity; and
(7) in the event Customer becomes a party to any legal,
administrative, arbitral, investigatory or other proceeding or
controversy pending, or to the best of its knowledge threatened,
which reasonably would be expected to have a Material Adverse
Effect, Customer will notify Contractor as soon as practicable.
(b) Customer represents that as of the Effective Date, except as otherwise
set forth in the filing of the Registration Statement on Form S-1 by XM
Satellite Radio Inc. with the U.S. Securities and Exchange Commission on July
23, 1999, Registration No. 333-38619, Customer is not a party to any legal,
administrative, arbitral, investigatory or other proceeding or controversy
pending or, to the best of its knowledge, threatened, which reasonably would be
expected to have a Material Adverse Effect.
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20. INSURANCE
20.1 General.
(a) Contractor shall purchase and maintain primary insurance coverage from
a company or companies licensed to do business in each state in which the Work
shall be performed and such company or companies shall carry at least an A.M.
Best's rating of A-/VIII; provided, however, Contractor's insurer, Lloyds of
London, shall be deemed to meet the foregoing standard notwithstanding that
Lloyds of London may not be so rated in each state in which the Work may be
performed. Such insurance shall protect Contractor from claims set forth below
that may arise out of or result from Contractor's operations under the Contract,
whether due to sole or passive negligence or arising from a Subcontractor or by
anyone directly or indirectly employed by any of them or by anyone for whose
acts any of them are liable:
(1) claims for damages because of bodily injury, occupational
sickness or disease, or death of its employees arising under
workers' or workmen's compensation, disability benefit and/or
other employee benefit acts;
(2) claims for damages because of bodily injury, sickness or disease,
or death of any persons other than its employees;
(3) claims for damages insured by usual personal injury liability
coverage;
(4) claims for damages, other than to the Work itself, because of
injury to or destruction of tangible property, including loss of
use resulting therefrom; and
(5) claims for damages because of bodily injury or death of any
person or property damage arising out of the ownership,
maintenance or use of any motor vehicle.
(b) Compliance by Contractor with the foregoing insurance requirements
shall not limit Contractor's liability or relieve it of liability under this
Contract or any Law.
20.2 Specific Insurance Requirements.
The insurance required by this Article 20 (Insurance) shall be written for
not less than the limits of liability specified in this Contract, or required by
Law, whichever is greater. Before commencement of the Work and until the last
payment made hereunder (except that product liability coverage shall continue in
force until two years after the date of the last payment made hereunder),
Contractor shall procure, deposit, and maintain for Customer's benefit,
insurance satisfactory to Customer, as set forth in this Article 20.2 (Specific
Insurance Requirements).
(a) Worker's Compensation as required by the Worker's Compensation Laws of
the state(s) in which the Work is performed and Employer's Liability Insurance
in an amount not less than $100,000/$500,000/$500,000 each accident, bodily
injury by accident/policy limit, bodily injury by disease/each employee, bodily
injury by disease.
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(b) Commercial General Liability Insurance, including products liability
insurance, covering Bodily Injury, Personal Injury, Property Damage, and
Advertising Injury, as follows:
(1) Minimum Limits: Such insurance shall be written for a combined
single limit not less than the following:
General aggregate per project $2,000,000
Products-Completed Operations Aggregate $2,000,000
Personal & Advertising Injury $1,000,000
Each occurrence $1,000,000
(2) This insurance shall be written on an occurrence basis and on a
coverage form at least equal to that provided under ISO CG 00 01,
latest available edition, without overly restricting endorsements
that reduce coverage.
(c) Automobile Liability Insurance covering Bodily Injury and Property
Damage as follows:
(1) Minimum Limits: The Combined Single Limit for Bodily Injury and
Property Damage shall be not less than $1,000,000 per accident.
(2) This insurance shall be written on a coverage form at least equal
to that provided under ISO CA 00 01, latest available edition,
without restricting endorsements that reduce coverage and shall
cover all owned, operated and hired vehicles of Contractor and
non-ownership protection for all employees of Contractor engaged
in the performance of this Contract.
(d) Excess Liability Insurance, written on an occurrence basis, in the
amount of not less than a combined single limit for Bodily Injury and Property
Damage and Personal and Advertising Injury of $25,000,000 per occurrence or each
offense/$25,000,000 in the aggregate following the form and amounts of the
primary insurance described in paragraphs (a), (b) and (c) of this Article 20.2
(Specific Insurance Requirements).
(e) Contractor shall procure cargo/transit insurance adequate to cover the
value of the Work. Contractor shall assume the risk of goods in transit. Such
coverage shall be written on an "all risk" basis.
(f) All insurance maintained by Contractor shall provide:
(1) A Certificate of Insurance signed by the insurance broker stating
the limits of liability and coverage effective dates shall be
filed in triplicate with Customer before operations are begun.
Such certificates not only shall name the types of policies
provided, but also shall refer specifically to this Contract and
Article. If the initial insurance expires prior to completion of
the Work, renewal certificates shall be furnished by the date of
expiration.
(2) Customer, its Affiliates and Associates shall be included in the
Commercial General Liability and Excess Liability policies as
"additional insureds" with
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the understanding that the liability
to pay premiums shall be the sole obligation of Contractor and
not that of any other insured.
(3) Except in the case of Worker's Compensation Insurance, proceeds
for first party losses, if any, shall be adjusted by and payable
to the party purchasing the insurance, except property insurance
purchased by Contractor for the benefit of Contractor,
Subcontractors and Customer, which shall be adjusted with and
payable to Contractor, Subcontractors and Customer, as their
interest may appear.
(4) The insurer thereunder waives all rights of subrogation against
Customer, its Affiliates and Associates, as well as any rights of
setoff and counterclaim and any other right to deduction whether
by attachment or otherwise.
(5) Such insurance shall be primary without any right of contribution
of any other insurance carried by or on behalf of Customer, its
Affiliates and Associates.
(g) Contractor shall require each of its Subcontractors to procure and
maintain, until the completion of that Subcontractor's work, adequate insurance
in a form similar to the above.
20.3 Certificates of Insurance.
Certificates of Insurance in the "ACORD" form shall be provided to Customer
on or before the Execution Date plus ten (10) Business Days; provided, however,
the words "endeavor to" must be deleted from the cancellation section of the
form. These Certificates, as well as insurance policies required by this
Article 20 (Insurance), shall contain a provision that coverage shall not be
canceled or allowed to expire until at least ninety (90) Calendar Days' prior
written notice has been given to Customer; provided, however, ten (10) Calendar
Days notice is permitted if the insurance is cancelled for non-payment reasons.
Such Certificates shall also indicate that the Commercial General Liability and
Excess Liability insurance policies have been endorsed to name Customer, its
Affiliates and Associates as additional insureds as respects work performed by
Contractor on their behalf.
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21. INDEMNIFICATION
21.1 Indemnity by Contractor.
Subject to Article 21.4 (Indemnification Procedures), Contractor shall
indemnify, defend and hold harmless Customer and its Affiliates and their
respective Associates, from any and all Losses arising from, in connection with,
or based on allegations of, any of the following:
(a) any claims made by third parties for injury to person (including death)
or loss or damage to tangible property arising out of any error, omission or
negligent act of Contractor or its Subcontractors; and
(b) any claims arising out of or related to occurrences Contractor is
required to insure against pursuant to Article 20 (Insurance).
21.2 Indemnity by Customer.
Subject to Article 21.4 (Indemnification Procedures), Customer shall
indemnify, defend and hold harmless Contractor and its Affiliates and their
respective Associates, from any and all Losses arising from, in connection with,
or based on allegations of any of the following:
(a) any claims made by third parties for injury to person (including death)
or loss or damage to tangible property arising out of any error, omission or
negligent act of Customer; and
(b) any third-party allegations of infringement of any Intellectual
Property Right, alleged to have occurred because of systems, designs,
instructions, specifications or other resources provided by Customer directly or
indirectly to Contractor for incorporation into the Repeaters, Network
Management System or other deliverables; provided, however, Customer's total
liability to Contractor or any third party with respect to such indemnity shall
not, in the aggregate, exceed Seven Million, Five Hundred Thousand Dollars
($7,500,000).
21.3 Intellectual Property Infringement Indemnification.
(a) Contractor shall indemnify, defend, and hold harmless Customer from any
and all Losses arising from, in connection with, or based on any allegations
made by third parties (including Subcontractors of Contractor) that Customer's
possession or use of the Work, or any part thereof, infringes any third-party
Intellectual Property Right; provided, however, (i) Contractor's total liability
to Customer or any third party with respect to such intellectual property
infringement indemnity shall not exceed (A) Seven Million, Five Hundred Thousand
Dollars ($7,500,000) with respect to claims related to Work performed by
Contractor or any of its Subcontractors (except Unique Broadband Systems)
hereunder and (B) One Million Dollars ($1,000,000) with respect to claims
related to Work performed by Contractor's Material Subcontractor Unique
Broadband Systems under this Contract, and (ii) Contractor's total aggregate
liability under (i) shall not exceed Seven Million, Five Hundred Thousand
Dollars ($7,500,000). Notwithstanding the foregoing, Contractor shall not be
liable under this paragraph (a) to the extent Losses are caused by (i) the
contributory infringement by Customer as described in paragraph (b) of Article
21.2 (Indemnity by Customer) or are based on claims related to work or
deliverable items furnished by Unique Broadband Systems pursuant to the Interim
Services Agreement with Customer, dated August 9, 1999; or (ii) modifications to
the Work by any
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person other than Contractor or its Subcontractors unless otherwise directed by
Contractor or its Subcontractors; or (iii) Customer's use of the Work in
combination with items not provided by Contractor or its Subcontractors unless
such non-deliverables are identified in Exhibit A (Design Specifications) as
items with which the deliverables hereunder will be used in combination.
(b) If the use of the Work or any part thereof is enjoined, Contractor
shall, or, if in Contractor's reasonable opinion the Work or any part thereof is
likely to be enjoined, Contractor may, in either case at its expense, either
procure for Customer the right to use the Work or infringing part thereof, as
the case may be, or substitute an equivalent product reasonably acceptable to
Customer, or modify the Work or infringing part thereof to render them non-
infringing without materially affecting their utility or functionality. If
Contractor determines that none of these alternatives is reasonably available or
feasible, Contractor shall meet with Customer to address the matter and reach an
equitable solution reasonably acceptable to Customer.
(c) Contractor's obligations under this Article 21.3 (Intellectual
Property Infringement Indemnification) shall be subject to Article 21.4
(Indemnification Procedures).
21.4 Indemnification Procedures.
(a) Promptly after receipt by the indemnified Party of notice of the
commencement or threatened commencement of any civil, criminal, administrative,
or investigative action or proceeding involving a claim in respect of which the
indemnified Party will seek indemnification pursuant to this Article 21
(Indemnification), the indemnified Party shall notify the indemnifying Party of
such claim in writing. Failure to so notify the indemnifying Party shall not
relieve the indemnifying Party of its obligations under this Contract except to
the extent it can demonstrate it was prejudiced by such failure. Within fifteen
(15) Calendar Days following receipt of written notice from the indemnified
Party relating to any claim, but no later than ten (10) Calendar Days before the
date on which any response to a complaint or summons is due, the indemnifying
Party shall notify the indemnified Party in writing if the indemnifying Party
elects to assume control of the defense or settlement of that claim (a "Notice
of Election").
(b) If the indemnifying Party delivers a Notice of Election relating to
any claim within the required notice period, so long as it is actively defending
such claim, the indemnifying Party shall be entitled to have sole control over
the defense and settlement of such claim; provided that (i) the indemnified
Party shall be entitled to participate in the defense of such claim and to
employ counsel at its own expense to assist in the handling of such claim; (ii)
where the indemnified Party is so represented, the indemnifying Party shall keep
the indemnified Party 's counsel informed of each step in the handling of any
such claim; (iii) the indemnified Party shall provide, at the indemnifying
Party's request and expense, such assistance and information as is available to
the indemnified Party for the defense and settlement of such claim; and (iv) the
indemnifying Party shall obtain the prior written approval of the indemnified
Party before entering into any settlement of such claim or ceasing to defend
against such claim. After the indemnifying Party has delivered a Notice of
Election relating to any claim in accordance with the preceding paragraph, the
indemnifying Party shall not be liable to the indemnified Party for any legal
expenses incurred by the indemnified Party in connection with the defense of
that claim; provided, however, the indemnifying Party shall be liable to the
indemnified Party for
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such legal expenses if the indemnified Party chooses to participate in the
defense and settlement of such claim because the indemnified Party reasonably
concluded that the indemnifying Party had a conflict of interest and could not
adequately represent the indemnified Party. In addition, the indemnifying Party
shall not be required to indemnify the indemnified Party for any amount paid or
payable by the indemnified Party in the settlement of any claim for which the
indemnifying Party has delivered a timely Notice of Election if such amount was
agreed to without the prior written consent of the indemnifying Party.
(c) If the indemnifying Party does not deliver a Notice of Election
relating to any claim within the required notice period or fails actively to
defend such claim, the indemnified Party shall have the right to defend and/or
settle the claim in such manner as it may deem appropriate, at the cost and
expense of the indemnifying Party. Provided that the indemnified Party acts in
good faith, it may settle such claim on any terms it considers appropriate under
the circumstances without in any way affecting its right to be indemnified
hereunder. The indemnifying Party shall promptly reimburse the indemnified Party
for all such costs and expenses.
21.5 Waiver of Subrogation.
If a Party insures against any loss or damage it may suffer in respect of
which it is required to indemnify the other Party, its Affiliates and their
respective Associates pursuant to this Article 21 (Indemnification), it shall be
a condition that the insuring Party arrange for the insurer to waive its right
of subrogation against such other Party and such other Party's Affiliates and
their respective Associates. Each Party shall be entitled to require proof from
time to time that the other Party has complied with its obligations under this
Article 215 (Waiver of Subrogation). In the event a Party does not comply with
such obligations, the indemnities referred to in Articles 21.1 (Indemnity by
Contractor), 21.2 (Indemnity by Customer) and 21.3 (Intellectual Property
Infringement Indemnification) shall extend to any claim that may be made by an
insurer pursuant to an alleged right of subrogation.
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22. LIABILITY
22.1 General Intent.
Subject to the specific provisions of this Article 22 (Liability), it is
the intent of the Parties that each Party shall be liable to the other Party for
any actual damages incurred by the non-breaching Party as a result of the
breaching Party's failure to perform its obligations in the manner required by
this Contract.
22.2 Liability Restrictions.
(a) SUBJECT TO PARAGRAPH (c) BELOW, IN NO EVENT, SHALL A PARTY BE LIABLE IN
CONTRACT, WARRANTY, STRICT LIABILITY, TORT OR OTHERWISE FOR INDIRECT,
CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES ARISING OUT OF, RESULTING
FROM , OR IN ANY WAY CONNECTED TO THE PERFORMANCE OR BREACH OF THIS CONTRACT,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES IN
ADVANCE.
(b) SUBJECT TO PARAGRAPH (c) BELOW, EACH PARTY'S TOTAL CUMULATIVE LIABILITY
TO THE OTHER PARTY HEREUNDER, WHETHER IN CONTRACT, WARRANTY, STRICT LIABILITY,
TORT OR OTHERWISE, SHALL BE LIMITED TO AN AMOUNT EQUAL TO TEN MILLION DOLLARS
($10,000,000).
(c) The limitations set forth in paragraphs (a) and (b) above shall not
apply with respect to claims that are the subject of indemnification pursuant to
Articles 21.1(a), 21.1(b) and 21.2(a). In addition, the limitations set forth in
paragraph (b) above shall not apply with respect to the Parties' respective
liabilities specified in Article 25 (Termination). In addition, the limitations
set forth in paragraph (a) above shall not apply to the liquidated damages
remedy set forth in Article 7.5 (Liquidated Damages for Late Delivery of
Repeaters).
(d) Each Party shall have a duty to mitigate damages for which the other
Party is responsible.
22.3 Contractor Responsibility for Certain Claims.
(a) In the event any Subcontractor asserts a claim of non-payment against
Customer, Contractor shall assume full responsibility for such claims and shall
reimburse Customer for any settlements or judgments incurred by or assessed
against Customer with respect to such claims and all related costs and expenses
(including reasonable legal fees and disbursements), provided that Contractor is
(i) given prompt notice of such claims (provided that failure to so notify
Contractor shall not relieve Contractor of its responsibilities hereunder except
to the extent it can demonstrate it was prejudiced by such failure) and (ii)
permitted (but without obligation) to control the defense of such claims.
(b) With respect to any claims made by third parties arising out of
Contractor's breach of the warranties set forth in Article 17.8 (Compliance with
Applicable Law) and any claims by Customer or any third party with respect to a
breach of the warranties and representations set
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forth in Article 18 (Contractor's Additional Representations and Warranties),
Contractor shall assume full responsibility for such claims and shall reimburse
Customer for any settlements or judgments incurred by or assessed against
Customer with respect to such claims and all related costs and expenses
(including reasonable legal fees and disbursements), provided that Contractor is
(i) given prompt notice of such claims ((provided that failure to so notify
Contractor shall not relieve Contractor of its responsibilities hereunder except
to the extent it can demonstrate it was prejudiced by such failure) and (ii)
permitted (but without obligation) to control the defense of such claims.
(c) Notwithstanding anything to the contrary herein, any liability arising
pursuant to paragraphs (a) or (b) above shall not be subject to the limitation
on Contractor's liability set forth in Article 22.2(b) hereof.
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23. DISPUTE RESOLUTION
Any dispute, claim, or controversy between the Parties arising out of or
relating to this Contract ("Dispute"), including any Dispute with respect to the
interpretation, performance, termination, or breach of this Contract or any
provision thereof shall be resolved as provided in this Article 23 (Dispute
Resolution).
23.1 Informal Dispute Resolution.
Prior to the initiation of formal dispute resolution procedures, the
Parties shall first attempt to resolve their Dispute informally, in a timely and
cost-effective manner, as follows:
(a) If, during the course of the Work, a Party believes it has a Dispute
with the other Party, the disputing Party shall give written notice thereof,
which notice will describe the Dispute and may recommend corrective action to be
taken by the other Party. Contractor's Project Manager shall promptly consult
with Customer's Project Manager in an effort to reach an agreement to resolve
the Dispute.
(b) In the event agreement cannot be reached within five (5) Calendar Days
of receipt of written notice, either Party may request the Dispute be escalated,
and the respective positions of the Parties shall be forwarded to an executive
level higher than that under paragraph (a) above for resolution of the Dispute,
which in the case of Contractor, shall be the Contractor Business Line Manager
identified in Article 9.1 (Contractor Personnel) above.
(c) In the event agreement cannot be reached under paragraphs (a) or (b)
above within a total of ten (10) Calendar Days after receipt of the written
notice described in paragraph (a) above, either Party may request the Dispute be
escalated, and the respective positions of the Parties shall be forwarded to the
Chief Executive Officer (CEO) of each Party, and such executives shall meet (in
person or via telephone or video conference) during such time to resolve the
Dispute.
(d) In the event agreement cannot be reached under paragraphs (a), (b) or
(c) above within a total of twenty (20) Calendar Days after receipt of the
written notice described in paragraph (a) above, either Party may proceed with
arbitration in accordance with Article 232 (Arbitration).
23.2 Arbitration.
(a) Subject to the provisions of Article 23.1 (Informal Dispute Resolution)
and Article 23.3 (Litigation), any Dispute shall be resolved by mandatory and
binding arbitration in accordance with the then-effective Center for Public
Resources Rules for Nonadministered Arbitration of Business Disputes, as may be
amended from time to time (the "CPR Rules"), which are incorporated herein by
reference. Notwithstanding the foregoing, to the extent any provision of this
Article 23.2 (Arbitration) modifies, adds to, or is inconsistent with any
provision of the CPR Rules, the provisions of this Article shall control.
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(b) The arbitration shall be conducted by a three-arbitrator tribunal (the
"Tribunal"). Within thirty (30) Calendar Days after the commencement of the
arbitration, each Party shall appoint one arbitrator, and those two arbitrators
shall together appoint the third arbitrator as provided in CPR Rule 5.2. Each
arbitrator appointed by the Parties shall be knowledgeable and experienced in
contracting for technical systems and shall have senior management and/or
legal/judicial experience.
(c) Unless otherwise limited by the Tribunal or the agreement of the
Parties, the Parties shall be permitted to take discovery, if and as needed, by
deposition upon oral examination, requests for production of documents and
things, and requests for entry upon land for inspection and other purposes, as
those discovery methods are described and defined in the Federal Rules of Civil
Procedure; provided, however, that any limitations in the Federal Rules on the
number, timing, or sequence of such discovery requests shall not apply. The
scope of permissible discovery shall generally be as described in Federal Rule
of Civil Procedure Rule 26(b)(1), but the Parties shall use their best efforts
to focus and limit their discovery in accordance with the nature of the dispute
and the need for expedited resolution. The Tribunal may expand or limit the
scope of permissible discovery, establish the time period within which discovery
responses must be served, and expand or limit the type and number of discovery
methods and requests as it shall determine is appropriate in the circumstances,
taking into account the needs of the Parties and the desirability of making
discovery expeditious and cost-effective. The Tribunal may issue orders to
protect the confidentiality of proprietary information, trade secrets, and other
similar information disclosed in discovery and may order that discovery not be
had or that discovery may be had only on specific terms and conditions.
(d) Time is of the essence in the initiation and completion of the
arbitration. The arbitral hearing shall be commenced and conducted
expeditiously. Unless the Tribunal orders otherwise, the Dispute should be
submitted to the Tribunal for decision within three (3) months after the
commencement of the arbitration, and the final award shall be rendered within
one (1) month thereafter. The Parties and the Tribunal shall use their best
efforts to comply with this schedule, and the Tribunal may impose any remedy it
deems just for any Party's effort to unnecessarily delay, complicate or hinder
the proceedings.
(e) The arbitration shall be held in Washington, D.C., USA.
(f) Any arbitration proceeding held pursuant to this Article shall be
governed by the United States Arbitration Act, 9 U.S.C. (S)(S) 1 et seq., and
judgment upon the award rendered by the Tribunal may be entered in any court
having jurisdiction thereof.
(g) The Tribunal's award may grant any remedy or relief that the Tribunal
deems just and equitable and within the scope of this Contract, including
specific performance or other equitable relief. Notwithstanding the foregoing,
the Tribunal shall have no power or authority to amend or disregard any
provision of this Article 23.2 (Arbitration) or any other provision of this
Contract; in particular, but without limiting the generality of the foregoing,
the Tribunal shall not have the power or authority to exclude the right of a
Party to terminate this Contract when a Party would otherwise have such right.
The Tribunal also shall have no power or authority to award punitive or
exemplary damages to any Party.
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(h) The non-prevailing Party, as determined by the Tribunal, shall pay the
costs of the arbitration and the prevailing Party's fees and expenses incurred
with respect to the arbitration, including reasonable attorneys' fees as
determined by the Tribunal. In the event of an arbitration involving multiple
claims with different Parties prevailing on each claim, the Tribunal shall
apportion the expenses and fees between or among the Parties in such manner as
it deems reasonable, taking into account the circumstances of the case, the
nature of the claims, and the result of the arbitration.
(i) At any time more than ten (10) Calendar Days before the commencement
of the hearing, any Party defending against any claim may serve upon the adverse
Party an offer to allow an award to be entered against the defending Party on
any claim for the money or property or to the effect specified in the offer. If
within ten (10) Calendar Days after the service of the offer, the adverse Party
serves written notice that it accepts the offer, either Party may file the offer
and acceptance with the Tribunal, which will thereupon promptly enter an award
on the claim as provided in the offer. An offer not accepted shall be deemed
withdrawn and shall not be admissible into evidence except with respect to a
determination of fees and expenses. If the award finally made on the claim is
not equal to or more favorable than the offer, then for the purpose of
apportioning expenses and fees pursuant to this Article 23.2 (Arbitration), the
Party making the offer shall be deemed the Prevailing Party with respect to such
claim.
(j) If at the time any Dispute arises, the Center for Public Resources no
longer provides rules or services with respect to the arbitration of business
disputes, then the Parties hereto agree that the arbitration shall be conducted
before the American Arbitration Association ("AAA"). Such arbitration shall be
conducted pursuant to the AAA's Commercial Arbitration Rules then effective,
provided, however, that in the event of any inconsistency with the AAA rules and
this Article, the provisions of this Article shall control.
23.3 Litigation.
(a) Notwithstanding the provisions of Article 23.1 (Informal Dispute
Resolution) and Article 23.2 (Arbitration) above, if the Dispute requires that
immediate equitable relief or relief in aid of arbitration be obtained, either
Party shall have the right to bring suit at any time to obtain preliminary or
temporary injunctive relief, including specific performance, but requests for
permanent injunctive relief shall be arbitrated pursuant to Article 23.2
(Arbitration).
(1) Any such suit shall be brought in a court of competent
jurisdiction in the State of Delaware and the Parties hereby
waive any objection to venue in such court. The Parties hereby
irrevocably consent to personal jurisdiction in the state and
federal courts in the State of Delaware concerning any Dispute
between the Parties. If, for any reason, the state and federal
courts of Delaware do not have or refuse to exercise jurisdiction
over the Dispute, then litigation as permitted herein may be
brought in any court of competent jurisdiction in the United
States of America, or if there is no such court, in any other
nation.
(2) In the event a Party files a lawsuit pursuant to this Article
23.3 (Litigation), the Prevailing Party is entitled to an award
of its costs and fees, including
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reasonable attorney's fees, incurred with respect to the lawsuit.
The defendant in such litigation shall be regarded as the
Prevailing Party if either the court denies the equitable relief
sought on the merits or the court otherwise decides that
equitable relief is not warranted or the matter should be
resolved by arbitration.
(b) In the event an entity or person not subject to the provisions of this
Article 23 (Dispute Resolution) commences any litigation or proceeding against
any Party hereto in which the other Party hereto is an indispensable party, the
Party against which the litigation or proceeding is brought may join or attempt
to join the other Party in such litigation or proceeding notwithstanding the
provisions of Article 23.2 (Arbitration). For the purposes of this provision,
the other Party is an indispensable party in the lawsuit or proceeding if (i) in
its absence, complete relief could not be accorded among those already a party
to the lawsuit or proceeding; (ii) its absence may as a practical matter impair
or impede its ability to protect its interests relating to the subject of the
lawsuit or proceeding; or (iii) its absence may leave the Party against which
the litigation or proceeding is brought subject to a substantial risk of
incurring double, multiple, or otherwise inconsistent obligations by reason of
the interest of the other Party relating to the subject of the lawsuit or
proceeding.
(c) Nothing in this Contract precludes a Party prevailing on any claim,
whether in arbitration or litigation, from initiating litigation in any
appropriate forum to enter or enforce a judgment based on the Tribunal's or
court's award on that claim.
23.4 Continued Performance.
Pending final resolution of any Dispute, each Party shall, unless directed
otherwise by the other Party in writing, fulfill all of its obligations under
this Contract, including the obligation to take all steps necessary during the
pendency of the Dispute to ensure the Work will be performed within the time
stipulated or within such extended time as may be allowed under this Contract,
provided Customer shall continue to make payments of undisputed sums therefore
in accordance with this Contract (including the dispute resolution provisions
hereof).
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24. DEFAULT AND CORRECTION PLAN
24.1 Material Breach.
(a) In the event Contractor fails to complete a Key Task on or before the
date identified or referenced in Article 0 (Key Tasks) or fails to perform a
material obligation hereunder (in either case a "Failure"), Customer shall be
entitled to deliver to Contractor a written demand that it correct such Failure.
Contractor shall acknowledge receipt of Customer's demand within one (1)
Business Day and shall submit to Customer, for Customer's review, comment and
approval, a Correction Plan within ten (10) Business Days after the date of
Customer's demand (or such longer time as Customer may establish, including as a
result of Contractor's reasonable request for an extension of time to provide a
Correction Plan).
(b) If the Correction Plan does not set forth a reasonable manner in
which, or reasonable date by which, Contractor will correct or offset the
Failure, Customer may reject the Correction Plan upon written notice to
Contractor, which notice shall include, in reasonable detail, the deficiencies
in the Correction Plan noted by Customer, and other relevant comments.
Contractor shall revise the Correction Plan, including by incorporating
Customer's reasonable comments, and shall re-submit the revised Correction Plan
to Customer for its approval within seven (7) Business Days after receipt of
Customer's comments. This process may be repeated until such time as Contractor
provides a Correction Plan acceptable to Customer.
(c) If Customer approves the Correction Plan (or revision thereof) or does
not reject the Correction Plan (or revision thereof) within thirty (30) Calendar
Days after receipt thereof, this Contract shall be deemed modified in accordance
with the Correction Plan (or revision thereof) and the Failure shall be deemed
cured so long as Contractor complies with the terms of such Correction Plan (or
revision thereof). Nothing herein shall be construed to release Contractor from
its obligation to make liquidated damages payments as applicable in accordance
with Article 7.5 (Liquidated Damages for Late Delivery of Repeaters).
(d) In the event Contractor does not submit a Correction Plan to Customer
within fifteen (15) Business Days after receipt of a demand therefor, or if
Contractor fails to submit a revised Correction Plan within seven (7) Business
Days after receipt of Customer's notice of rejection of the original Correction
Plan, or if Contractor fails to provide an acceptable Correction Plan within
three (3) iterations thereof (including the first draft), or if Contractor fails
to complete the Customer-approved Correction Plan within thirty (30) Calendar
Days after Customer's approval of the Correction Plan (or such period as
otherwise specified in the Correction Plan), Customer shall be entitled to
terminate this Contract in accordance with the provisions of Article 25.2
(Termination for Contractor's Default).
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
24.2 Key Tasks.
(a) For purposes of this Agreement, each of the following shall be a "Key
Task":
- --------------------------------------------------------------------------------
Completion Date: Key Task:
- --------------------------------------------------------------------------------
[*****] [*****]
- --------------------------------------------------------------------------------
(b) A Key Task shall be deemed "completed" when each item of such Key Task
has been completed in accordance with the requirements of this Contract.
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25. TERMINATION
25.1 Termination for Customer's Convenience.
(a) Customer may, upon written notice to Contractor, at any time, reduce
the Nominal Order to the amounts indicated in paragraphs (d) and (e) below and
Contractor shall immediately cease performance of the Work on the date specified
in the notice to the extent reduced in the manner and to the extent specified
below. Notwithstanding the foregoing, as long as Contractor provides the Work in
accordance with the requirements of this Contract, Customer intends to obtain
the Nominal Order of Repeaters from Contractor, except for reasons due to
changes in its financial, technical or business needs.
(b) In the event of partial termination of the Work in accordance with
this Article 25.1 (Termination for Customer's Convenience), Customer's notice of
termination will specify the portion of the Work terminated and the remaining
provisions of this Article 25.1 (Termination for Customer's Convenience) shall
apply to such terminated portion. All other portions of the Work shall continue
unaffected.
(c) Upon receipt of a notice of termination, as provided in paragraph (a)
above, Contractor shall take the following actions:
(1) stop Work under this Contract on the date and to the extent
specified in the notice of termination, except those services
that are reasonably necessary to be provided in connection with a
termination of this Contract;
(2) place no further orders or Subcontracts for materials, services,
or facilities to the extent they relate to the performance of the
Work terminated;
(3) terminate Subcontracts to the extent they relate to the
performance of the Work terminated;
(4) settle all outstanding liabilities and all claims arising out of
any termination of Subcontracts for materials, services, or
facilities provided Customer pays amounts due under paragraph (e)
below;
(5) take such action as may be reasonably necessary, or as Customer
may direct, for the protection and preservation of the property
related to this Contract that is in the possession of Contractor
or any Subcontractor and in which Customer has or may acquire an
interest; and
(6) complete wind-down activities within thirty (30) Calendar Days of
the effective date of termination.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(d) From EDC up to and including [*****], Customer may reduce the Nominal
Order to no less than [*****] Repeaters ([*****] High Power Repeaters and
[*****] Standard Repeaters) with no impact on the unit pricing therefor (as set
forth in Exhibit C (Pricing, Milestones and Payment Plan)) or the Delivery
Requirements set forth in Exhibit D (Delivery Requirements and Schedule).
(e) Beginning [*****] and continuing throughout the Term of this Contract,
Customer may reduce the Nominal Order without impact on the unit pricing
therefor as follows:
(1) to no less than [*****] Repeaters ([*****] High-Power and [*****]
Standard Repeaters), in which case Customer shall pay Contractor
for Contractor's costs (if any) actually incurred, with respect
to that part of the Nominal Order terminated, for termination of
work-in-progress and termination of contracts for material
supplies, plus [*****] of such costs (Customer's maximum
liability for such costs (including the [*****] markup) shall not
exceed [*****] for termination effective on or before [*****],
[*****] for termination effective on or before [*****], [*****]
for termination effective on or before [*****] and, [*****] for
termination effective any date on or after [*****]); and
(2) to zero (that is, cancel the entire Nominal Order), in which case
Customer shall pay Contractor (i) the amounts set forth in
paragraph (1) above, (ii) plus the amounts set forth in the
following table, (iii) less the sum of any amounts paid pursuant
to the ATP and amounts paid under this Contract in respect of NRE
Milestone Payment Nos. 1-5:
------------------------------------------------------------
Termination Date Amount
------------------------------------------------------------
[*****] [*****]
------------------------------------------------------------
[*****] [*****]
------------------------------------------------------------
Feb. 1, 2000-Mar. 31, 2000 $8.0 million
------------------------------------------------------------
Apr. 1, 2000 and thereafter $14.0 million
------------------------------------------------------------
(f) Contractor agrees to use best commercial efforts to minimize costs
described in paragraph (e)(1) above. Contractor will provide Customer with
documentation and audit rights with respect to such costs.
(g) Contractor shall submit an invoice to Customer for amounts due under
this Article 25.1 (Termination for Customer's Convenience) within sixty (60)
Calendar Days after the effective date of termination specified in the notice
thereof. Contractor shall be entitled to payment by Customer of undisputed
amounts in such invoice within thirty (30) Calendar Days after Customer's
receipt of the invoice. Payment of such amount by any Financing Entity on behalf
of Customer shall relieve Customer from its obligation to make such payment.
(h) Payment of the amount payable by Customer to Contractor pursuant to
this Article 25.1 (Termination for Customer's Convenience) shall constitute a
total discharge of Customer's
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liabilities to Contractor for termination pursuant to this Article 25.1
(Termination for Customer's Convenience).
(i) Upon payment in full of all amounts outstanding under this Contract,
Customer may require Contractor immediately to transfer to Customer in the
manner and to the extent directed by Customer, title to and possession of any
items comprising all or any part of the Work terminated (including all Work-in-
progress, parts and materials, and all inventories, Subcontracts and associated
warranties) free and clear of all liens and encumbrances of any kind.
Contractor shall, upon direction of Customer, use commercially reasonable
efforts to protect and preserve property in the possession of Contractor or its
Subcontractors in which Customer has an interest arising out of this Contract
and shall facilitate access to and possession by Customer of items comprising
all or part of the Work terminated; Customer shall be responsible for costs
reasonably incurred by Contractor in protecting and preserving such property.
In the event Customer neither takes possession of, nor directs Contractor to
protect and preserve the Work, Customer shall be responsible for costs
reasonably incurred by Contractor in storing the Work. Upon Customer's request,
Contractor shall make a reasonable, good-faith effort to sell such items and to
remit any sales proceeds to Customer, less a deduction for costs of disposition
reasonably incurred by Contractor for such efforts provided the selling price
shall be subject to Customer's prior written approval.
25.2 Termination For Contractor's Default.
(a) Customer may terminate this Contract upon service of written notice of
default to Contractor at any time after the occurrence of any of the following:
(1) Contractor fails to deliver the Prototype Repeaters in accordance
with the applicable delivery dates hereunder, and Contractor
fails to cure such breach within thirty (30) Calendar Days of
such delivery dates;
(2) Any of the conditions set forth in paragraph (d) of Article 24
(Default and Correction Plan);
(3) Contractor commits a material breach of any of its duties or
obligations hereunder and, except as provided in paragraph (a)(4)
below, Contractor fails to cure such breach within thirty (30)
Calendar Days of notice thereof; or
(4) with respect to a breach that cannot with due diligence be cured
within thirty (30) Calendar Days notice thereof, Contractor fails
to proceed promptly and diligently to correct the breach (in
which case Contractor shall notify Customer, in writing, within
ten (10) Calendar Days of receipt of notice of the breach,
describing in reasonable detail the reason such breach cannot be
cured in such thirty (30) Calendar-Day period and setting forth a
Correction Plan to cure such breach) or fails to cure the breach
within sixty (60) Calendar Days of notice of breach or as
otherwise agreed in such plan; or
(5) the breach is not subject to cure with due diligence within sixty
(60) Calendar Days notice of the breach; or
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(6) Contractor commences a voluntary proceeding concerning itself
under any applicable bankruptcy, insolvency, reorganization,
adjustment of debt, relief of debtors, or similar law
("Insolvency Law"); or any involuntary proceeding commences
against Contractor under an Insolvency Law and the petition has
not been dismissed within ninety (90) Calendar Days after
commencement of the proceeding; or a receiver or custodian is
appointed for or takes charge of all or a substantial portion of
the property of Contractor and such custodian or receiver has not
been dismissed or discharged within sixty (60) Calendar Days; or
Contractor has taken action toward the winding-up, dissolution,
or liquidation of Contractor or its business; or Contractor has
been adjudicated insolvent or bankrupt or an order for relief or
any other order approving a case or proceeding under any
Insolvency Law has been entered; or Contractor has made a general
assignment for the benefit of creditors or becomes unable to pay
its debts generally as they become due. Should Contractor become
a debtor in any bankruptcy proceeding, Contractor shall move to
assume or reject this Contract within forty-five (45) Calendar
Days after the entry of any order for relief; or
(7) Contractor has purported to assign or transfer this Contract in
violation of the provisions of Article 28.1 (Assignment) and
Contractor fails to cure such unauthorized purported assignment
or transfer within thirty (30) Calendar Days after receiving
written notice from Customer of the unauthorized purported
assignment or transfer.
(b) In the event Customer terminates this Contract pursuant to paragraph
(a) above, (i) Customer shall be entitled to have the Work completed by another
party or parties and Contractor shall be liable to Customer for damages
resulting from such termination, including any reasonable re-procurement costs
and commercially reasonable costs of "cover" incurred in connection therewith in
excess of the Contract Price, such damages to be actually incurred and invoiced
to Contractor in reasonable detail, and for all liquidated damages then due
pursuant to Article 7.5 (Liquidated Damages for Late Delivery of Repeaters), and
(ii) Customer shall be liable to Contractor for unpaid amounts invoiced
hereunder for Milestones completed in accordance with this Contract through the
effective date of termination. Nothing contained in this Contract shall be
construed so as to obligate Customer to exercise such right to terminate for
Contractor's benefit.
(c) Each Party shall submit an invoice to the other Party for amounts due
under this Article 25.2 (Termination for Contractor's Default) within sixty (60)
Calendar Days after the effective date of termination specified in the notice
thereof, which invoice shall state the amounts due from such other Party. Each
such invoice shall be deemed accepted by the Party receiving such invoice,
unless written notice disputing such invoice is provided to the Party furnishing
the invoice within fifteen (15) Business Days after receipt of such invoice. The
amounts payable by a Party under this Article 25.2 (Termination for Contractor's
Default) shall be verified at such Party's request and expense by a nationally
recognized firm of certified public accountants appointed by such Party and
reasonably acceptable to the other Party. Each Party's right to verification
shall be without prejudice to the rights of either Party under Article
23(Dispute
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Resolution). Each Party shall be entitled to payment of all undisputed amounts
within thirty (30) Business Days after the other Party's receipt of such
invoice.
(d) Customer may require Contractor to transfer to Customer in the manner
and to the extent directed by Customer, title to and possession of any items
comprising all or any part of the Work terminated (including all Work-in-
progress, parts and materials, and all inventories, Subcontracts and warranties)
free and clear of any liens and encumbrances of any kind. Contractor shall, upon
direction of Customer and at Customer's expense, protect and preserve property
in the possession of Contractor or its Subcontractors in which Customer has an
interest arising out of this Contract and shall facilitate access to and
possession by Customer of items comprising all or part of the Work terminated,
such expenses to be reimbursed in accordance with the terms of Exhibit C
(Pricing, Milestones and Payment Plan). In the event Customer neither takes
possession nor directs Contractor to protect the Work, Customer shall be
responsible for costs reasonably incurred by Contractor in restoring the Work.
Upon Customer's request, Contractor shall make a reasonable good-faith effort to
sell such items and to remit any sales proceeds to Customer, less a deduction
for costs of disposition reasonably incurred by Contractor for such efforts,
provided the selling price shall be subject to Customer's prior written
approval.
(e) If, after termination of this Contract under the provisions of
paragraph (a) above, it is determined by dispute resolution, pursuant to Article
23 (Dispute Resolution), or admitted in writing by Customer, that Contractor was
not in default under the provisions of paragraph (a), or that any delay giving
rise to the default was excusable under the provisions of Article 7.9 (Excusable
Delay Defined), such termination shall be considered a Termination for
Convenience by Customer and the provisions of Article 25.1 (Termination for
Customer's Convenience) shall apply.
25.3 Termination for Customer's Default.
(a) Contractor may terminate this Contract upon service of written notice
of default to Customer at any time after the occurrence of any of the following
events of default:
(1) Customer fails to pay undisputed amounts due hereunder and fails
to cure such nonpayment within thirty (30) Calendar Days of
written notice thereof; or
(2) Customer commences a voluntary proceeding concerning itself under
any applicable bankruptcy, insolvency, reorganization, adjustment
of debt, relief of debtors, or similar law ("Insolvency Law"); or
any involuntary proceeding commences against Customer under an
Insolvency Law and the petition has not been dismissed within
ninety (90) Calendar Days after commencement of the proceeding;
or a receiver or custodian is appointed for or takes charge of
all or a substantial portion of the property of Customer and such
custodian or receiver has not been dismissed or discharged within
sixty (60) Calendar Days; or Customer has taken action toward the
winding-up, dissolution, or liquidation of Customer or its
business; or Customer has been adjudicated insolvent or bankrupt
or an order for relief or any other order approving a case
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or proceeding under any Insolvency Law has been entered; or
Customer has made a general assignment for the benefit of
creditors or becomes unable to pay its debts generally as they
become due. Should Customer become a debtor in any bankruptcy
proceeding, Customer shall move to assume or reject this Contract
within forty-five (45) Calendar Days after the entry of any order
for relief; or
(3) Customer has purported to assign or transfer this Contract in
violation of the provisions of Article 28.1 (Assignment) and
Customer fails to cure such purported unauthorized assignment or
transfer within thirty (30) Calendar Days after receiving written
notice.
(b) Upon the occurrence of an event of default under paragraph (a) above,
Contractor shall take the following actions:
(1) stop Work immediately under this Contract and all obligations of
Contractor shall terminate hereunder, except those services that
are reasonably necessary to be provided in connection with a
termination of this Contract;
(2) place no further orders or Subcontracts for materials, services,
or facilities to the extent they relate to the performance of the
Work;
(3) terminate orders and Subcontracts to the extent they relate to
the performance of the Work;
(4) settle all outstanding liabilities and all claims arising out of
such termination of orders and Subcontracts for materials,
services, or facilities provided Customer pays amounts due under
paragraph (c) below; and
(5) take such action as may be reasonably necessary, for the
protection and preservation of the property related to this
Contract that is in the possession of Contractor or any
Subcontractor and in which Customer has or may acquire an
interest.
(c) In the event Contractor terminates this Contract as provided in
paragraph (a) above, Contractor shall be entitled to payment of the following
amounts: (i) all unpaid amounts hereunder for Milestones completed in accordance
with this Contract through the effective date of termination; (ii) all unpaid
amounts for Work-in-progress on any Milestone that has not been completed as of
the effective date of termination, with the payment equal to a percentage of the
applicable Milestone Payment that is equal to the percentage of Work actually
completed on the applicable Milestone; (iii) reasonable wind-down expenses
incurred by Contractor as a result of early termination, including costs
associated with terminating Subcontractor and other supplier agreements; and
(iv) an amount equal to Contractor's profit reasonably allocable to the Work
completed and the Work-in-progress as of the effective date of termination,
provided (A) profits shall be reasonably allocable only to the extent Contractor
can reasonably demonstrate the amount of profit it would have earned had the
Work under the Contract been completed (excluding Work related to any
unexercised option hereunder) and the portion of total profits
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claimed is in direct proportion to the amount of Work completed and Work-in-
progress as of the effective date of termination compared to the total amount of
Work under the Contract (excluding Work related to any unexercised option
hereunder) and (B) such allocable profits have not been, or will not be,
otherwise recovered by Contractor hereunder (for example, through amounts
previously paid by Customer or amounts payable under (i) and (ii) above). In no
event shall the amounts payable pursuant to this Article 25.3 (Termination for
Customer's Default) exceed the Contract Price less amounts paid prior to
termination.
(d) In the event Contractor terminates this Contract as provided in
paragraph (a) above, the invoicing and payment provisions of paragraph (g) of
Article 25.1 (Termination for Customer's Convenience) shall apply.
(e) Payment of the amount payable by Customer to Contractor pursuant to
paragraph (c) above shall constitute a total discharge of Customer's liabilities
to Contractor for termination pursuant to this Article 25.3 (Termination for
Customer's Default).
(f) Upon payment in full of all amounts outstanding under this Contract,
Customer may require Contractor immediately to transfer to Customer in the
manner and to the extent directed by Customer, title to and possession of any
items comprising all or any part of the Work terminated (including all Work-in-
progress, parts and materials, and all inventories, Subcontracts and warranties)
free and clear of any liens and encumbrances of any kind, and Contractor shall,
upon direction of Customer, protect and preserve property in the possession of
Contractor or its Subcontractors in which Customer has an interest arising out
of this Contract and shall facilitate access to and possession by Customer of
items comprising all or part of the Work terminated; Customer shall be
responsible for costs reasonably incurred by Contractor in protecting and
preserving such property. In the event Customer neither takes possession nor
directs Contractor to protect the Work, Customer shall be responsible for costs
reasonably incurred by Contractor in storing the Work. Upon Customer's request
and at Customer's expense, Contractor shall make a reasonable, good-faith effort
to sell such items and to remit any sales proceeds to Customer less a deduction
for costs of disposition reasonably incurred by Contractor for such efforts.
(g) Except as expressly stated in this Article 25.3 (Termination for
Customer's Default), Contractor shall have no right to terminate or suspend this
Contract.
25.4 Termination/Expiration Assistance.
(a) Commencing upon notice of termination and continuing through the
effective date of termination or expiration of this Contract, as applicable,
Contractor shall provide to Customer, or at Customer's request to Customer's
designee, the reasonable termination/expiration assistance requested by Customer
to allow the Work to continue without interruption or adverse effect and to
facilitate the orderly transfer of the Work to Customer or its designee;
provided, however, that Customer has paid all outstanding invoices. Such
assistance shall include the following:
(1) Contractor shall continue to perform all warranty services as set
forth in Article 17 (Representations and Warranties) with respect
to all materials and equipment furnished by Contractor hereunder;
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(2) Contractor shall assign, to the extent assignable, to Customer
all O.E.M. (Original Equipment Manufacturers') component
warranties, and Subcontractors', or other warranties on all
materials or equipment furnished by Contractor hereunder. Where
non-assignable, Contractor shall use its best commercial efforts
to obtain for Customer's benefit all such warranties; and
(3) except in the case of termination pursuant to Article 25.1
(Termination for Customer's Convenience), upon Customer's
request, Contractor shall assign to Customer or its designee the
Material Subcontracts, as well as any and all Subcontracts
requested by Customer, provided that such Material Subcontracts
and other Subcontracts are assignable.
(b) Customer shall pay Contractor for termination/expiration assistance in
accordance with the pricing set forth in Exhibit C (Pricing, Milestones and
Payment Plan), provided, however, that in the event Contractor terminates the
Contract due to Customer's failure to pay undisputed amounts, Contractor shall
be entitled to payment in advance for termination/expiration assistance.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
26. OPTIONS
26.1 Option to Purchase Additional Repeaters.
(a) In addition to the total number of Repeaters Contractor shall deliver
and Customer shall purchase pursuant to this Contract, Customer may, at its sole
option and discretion, elect to purchase additional Repeaters from Contractor
for delivery following the Project Completion Date.
(b) Customer may exercise this option to purchase additional Repeaters at
any time commencing at EDC and continuing up to and including the [*****]
anniversary of the Project Completion Date (the "Repeater Option Period").
(c) The unit price for optional Repeaters shall be determined in
accordance with Exhibit C (Pricing, Milestones and Payment Plan).
(d) Upon exercise of any such option, (i) the Parties shall mutually agree
upon a reasonable delivery schedule and (ii) Customer shall indicate in writing
the number of Standard Repeaters and High-Power Repeaters to comprise the total
number of optional additional Repeaters ordered. The warranty terms, including
the applicable Warranty Period, set forth in Article 17 (Representations and
Warranty) shall also apply to any optional Repeaters purchased by Customer;
provided, however, the Warranty Period shall commence upon acceptance by
Customer of each optional Repeater in accordance with Article 8 (Testing
Criteria and Acceptance).
26.2 Network Management System - Video Wall.
At any time commencing at EDC and continuing up to and including the
[*****] anniversary of EDC (the "NMS Video Wall Option Period"), Customer may,
at its sole option and discretion, elect to purchase a full-motion "video wall"
for use in conjunction with the Network Management System. The charge for such
"video wall" is set forth in Exhibit C (Pricing, Milestones and Payment Plan).
The warranty coverage, including the applicable Warranty Period, for the full-
motion "video wall" shall be consistent with the warranty coverage applicable to
the Network Management System, as set forth in Article 17.12 (Remedies (Network
Management System)); provided, however, the Warranty Period shall commence upon
Customer's acceptance of the full-motion "video wall." If Customer elects to
exercise this option, Customer shall provide written notice thereof to
Contractor and the Parties shall mutually agree upon a reasonable delivery
schedule for the optional "video wall" as well as applicable test plans and
procedures and acceptance criteria.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
26.3 Annual Maintenance of NMS.
On or before [*****], Contractor shall provide Customer with a proposal for
annual maintenance of the NMS, such proposal to include a firm fixed price not
to exceed [*****], a description of services, standards of performance and
response times, payment plan and renewal procedures.
26.4 Contract Adjustments.
Should Customer exercise any of the options described in this Article 0
(Options), the Parties shall execute Amendment(s) as soon as is reasonably
possible after option exercise to incorporate the schedule adjustments, price
adjustments, payment schedule adjustments, and changes to the Exhibits and other
terms and conditions as made necessary by such exercise. Except as otherwise
provided in this Article 0 (Options), the terms of this Contract shall apply to
any such options.
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
27. [*****]
The Parties recognize that this program may be [*****] and that some form
[*****] may be requested from Contractor in connection with such [*****].
In the event that Customer desires Contractor to [*****], Customer will submit a
detailed description of such [*****] for Contractor's review and consideration.
Contractor agrees to promptly review such request and notify Customer if [*****]
after considering the terms thereof, the status of the program, the risks
associated with the [*****] and financial, economic and other information as
Contractor may deem reasonable or desirable.
The parties further agree that the above statements do not [*****] or the terms
thereof.
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28. GENERAL
28.1 Assignment.
(a) Contractor shall not, without the prior written approval of Customer
and except on such terms and conditions as shall be reasonably acceptable to
Customer, assign, mortgage, charge, or encumber this Contract or any part
thereof, any of its rights, duties, or obligations hereunder, or the Work to any
person or entity, provided that: (i) nothing in this Article shall be construed
as limiting Contractor's right to enter into Subcontracts in respect of the Work
and (ii) Contractor shall have the right to assign or transfer this Contract or
all of its rights, duties, or obligations hereunder to: (x) any Affiliate of
Contractor, or (y) any corporation in connection with the sale, transfer or
assignment of all or substantially all of Contractor's assets or capital stock,
whether by way of merger, consolidation or otherwise, subject to the following
conditions: (A) in the case of a transfer to an Affiliate, the net worth of such
Affiliate is not less than the net worth of Contractor immediately prior to such
transfer and, in the reasonable discretion of Customer, such Affiliate has the
experience, resources, and personnel required to perform the Work in accordance
with this Contract; (B) in the case of a transfer or assignment contemplated in
clause (y), immediately after giving effect to such transaction or series of
related transactions, the net worth of Contractor (or in the event Contractor is
not the continuing person, the net worth of the person or entity formed by such
consolidation or into which Contractor is merged or to which its properties are
transferred substantially as an entirety) shall be no less than the net worth of
Contractor immediately before such transaction or series of related
transactions, and in the case of the sale of all or substantially all of the
assets of Contractor, the assignee or transferee, in the reasonable discretion
of Customer, has the experience, resources and personnel required to perform the
Work in accordance with this Contract; and (C) the assignee, transferee or
successor to Contractor has expressly assumed all the obligations of Contractor
and all terms and conditions applicable to Contractor under this Contract
pursuant to an assumption agreement (between Contractor and assignee or
transferee) in form and substance reasonably satisfactory to Customer.
(b) Customer shall not, without the prior written approval of Contractor,
assign, transfer, mortgage, charge, or encumber this Contract, any part thereof,
or any of Customer's rights, duties or obligations hereunder, provided that
Contractor hereby agrees that Customer may make any assignment or transfer of
this Contract to (i) any or all Financing Entities in connection with obtaining
financing for the payment of Contractor's invoices and any and all other fees,
charges or expenses payable under this Contract under any Financing Agreement,
(ii) as part of any collateral pool in favor of other senior lenders providing
financing to Customer in connection with completion of the Terrestrial Repeater
Network System facility and related equipment and (iii) any Affiliate of
Customer provided that in the case of a transfer to an Affiliate, the Affiliate
has sufficient financial resources to fulfill its obligations under this
Contract. Customer hereby agrees that, prior to entering into any contract or
agreement to sell or transfer this Contract, the acquirer shall agree to assume
this Contract and all of Customer's rights, duties and obligations hereunder
pursuant to an assumption agreement (between Customer and assignee or
transferee) in form and substance reasonably satisfactory to Contractor.
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(c) The assigning Party shall reimburse the other Party for all reasonable
expenses incurred by the other Party (and invoiced in reasonable detail) in
obtaining advice from its external financial and legal advisors relating to the
assigning Party's proposed assignment or transfer.
(d) This Contract shall be binding on the Parties and their successors and
permitted assigns. Except as otherwise expressly agreed in writing, assignment
of this Contract shall not relieve the assigning Party of any of its obligations
nor confer upon the assigning Party any rights except as provided in this
Contract.
28.2 Entire Agreement.
This Contract contains the entire agreement between the Parties regarding
the Work hereunder and supersedes all communications, negotiations, and other
agreements either written or oral, relating to the Work and made prior to EDC,
unless the same are expressly incorporated by reference into this Contract.
Without limiting the generality of the foregoing, this Contract supersedes and
replaces the Authorization to Proceed, executed by Customer and Contractor on
October 22, 1999, and the rights, liabilities and obligations of the Parties
with respect to the Work performed under such Authorization to Proceed shall be
governed by this Contract and deemed performed hereunder.
28.3 Amendments.
Except as otherwise expressly permitted in Article 7.2 (Time and Place of
Delivery), this Contract, including any and all its Attachments, Exhibits and
Schedules, may not be modified except by written instrument of subsequent date
signed by a duly authorized representative of Contractor and a Senior Vice
President or the President of Customer.
28.4 Waiver of Breach of Contract.
A waiver of any provision or any breach of a provision of this Contract
shall not be binding upon either Party unless the waiver is in writing, signed
by a duly authorized representative of the Party, as applicable, and such waiver
shall not affect the rights of the Party not in breach with respect to any other
or future breach. No course of conduct by a Party shall constitute a waiver of
any provision or any breach of a provision of this Contract unless a written
waiver is executed in accordance with the provisions of this Article 28.4
(Waiver of Breach of Contract).
28.5 Remedies Cumulative.
All remedies provided for in this Contract shall be cumulative and in
addition to and not in lieu of any other remedies available to either Party at
law, in equity and/or otherwise.
28.6 Severability.
In the event any one or more of the provisions of this Contract shall for
any reason be held to be invalid or unenforceable, the remaining provisions of
this Contract shall be unimpaired and the invalid or unenforceable provision
shall be replaced by a mutually acceptable provision,
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which, being valid and enforceable, comes closest to the intention of the
Parties underlying the invalid or unenforceable provision.
28.7 Applicable Law.
Except as provided in Article 23 (Dispute Resolution), this Contract and
performance under it shall be governed by, construed and enforced in accordance
with the Laws in force in the State of New York, without regard to conflict of
laws provisions thereof other than Section 5-1401 of the General Obligations Law
of the State of New York or to the United Nations Convention on Contracts for
the International Sale of Goods.
28.8 Notices.
(a) All notices, requests, demands, and determinations under this
Contract, including any required under Article 28.1 (Assignment) (other than
routine operational communications) shall be in writing and shall be deemed duly
given (i) if delivered by hand, when delivered, (ii) if delivered by express
courier, two (2) Business Days after being given to an express courier with a
reliable system for tracking delivery, or (iii) if delivered by facsimile, when
sent by facsimile (confirmed by the specific individual to whom the facsimile is
transmitted) with a copy sent by another means specified in this Article 28.8
(Notices), and addressed as follows:
If to Customer:
XM Satellite Radio Inc.
1250 23rd Street, NW
Suite 57
Washington, DC 20037
Tel. No.: 202-969-7074
Fax No.: 202-969-7124
Attention: Joseph M. Titlebaum, Esq.
Copy to:
John R. Wormington
Senior Vice President
Engineering and Operations
If to Contractor: Hughes Electronics Corporation
c/o Hughes Network Systems
10450 Pacific Center Ct.
San Diego, CA 92121
Tel. No.: 858-452-4717
Fax No.: 858-457-4994
Attention: Neil Wilson
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
CONFIDENTIAL
Copy to:
Site Counsel
10450 Pacific Center Ct.
San Diego, CA 92121
(b) A Party may from time to time change its address or designee for
notification purposes by giving the other Party prior written notice of the new
address or designee and the date upon which it will be effective.
28.9 Relationship of the Parties.
(a) Contractor, in performing the Work hereunder, is acting as an
independent Contractor, and Contractor has the sole right and obligation to
supervise, manage, contract, direct, procure, perform, or cause to be performed,
all Work to be performed by Contractor under this Contract.
(b) None of the provisions of this Contract or of any of its Attachments,
Exhibits or Schedules shall be construed to mean that either Party is appointed
or is in any way authorized to act as an agent of the other Party or that there
exists a joint venture, partnership, agency or formal business organization of
any kind between the Parties.
28.10 Media Releases.
All media releases, public announcements, and public disclosures by either
Party relating to this Contract or the subject matter of this Contract,
including promotional or marketing material (both internal and external), but
not including announcements intended solely for internal distribution or to meet
legal or regulatory requirements beyond the reasonable control of the disclosing
Party, shall be coordinated with and approved by the other Party prior to
release.
28.11 Calculation of Interest.
Except as otherwise specified in this Contract, any interest due to either
Party under this Contract shall be calculated at the annual rate equal to the
three (3) month London Interbank Offer Rate (LIBOR) for U.S. Dollars plus
[*****].
28.12 Survival.
The following Articles, and the provisions contained therein, shall be
deemed to survive the termination (for any reason) or expiration of this
Contract, and, accordingly, such Articles shall remain applicable and
enforceable in accordance with their terms:
(a) Article 1 (Definitions);
(b) Article 7.5 (Liquidated Damages for Late Delivery of Repeaters);
Terms and Conditions Page 95
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(c) Article 7.9 (Excusable Delay Defined);
(d) Article 8.5 (Title and Risk of Loss);
(e) Article 13 (Technical Materials Escrow);
(f) Article 14 (Intellectual Property Rights);
(g) Article 15 (Confidentiality);
(h) Article 17 (Representations and Warranties);
(i) Article 18 (Contractor's Additional Representations and Warranties);
(j) Article 19 (Customer's Representations and Warranties);
(k) Article 21 (Indemnification);
(l) Article 23 (Dispute Resolution);
(m) Article 24 (Termination);
(n) Article 28.7 (Applicable Law);
(o) Article 28.11 (Calculation of Interest); and
(p) Article 28.18 (Covenant of Good Faith).
28.13 No Third-Party Beneficiaries.
This Contract is entered into solely between, and may be enforced only by,
Customer and Contractor and their permitted assigns, and this Contract shall not
be deemed to create any rights in third parties, including suppliers and owners
of a Party, or to create any obligations of a Party to any such third parties.
28.14 Consents and Approvals.
Except where expressly provided as being in the sole discretion of a Party,
where agreement, approval, acceptance, consent, or similar action by either
Party is required under this Contract, such action shall not be unreasonably
delayed or withheld. An approval or consent given by a Party under this Contract
shall not relieve the other Party from responsibility for complying with the
requirements of this Contract, nor shall it be construed as a waiver of any
rights under this Contract, except as and to the extent otherwise expressly
provided in such approval or consent.
28.15 Lender Requirements.
(a) The Parties recognize Customer may obtain financing for the amounts
due in respect of this Contract and the construction of its Terrestrial Repeater
Network and related equipment
Terms and Conditions Page 96
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facilities and services through external sources. Contractor shall provide to
any Financing Entity any project information or certification that such
Financing Entity reasonably requires (subject to confidentiality agreements
governing such project information).
(b) Contractor agrees to work cooperatively with Customer in connection
with Customer's efforts to obtain financing for the Work, including the
financing described in Article 27 (Contractor Guarantee).
(c) Contractor agrees to execute such documents as may be reasonably
required by any Financing Entity, including such documents, instruments,
contracts, agreements and amendments to this Contract that may be required in
connection with Customer's assignment of this Contract to such Financing Entity
under terms that are customary in the secured financing of Work of this nature,
provided Contractor's rights and obligations with respect to the Contract Price,
time of performance and/or other economic terms under this Contract are not
materially adversely affected by any such amendment to this Contract or, in the
event of such material adverse effect, the Parties execute a Change Order
resolving such material adverse effect.
28.16 No Solicitation.
During the period of performance of the Work and for one (1) year following
the Project Completion Date, neither Party shall, directly or indirectly,
solicit for employment, employ or engage for consulting services any employee or
consultant of the other Party, or any individual who was an employee or
consultant of the other Party during the six (6) month period immediately
preceding such hiring or solicitation.
28.17 Time of the Essence.
Time is of the essence in this Contract, including with respect to the
resolution of any Disputes between the Parties under Article 25 (Termination).
28.18 Covenant of Good Faith.
Each Party agrees that, in respective dealings with the other Party under
or in connection with this Contract, it shall act in good faith.
28.19 Counterparts.
This Contract may be executed in two (2) or more counterparts, which taken
together constitute one single contract between the Parties.
Terms and Conditions Page 97
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IN WITNESS WHEREOF, the Parties have made and executed this Contract
effective as of the Effective Date of this Contract.
XM SATELLITE RADIO INC. HUGHES ELECTRONICS CORPORATION
By: /s/ John R. Wormington By: /s/ James F. Gandolfi
------------------------------ ------------------------------
(Signature) (Signature)
Name: John R. Wormington Name: James F. Gandolfi
------------------------------ ------------------------------
(Print) (Print)
Title: Senior Vice President-- Title: Vice President
Engineering and Operations ------------------------------
------------------------------
Terms and Conditions Page 98
<PAGE>
*****Confidential treatments 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.
CONTRACT
FOR
THE DESIGN, DEVELOPMENT AND PURCHASE OF
TERRESTRIAL REPEATER EQUIPMENT
BY AND BETWEEN
XM SATELLITE RADIO INC.
AND
HUGHES ELECTRONICS CORPORATION
EXHIBIT A
TECHNICAL SPECIFICATIONS
CONFIDENTIALITY NOTICE
----------------------
This attached Contract and the information contained herein is confidential to
XM Satellite Radio Inc. and Hughes Electronics Corporation, and shall not be
published or disclosed to any third party without the express written consent of
a duly authorized representative of XM Satellite Radio Inc. and Hughes
Electronics Corporation.
<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.
[*****] This entire Exhibit A has been redacted for confidentiality reasons.
<PAGE>
CONFIDENTIAL
*****Confidential treatments 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.
CONTRACT
FOR
THE DESIGN, DEVELOPMENT AND PURCHASE OF
TERRESTRIAL REPEATER EQUIPMENT
By and Between
XM SATELLITE RADIO INC.
and
HUGHES ELECTRONICS CORPORATION
EXHIBIT B
STATEMENT OF WORK (SOW)
CONFIDENTIALITY NOTICE
----------------------
This attached Contract and the information contained herein is confidential to
XM Satellite Radio Inc. and Hughes Electronics Corporation, and shall not be
published or disclosed to any third party without the express written consent of
a duly authorized representative of XM Satellite Radio Inc. and Hughes
Electronics Corporation.
<PAGE>
CONFIDENTIAL
EXHIBIT B
STATEMENT OF WORK
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. INTRODUCTION.......................................................... 1
1.1 Purpose and Scope.................................................. 1
1.2 Applicable Documents............................................... 1
1.3 Glossary........................................................... 2
1.4 Responsibility..................................................... 2
2. SCHEDULE.............................................................. 2
3. EQUIPMENT AND TOOLS................................................... 2
3.1 Introduction....................................................... 2
3.2 Repeater Description............................................... 2
3.3 Standard Prototype Repeaters....................................... 3
3.4 High-Power Prototype Repeater...................................... 3
3.5 Standard Production Repeaters...................................... 3
3.6 High-Power Production Repeaters.................................... 3
3.7 Network Management System.......................................... 4
3.8 Test Equipment..................................................... 4
3.9 Special Tools...................................................... 4
4. DATA AND DOCUMENTATION................................................ 4
4.1 General............................................................ 4
4.2 Deliverable Documents.............................................. 5
4.3 Language........................................................... 8
4.4 Documents Categories............................................... 8
4.5 System Documentation............................................... 9
4.6 Maintenance Documentation.......................................... 10
4.7 Operations Documentation........................................... 10
4.8 Quality Assurance and CADM Documentation........................... 10
4.9 Progress Reporting................................................. 10
5. SERVICES.............................................................. 11
6. PROGRAM MANAGEMENT................................................... 12
6.1 Responsibilities................................................... 12
6.2 Program Management Plan............................................ 12
6.3 Data and Documentation Management.................................. 14
7. MEETINGS.............................................................. 14
7.1 General............................................................ 14
7.2 Contractor Review Meetings......................................... 14
7.3 Program Kick-Off Meeting........................................... 15
7.4 Final Design Review Meeting (FDR).................................. 15
7.5 Design Verification Testing Review (Prototype Repeaters)........... 16
7.6 Design Verification Testing Review (Production Repeaters).......... 17
</TABLE>
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<TABLE>
<S> <C>
7.7 Subcontractor Status and Design Reviews............................ 17
7.8 Progress Meetings.................................................. 17
7.9 Contract Review Meetings........................................... 17
7.10 Attendance at Meetings............................................. 18
7.11 Action Item Control................................................ 18
8. PRODUCT ASSURANCE REQUIREMENTS........................................ 19
8.1 Scope.............................................................. 19
8.2 Product Assurance Program Objectives............................... 19
8.3 Quality Assurance Plan............................................. 19
8.4 Planning........................................................... 19
8.5 Design Control..................................................... 20
8.6 Document Control................................................... 20
8.7 Purchasing......................................................... 21
8.8 Traceability....................................................... 22
8.9 Compliance with Laws, Regulations and Certificates................. 22
9. TESTING ACTIVITIES.................................................... 22
9.1 Test Plans and Procedures.......................................... 22
9.2 Test Reports....................................................... 23
9.3 Access to Testing Activities....................................... 23
10. TRAINING............................................................. 23
11. WARRANTY SUPPORT..................................................... 24
12. NMS MAINTENANCE...................................................... 25
</TABLE>
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Revision Log
- --------------------------------------------------------------------------------
Rev Author Summary of changes to previous versions Date Approval
- --------------------------------------------------------------------------------
- - Initial Release
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL
EXHIBIT B
STATEMENT OF WORK
1. INTRODUCTION
1.1 Purpose and Scope.
(a) This Statement of Work (SOW) defines the Work to be performed by
Contractor in support of Customer's Terrestrial Repeater Network System program.
This Work includes the design, development, engineering, manufacture, testing,
and delivery of Prototype Standard and High Power Repeaters and Production
Standard and High Power Repeaters, together with the Network Management System
(NMS) and other deliverable equipment, hardware, software, services and
documentation. Contractor shall complete this Work in accordance with the terms
and conditions of the Contract and the requirements specified herein.
(b) Defined terms herein shall have the meaning set forth in the Contract,
unless otherwise specified herein.
(c) In the event that Customer elects to exercise any option set forth in
the Contract, Contractor shall provide or perform such option as required by the
Contract.
1.2 Applicable Documents.
The following documents are applicable to this Statement of Work to the
extent specified in the Contract. Unless otherwise specified, the latest issue
of each of the following documents shall be applicable.
(a) Exhibit A (Design Specifications);
(b) ISO9001-1994, Quality Systems - Model for Quality Assurance in
Design/Development, production, Installation and Servicing International
Standards Organization;
(c) DARS System: Waveform Requirements - Transport Layer (DARS-FHG-FDSC-
602-110000), Edition 05, Revision 01) XM-SYS-0-0001-RD Revision 1.1;
(d) DARS System: Waveform Requirements - Satellite Physical Layer
(DARS-FHG-FDSC-608-110000, Edition 03, Revision 01) XM-SYS-0-0004-RD Revision 0;
and
(e) DARS System: Waveform Requirements - Terrestrial Physical Layer
(DARS-FHG-FDSC-601-110000, Edition 03, Revision 01), XM-SYS-0-0004-RD Revision
0.
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1.3 Glossary.
A glossary of acronyms and other terms is attached hereto as Attachment
No. 1 to this Exhibit B (Statement of Work).
1.4 Responsibility.
Contractor is fully responsible for the performance of all other tasks
identified herein, unless otherwise expressly stated herein. Contractor shall
also deliver the Data and Documentation data specified herein.
2. SCHEDULE
The Contract shall be performed in accordance with Exhibit D (Delivery
Schedule) and the Milestone schedules set forth in Exhibit C (Pricing,
Milestones and Payment Plan).
3. EQUIPMENT AND TOOLS
3.1 Introduction.
(a) This Section 3 (Equipment and Tools) defines the hardware and
equipment to be delivered by Contractor hereunder, including the Repeaters, the
NMS and related hardware, Software and other deliverable items.
(b) The Work to be performed with respect to such hardware and equipment
deliverables includes:
(1) Design, development, engineering, manufacture, testing, and
delivery of all such deliverables identified in the Contract;
(2) provision of warranty support and training.
3.2 Repeater Description.
(a) The Repeaters shall provide terrestrial re-broadcasting of Customer's
DARS programming and include the following key subsystems:
(1) A High-Powered Amplifier (HPA) subsystem, which amplifies the
signal received from Customer's satellites for re-transmission by
each Repeater;
(2) A Signal Processing System (SPS), which converts the QPSK signal
received from Customer's satellites into the MCM signal, which
signal is then re-transmitted by each Repeater;
(3) A controller which monitors the operations of the amplifier, the
SPS, environmental sensors, etc., and interfaces with the NMS in
reporting the status of the various components; and
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(4) A transmit filter which limits the out-of-band emissions of the
transmitter.
(b) The Repeaters and the NMS each shall be capable of satisfactory
operation for a period of seven (7) years commencing upon the Project Completion
Date.
(c) Contractor shall design, develop, engineer, manufacture, test, and
deliver the types of Repeaters specified below to meet the technical and
operational requirements of the Contract.
3.3 Standard Prototype Repeaters.
Contractor shall design, develop, engineer, manufacture and test (in
accordance with Exhibit E (Test Plans and Procedures)) seven (7) Prototype
Standard Repeaters and shall deliver such fully-operational Prototype Standard
Repeaters to the location(s) specified in Exhibit D (Delivery Schedule), all in
conformance with the requirements of Exhibit A (Design Specifications).
3.4 High-Power Prototype Repeater.
Contractor shall design, develop, engineer, manufacture and test (in
accordance with Exhibit E (Test Plans and Procedures)) one (1) Prototype High-
Power Repeater and shall deliver such fully-operational Prototype High-Power
Repeater to the location specified in Exhibit D (Delivery Schedule), all in
conformance with the requirements of Exhibit A (Design Specifications).
3.5 Standard Production Repeaters.
Contractor shall design, develop, engineer, manufacture and test (in
accordance with Exhibit E (Test Plans and Procedures)) [*****] Standard
Repeaters and shall deliver such Standard Repeaters to the location(s) specified
in Exhibit D (Delivery Schedule), all in conformance with the requirements of
Exhibit A (Design Specifications). Of this total number of Standard Repeaters,
Customer shall notify Contractor, in accordance with Article 7.1 (Repeater
Category Selection) of the Contract, how many Standard Repeaters shall be
Standard Non-Redundant Repeaters and how many shall be Standard Sectored Non-
Redundant Repeaters.
3.6 High-Power Production Repeaters.
Contractor shall design, develop, engineer, manufacture and test (in
accordance with Exhibit E (Test Plans and Procedures)) [*****] High-Power
Repeaters and shall deliver such High-Power Repeaters to the location(s)
specified in Exhibit D (Delivery Schedule), all in conformance with the
requirements of Exhibit A (Design Specifications). Of this total number of High-
Power Repeaters, Customer shall notify
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Contractor, in accordance with Article 7.1 (Repeater Category Selection) of the
Contract, how many High-Power Repeaters shall be High-Power Redundant Repeaters
and how many shall be High-Power Sectored Redundant Repeaters.
3.7 Network Management System
Contractor shall design, develop, engineer, manufacture and test (in
accordance with Exhibit E (Test Plans and Procedures)) the fully operational NMS
and shall deliver and install such NMS to and at the location specified in
Exhibit D (Delivery Schedule), all in conformance with the requirements of
Exhibit A (Design Specifications).
3.8 Test Equipment.
(a) Contractor shall provide a list of test equipment for the purpose of
performance verification and field troubleshooting and maintenance of accepted
Repeaters.
(b) Routine calibration of the test equipment shall be performed in
accordance with the manufacturer's recommendations that are contained in the
operation and maintenance manuals for that equipment.
(c) Contractor shall, at its expense, provide all necessary test
facilities for fault diagnosis and repair of faulty Repeaters and LRUs, which
are returned to Contractor during the applicable warranty periods, as such
periods may be extended.
3.9 Special Tools.
Contractor shall identify all special tools required to operate, adjust,
tune, maintain, replace or repair the Repeaters or any LRUs. Where routine
calibration of special tools is required, adequate calibration instruction shall
be provided.
4. DATA AND DOCUMENTATION
4.1 General.
(a) Customer shall have access as needed to all non-financial Data and
Documentation and other information related to the Contract that is generated
under or in the performance of this Contract by Contractor and its
Subcontractors. Certain specific items of information shall be produced and
formally submitted to Customer by Contractor as specified herein.
(b) Contractor agrees to furnish and convey, at no charge, all Documents
pertaining to the Repeaters, the NMS and other items to be delivered under this
Contract as is necessary to permit Customer to use, operate and maintain the
Repeaters, NMS and other deliverable items. For purposes of this Statement of
Work, "Documents" includes specifications, drawings, procedures, reports
(including inspection, test or incident reports), certificates, training
documentation, user manuals, or other materials,
<PAGE>
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documents, reports, lists, procedures, data, or similar items. All Documents
specified herein are a subset of Data and Documentation.
(c) Contractor shall deliver to Customer at least five (5) sets of such
Documents, and Customer may make copies of such Documents for its use, including
use in connection with the use, operation and maintenance of Repeaters
(including at each location to which such Repeaters may be deployed), the NMS
and other deliverable items; provided that all such copies shall contain the
legends placed on the original versions thereof.
(d) In addition to the rights set forth in paragraph (c), Contractor
hereby grants to Customer the right to modify and enhance such Documents.
Customer also has the right to make copies of such modifications and
enhancements and distribute the same. In the event Customer modifies the
Documents in a manner not directed or approved by Contractor, Contractor will
not be responsible for Customer's use of such Documents to the extent it is
modified by Customer. Contractor may review Customer's modifications and
enhancements to such Documents.
(e) Contractor shall supply Data and Documentation in each of the
following categories for the items to be delivered hereunder:
(1) System;
(2) Maintenance;
(3) Operations; and
(4) Quality Assurance (QA) and Configuration and Data Management
(CADM).
4.2 Deliverable Documents.
(a) All Data and Documentation to be delivered under the Contract to
Customer shall be in the version of tools and/or file formats specified in Table
4-A (Tool/File Format Requirements) below:
- --------------------------------------------------------------------------------
Table 4-A
Tool/File Format Requirements
- --------------------------------------------------------------------------------
Project Schedules MS Project 95
- --------------------------------------------------------------------------------
Written Documents MS Word 97
- --------------------------------------------------------------------------------
Spreadsheets MS Excel 97
- --------------------------------------------------------------------------------
Presentations MS PowerPoint 97
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Diagrams Visio 5.0
- --------------------------------------------------------------------------------
Graphics GIF or JPEG format
- --------------------------------------------------------------------------------
(b) Contractor shall provide Customer with five (5) sets of each type of
Document specified in Table 4-B (Document Requirements List) related to the
Repeaters, the NMS and other deliverable items and services to be delivered or
provided pursuant to the Contract. Contractor shall be responsible for
maintaining the currency of the Documents, and shall forward copies of all
changes and revisions to Customer. The submission requirements of these
Documents shall be in accordance with Table 4-B (Document Requirements List). In
addition, Contractor shall provide Customer with one (1) copy of each Document,
upon its initial issue and at each formal re-issue, on suitable magnetic media
designated by Customer.
(c) The Documents shall include, at a minimum, those Documents described
in the following Table 4-B and shall be subject to the approval or review of
Customer, as specified in such Table.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Table 4-B
Document Requirements List
- -------------------------------------------------------------------------------------------------
Item Submission Submission No of Comments
Requirements Criteria Copies
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Plan EDC Approval 5
- -------------------------------------------------------------------------------------------------
Interface Control EDC, FDR Approval 5 Detailed at EDC
Documents Final at FDR
- -------------------------------------------------------------------------------------------------
Power and Thermal EDC, FDR Review 5 Detailed at EDC
Budgets Final at FDR
- -------------------------------------------------------------------------------------------------
Unit Performance FDR Review 5
Requirements
- -------------------------------------------------------------------------------------------------
Glossary EDC, FDR Information 5
- -------------------------------------------------------------------------------------------------
Progress Report Monthly Information 5
- -------------------------------------------------------------------------------------------------
Design Review 2 weeks before review Information 2
Notification
- -------------------------------------------------------------------------------------------------
Design Review 1 week before review Review 5 See relevant
Documents section for
detailed
description
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------
*****Confidential information on this page has been omitted and filed separately with the Securities
and Exchange Commission. Confidential treatment has been requested with respect to to the omitted
portions.
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Table 4-B
Document Requirements List
- ----------------------------------------------------------------------------------------------------
Item Submission Submission No of Comments
Requirements Criteria Copies
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Detailed Repeater system FDR Approval 5
specification(s) and
descriptions of all
Repeaters and the NMS to
be delivered hereunder
- ----------------------------------------------------------------------------------------------------
Interface Requirements 1 week before review Approval 5
- ----------------------------------------------------------------------------------------------------
Prototype Test Plan and [*****] Approval 5 Shall address Design
Procedures (including Verification, In-
for individual LRUs) Factory, Rooftop,
and High-Power
Installation Site
Testing of
Repeaters.
- ----------------------------------------------------------------------------------------------------
Production Test Plan and [*****] Approval 5 Shall address Design
Procedures (including Verification, In-
for individual LRUs) Factory, Rooftop, and
High-Power
Installation Site
Testing of Repeaters
Shall address Design
Verification, In-
Factory, and Site
Installation
Testing of NMS.
- ----------------------------------------------------------------------------------------------------
Notification of 2 weeks before test Approval 5
Acceptance Test start
- ----------------------------------------------------------------------------------------------------
Final Test Report Within one week of Approval 5
test completion
- ----------------------------------------------------------------------------------------------------
Notification of Shipment 15 days before Information 5
shipment
- ----------------------------------------------------------------------------------------------------
System documentation [*****] Approval 5
(user & maintenance
- ----------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Table 4-B
Document Requirements List
- --------------------------------------------------------------------------------------------------------
Item Submission Submission No of Comments
Requirements Criteria Copies
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
manuals)
- --------------------------------------------------------------------------------------------------------
Training Program FDR Approval 5
- --------------------------------------------------------------------------------------------------------
QA Plan EDC, FDR Approval 5
- --------------------------------------------------------------------------------------------------------
CADM Plan EDC, FDR Approval 5
- --------------------------------------------------------------------------------------------------------
QA Procedures As Requested Information 0 These procedures will be
made available for review
at Contractor's facility
- --------------------------------------------------------------------------------------------------------
List of Spares FDR Approval 5
- --------------------------------------------------------------------------------------------------------
</TABLE>
4.3 Language.
(a) All documents shall be in the English language.
(b) Contractor shall maintain consistency in nomenclature in all
documentation. Contractor shall use and update as necessary the standard
glossary of terms attached hereto.
4.4 Documents Categories.
All documents shall be classified into the following categories. Documents
for approval or review shall be submitted in five (5) copies plus a single copy
on suitable magnetic media and in a format as listed in Table 4-A (Tool/File
Format Requirements).
(a) Approval.
--------
(1) A Document requiring Customer approval shall be received,
reviewed and approved by Customer prior to its planned use and/or
implementation by Contractor.
(2) If Customer approves such Document, Customer shall sign the
Document and notify Contractor in writing of its approval within
ten (10) Business Days after its receipt of such Document from
Contractor. Such Document shall be deemed approved if Customer
fails to deliver its written approval or a notice of disapproval
(pursuant to paragraph (a)(3) below) to Contractor within such
ten (10) Business Day period.
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(3) If the Document is not approved by Customer, Customer shall
notify Contractor within ten (10) Business Days after its receipt
of the Document from Contractor of those parts of the Document
which cannot be approved, together with the reasons for the
disapproval, and instructions concerning the submission of the
revised Document.
(4) The use by Contractor of a document in the "Approval" category,
prior to receipt by Contractor of Customer's written approval,
shall be at Contractor's own risk and expense.
(b) Review.
------
(1) A Document required to be submitted by Contractor for review by
Customer, shall be delivered to Customer prior to its planned use
and/or implementation by Contractor.
(2) If Customer's review reveals inadequacies in the Document,
Customer shall, within ten (10) Business Days after receipt of
the Document by Customer, inform Contractor of such inadequacies
and the part(s) of the Document to be altered. Customer may also
recommend actions and give re-submission instructions according
to the character of the inadequacies.
(3) The use or implementation by Contractor of a document in the
"Review" category prior to the lapse of the ten (10) Business Day
period referenced above or prior to the incorporation of
Customer's comments or the completion of other corrective action
acceptable to both Parties shall be at Contractor's own risk and
expense.
(c) Information.
-----------
A Document required to be submitted for information purposes only shall be
sent to Customer promptly upon issuance and approval of the Document by
Contractor.
4.5 System Documentation.
(a) Ten (10) Business Days prior to commencement of In-Factory Testing of
the Prototype Repeaters, Contractor shall provide a complete set of
documentation for all deliverable items to be tested by Contractor. The "System
Documentation" shall include the following elements:
(1) An Operations Manual shall cover the functions of the Repeaters
and the NMS, describing and interrelating the major features, and
shall consist of a description, the operating parameters,
operations and maintenance, and recommended troubleshooting
procedures at system level.
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(2) Documentation for all Software and firmware contained within or
related to each Repeater and the NMS, together with listings of
self-documented source code. Software source code delivered on
magnetic medium may be substituted for software listings.
(3) For all equipment that includes a high-level graphic interface,
details concerning each elementary function that an operator can
perform by detailing the successive selection of Graphic Unit
Interfaces (GUIs).
4.6 Maintenance Documentation.
Contractor shall specify and describe routine and preventive maintenance
guidelines and procedures and troubleshooting procedures in the Operations
Manual. A corrective maintenance manual shall also be provided, in which the
failure and maintenance reporting procedures and philosophy are indicated.
4.7 Operations Documentation.
Ten (10) copies of "Station Operator's Manuals" shall be provided by
Contractor with respect to the Repeaters, NMS and other hardware, Software or
related equipment to be provided by Contractor hereunder, including:
(a) equipment configuration and functional settings;
(b) manual operation of Contractor-supplied equipment; and
(c) recommended maintenance schedules and procedures.
4.8 Quality Assurance and CADM Documentation.
The QA and CADM documentation shall consist of:
(a) A Quality Assurance Plan, as set forth in Exhibit F (Quality Assurance
Plan).
(b) Quality Assurance Reports, which reports shall be generated as
required by Exhibit F (Quality Assurance Plan), and shall include descriptions
of failures, repairs, re-tests, and the results of the required audits. The QA
report may be delivered as part of the weekly progress report.
(c) CADM Documentation, including a CADM Plan and Procedures which
describes Contractor's methodology of referencing documents, format of documents
and control of updating documents. A current list of the latest approved
versions of all Documentation issued shall be maintained and provided to
Customer.
4.9 Progress Reporting.
Contractor shall prepare and submit to Customer's Program Manager reports
on the progress of the program, at monthly intervals ("Progress Reports").
Contractor shall
<PAGE>
submit five (5) sets of each Progress Report to Customer, which reports shall
include the following:
(a) progress made since the previous report;
(b) resolution of previous problems and action items;
(c) newly identified technical problems and action items;
(d) work plan for the upcoming month;
(e) overall schedule progression and the impact of problems on the
schedule;
(f) action items requiring Customer assistance;
(g) details on Subcontractor schedules;
(h) action items in progress; and
(i) tests planned for the upcoming month, including tests planned by any
Subcontractor.
5. SERVICES
(a) Testing. Contractor shall perform all required testing, including
-------
Design Verification, In-Factory , and Rooftop Testing for the Prototype and
Production Standard Repeaters; Design Verification, In-Factory, and High-Power
Installation Site Testing for the Prototype and Production High-Power Repeaters;
and Design Verification, In-Factory, and Site Installation Testing for the NMS,
as specified in Exhibit E (Test Plans and Procedures) (to be developed
hereunder).
(1) Rooftop Testing of the Standard Repeaters shall demonstrate
successful mating and operation of all LRUs and associated
hardware; successful operation of the Repeater controller and its
interface with the NMS; and successful operation of the complete
Repeater in accordance with Exhibit A (Design Specifications).
(2) High-Power Installation Site Testing of the High Power Repeaters
shall demonstrate successful mating and operation of the
Enclosure Kit and the Klystron Kit and associated hardware;
successful operation of the Repeater controller and its interface
with the NMS; and successful operation of the complete Repeater
in accordance with Exhibit A (Design Specifications).
(3) Site Installation Testing of the NMS shall demonstrate successful
integration and operation of the NMS with the Repeater network in
accordance with Exhibit A (Design Specifications).
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(4) Performance of all Rooftop Testing shall include Rooftop Assembly
of LRUs and all associated hardware. Performance of High-Power
Installation Site Testing shall include assembly of all
associated hardware.
(5) Performance of all testing and preparation and submission of
required test-related documentation shall be in accordance with
the Contract
(b) Training. Contractor shall provide training courses and materials as
--------
specified herein.
(c) Warranty Coverage. Contractor shall provide warranty services as
-----------------
specified in the Contract.
(d) Marketing Support. At Contractor's expense, Contractor shall provide,
-----------------
during the Term of the Contract, reasonable technical marketing support to
Customer by telephone during Contractor's normal business hours, in support of
Customer's business opportunities consistent with Contractor's other obligations
hereunder. In the event Customer requires other marketing support beyond
telephone support, Customer shall submit its request to Contractor for such
additional marketing support and Contractor shall provide such additional
support, subject to the Parties' mutual agreement on reasonable terms and
conditions to governs such additional marketing support.
6. PROGRAM MANAGEMENT
6.1 Responsibilities.
(a) Contractor shall manage all matters relating to the performance of this
Contract, and shall ensure that the personnel and facilities necessary for the
performance of the Contract are assigned and made available at the times and
places necessary to meet the schedule established by the Contract.
(b) Contractor shall designate a person responsible for Quality Assurance
for the duration of the Contract who has an independent reporting chain from the
project management. Customer shall have access to all QA aspects of the
Contract, without restriction on time or location of access.
6.2 Program Management Plan.
(a) Contractor shall provide a Program Management Plan. This Plan shall be
provided within ten (10) Calendar Days after EDC and shall thereafter be updated
as required to maintain a full description of the program structure and
management methods.
(b) The Program Management Plan shall provide a "Program Control System,"
which monitors all program activities and clearly identifies all milestones,
reporting
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dates, completion dates, deliveries, design reviews, and critical paths. This
Program Control System shall cover the period from EDC to the Project Completion
Date.
(c) The Program Management Plan shall include a schedule showing the
significant events of the program. The events on this schedule shall include
factory testing, expected delivery by Subcontractors of major subsystem
equipment, on-site acceptance testing, Milestones, and progress reports.
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6.3 Data and Documentation Management.
Contractor shall provide a "Configuration and Data Management Plan," which
shall detail the system to be adopted for Document management, defining the
issue status designation system for controlled Documents, and the registration,
handling, filing, and archiving system for controlled and uncontrolled, baseline
and non-baseline Documents. The plan shall also define the specified forms to be
used in the project management and to control the status of Documents. Within
this Configuration and Data Management Plan, reference shall be made to Customer
Document submission and review criteria, specified in Table 4-B (Document
Requirements List), and to the delivery requirements specified in Exhibit D
(Delivery Schedule). This Plan complements the Quality Assurance Plan (set
forth in Exhibit F) to ensure that up-to-date technical information is available
at all times.
7. MEETINGS.
7.1 General.
(a) Contractor shall keep Customer currently informed, and shall meet with
Customer to discuss and review the status and the progress of the Work being
performed. In particular, the meetings specified in this Section 7 (Meetings)
shall be arranged in accordance herewith.
(b) For all meetings, except as otherwise specified herein, Contractor
shall provide an agenda (at least two (2) Business Days in advance of each
meeting), all supporting material (as required in Table 4-B (Document
Requirements List)), and minutes of the meetings (to be delivered by Contractor
to Customer by no later than five (5) Business Days following the meeting for
Customer's approval).
7.2 Contractor Review Meetings.
(a) Contractor shall plan and execute major program reviews as follows
(each a "Review"):
(1) Program Kick-Off Meeting, to be held at Contractor's premises;
(2) Final Design Review (FDR), to be held at Contractor's premises;
(3) Design Verification Testing Review (Prototypes), to be held at
Contractor's premises; and
(4) Design Verification Testing Review (Production), to be held at
Contractor's premises.
(b) These Reviews shall be scheduled so as to allow a thorough and
comprehensive evaluation of the design, test readiness, and other significant
elements of the program, as applicable, and shall act as major decision
milestones before proceeding
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to the next phase of the program. Other technical and/or management Reviews
shall be scheduled when required at Contractor's premises, or at a venue to be
mutually agreed.
(c) Five (5) Business Days prior to each Review, Contractor shall provide
the whole of the Data and Documentation package to be discussed at or relevant
to such Review.
(d) "Successful Completion" of each Review shall be deemed to occur when
(1) Contractor has provided all required Data and Documentation to Customer, (2)
Customer has reviewed and approved the Data and Documentation, and (3) the
Parties have reviewed all Action Items and agreed to a closure plan therefor.
(e) The Data and Documentation provided shall be self-contained, of
sufficiently high quality and properly structured, such that it provides all of
the information necessary to a reviewer experienced in signal processing and
telecommunications systems, and having access to the Contract but not to reports
of previous presentations or other, non-contractual documents.
7.3 Program Kick-Off Meeting.
The objective of the Program Kick-Off Meeting is to review the Program
Management Plan, meet key personnel, review manufacturing facilities, and
finalize and delineate responsibilities between and among Contractor and the
Customer's network integration contractor.
7.4 Final Design Review Meeting (FDR).
(a) The objective of the FDR is to conduct a formal technical review of the
Repeaters and the NMS and any related hardware or software after the detailed
design of each item is completed. The FDR establishes:
(1) the completeness and integrity of the detailed design;
(2) that the design complies with all the requirements of this Contract
and of all applicable documents, and that the presented analyses
and/or test data demonstrate such compliance; and
(3) that the external interfaces of the Repeaters comply with the
interface control documents (ICDs).
(b) To this end, the FDR will cover the technical, operational and
maintenance material, which shall include the following:
(1) detailed overall description of the Repeaters, including
interconnections between racks, and grounding requirements;
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(2) a detailed Repeater system specification(s) and descriptions of
all Repeaters and the NMS to be delivered hereunder, which is
subject to the approval of Customer;
(3) detailed specifications, descriptions and final schematic drawings
of all LRUs, including the DSP Block Assembly, the RF Down-
Converter, the RF Up-Converter, the Power Amplifier, the Output
Filter, the Controller Assembly, and the NMS;
(4) complete overall and subsystem block and level diagrams for the
Repeaters, each LRU and the NMS;
(5) detailed analyses, showing compliance with Exhibit A (Design
Specifications);
(6) operation and maintenance plans;
(7) MTBF by LRU and overall Repeater availability and reliability;
(8) finalization of ICDs and detailed descriptions of all interfaces;
(9) tests plans, procedures, and schedules for all required testing,
including sufficient detail to permit evaluation of the proposed
test methods;
(10) updated project planning documentation for the remainder of the
Contract;
(11) QA Reports, detailing QA activities through FDR and schedule of
QA activities to the end of the program; and
(12) a list of all deliverable items.
7.5 Design Verification Testing Review (Prototype Repeaters).
(a) Contractor shall convene a meeting to review the results of the Design
Verification Tests conducted on the Prototype Repeaters in the factory
environment, prior to shipment to the designated installation sites specified in
Exhibit D (Delivery Schedule), with the purpose of verifying that these tests
have been completed satisfactorily and in accordance with the Test Plans and
Procedures (Exhibit E). This meeting shall be held at Contractor's premises.
Contractor shall supply Customer with five (5) copies of the test results, at
the completion of each applicable test.
(b) If deficiencies are observed with the test methods or results in
demonstrating compliance with the requirements, Customer will have the right to
request additional testing, with alternative test methods as appropriate, to be
performed by Contractor.
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(c) In addition to the requirements of Section 7.2(d), Successful
Completion of this Review shall be deemed to occur upon satisfactory completion
of all outstanding actions and solution of all discrepancies identified by
Customer. Customer shall provide notice to Contractor in writing upon such
Successful Completion of this Review.
7.6 Design Verification Testing Review (Production Repeaters).
(a) Contractor shall convene a meeting to review the results of the Design
Verification Tests conducted on the Repeaters (manufactured during the
production phase of the Contract) in the factory environment, prior to shipment
to the installation sites specified in Exhibit D (Delivery Schedule), with the
purpose of verifying that these tests have been completed satisfactorily in
accordance with the Test Plans and Procedures (Exhibit E). This meeting shall be
held at Contractor's premises. Contractor shall supply Customer with five (5)
copies of the test results, at the completion of each test.
(b) If deficiencies are observed with the test methods or results in
demonstrating compliance with the requirements, Customer will have the right to
request additional testing, with alternative test methods as appropriate, to be
performed by Contractor.
(c) In addition to the requirements of Section 7.2(d), Successful
Completion of this Review shall be deemed to occur upon satisfactory completion
of all outstanding actions and solution of all discrepancies identified by
Customer. Customer shall provide notice to Contractor in writing upon such
Successful Completion of this Review.
7.7 Subcontractor Status and Design Reviews.
Customer, at its discretion, may attend and observe all status and design
reviews which Contractor may require of its Subcontractors. Contractor shall
supply Customer with documentation on all matters relating to such reviews one
(1) week prior to each scheduled review.
7.8 Progress Meetings.
(a) Customer may, at its discretion, convene meetings to discuss and review
Repeater and NMS design and to discuss progress of the Contract at least twice
each month during the period from EDC through Project Completion Date (the
"Progress Meetings"). For all such Progress Meetings, Customer shall provide an
agenda to Contractor by no later than two (2) Business Days prior to the
scheduled meeting date.
(b) These Progress Meetings shall be organized either through
teleconferences, video conference, or in person at a location to be mutually
agreed.
7.9 Contract Review Meetings.
In addition to the Progress Meetings, Customer shall be advised by
Contractor of and shall have the option of attending, any regularly scheduled
internal meetings that Contractor may establish to assess progress and problems.
Customer shall be provided with the agenda relevant to these meetings two (2)
Business Days prior to the meetings
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taking place.
7.10 Attendance at Meetings.
In the event that a meeting is convened at Contractor's or any
Subcontractor's plant, Contractor shall make all necessary arrangements to
facilitate entry to the meeting place by Customer Personnel and Customer's
Associates.
7.11 Action Item Control.
(a) Contractor, in consultation with Customer, shall maintain a register of
all actions items identified in each meeting or Review and shall uniquely
identify each action item. This register shall include the action item
description, the person(s) responsible for the resolution of each action item,
the date the action item was raised, the completion due date, and the actual
completion date.
(b) Copies of this register shall be provided to Customer at the regular
Progress Meetings.
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8. PRODUCT ASSURANCE REQUIREMENTS
8.1 Scope.
This Section 8 (Product Assurance Requirements) defines the minimum product
assurance requirements for the Repeater and NMS. These requirements are the
principal elements that Contractor shall satisfy in the establishment and
implementation of the product assurance program under this Contract. The
requirements of this section shall also be applicable to Work performed by all
Subcontractors.
8.2 Product Assurance Program Objectives.
(a) A comprehensive product assurance program shall be established and
maintained to ensure that all Repeaters, the NMS, and other deliverable items,
including Software, are designed, manufactured, tested, stored and delivered to
meet the specified performance requirements of the Contract (the "Product
Assurance Program"). The Product Assurance Program shall include detailed
requirements, policies, objectives, plans and methods of implementation relative
to reliability, parts and materials, processes control, non-conforming material
control, configuration and data management, and safety which are to be applied
throughout the design, development, fabrication, integration, testing, storage,
delivery and operations phases of the Contract. Contractor's Product Assurance
Program shall ensure that these requirements are effectively implemented
throughout the duration of the Contract.
(b) The Product Assurance Program shall provide for the early and prompt
detection of actual and potential deficiencies, system incompatibilities,
marginal quality, trends, and any other conditions which could result in
unsatisfactory performance. It shall provide for the effective action to
correct all such conditions.
(c) The program shall provide full visibility of Contractor and
Subcontractor activities to Customer.
8.3 Quality Assurance Plan.
Contractor shall comply with the Quality Assurance Plan set forth in
Exhibit F.
8.4 Planning.
Contractor shall formally plan the Work, and implement internal controls,
so that:
(a) requirements are adequately defined to the participants;
(b) characteristics crucial to safe and proper functioning are identified;
(c) statutory and safety requirements are identified;
(d) Work is sub-divided into units and resources needed are defined;
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(e) interface responsibilities are defined;
(f) a program of work is established; and
(g) procedures to be followed are specified.
8.5 Design Control.
(a) Contractor shall document feasibility, outline and detailed designs as
appropriate to the circumstances. All designs, drawing and calculations shall
be checked and shall be traceable to information sources, assumptions choices
made, designer and verifier.
(b) Designs shall be reviewed by Contractor and any corrections needed
made, before submission to Customer. Such reviews shall include examination of
all interfacing features and of testing requirements.
(c) Changes to designs shall be controlled according to the CADM Plan.
(d) Practices in the development of Software shall conform to a recognized
code of practice and shall include:
(1) a software requirements definition;
(2) an architectural design document;
(3) standardized procedures and practices for detailed design;
(4) a test plan;
(5) a reporting system for performance and discrepancies;
(6) a program of reviews at key points;
(7) a history record; and
(8) timely preparation of user documentation.
(e) Records shall be maintained suitably for audit.
8.6 Document Control.
(a) Document procedures shall be supervised by Contractor's Configuration
Manager according to the CADM Plan, which is subject to Customer's approval
pursuant to Table 4-B.
(b) The CADM Plan shall cover:
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(1) methods of registration of Data and Documentation, both internally
generated and from outside sources;
(2) method of approval and issuing of Data and Documentation;
(3) method of revision of Data and Documentation and
withdrawal/cancellation of superseded items;
(4) system for requesting and approving changes to materials,
equipment, Software, and the overall program;
(c) The CADM Plan shall also reference:
(1) Document defining system architecture
(2) Documents defining the configuration items
(3) Document schedules; and
(4) The filing system.
(d) Changes to the Data and Documentation that do not affect any interface
with other Customer contractors, the applicable technical, performance or design
specifications, including as set forth in Exhibit A, or the Contract Price shall
be subject to Contractor's change control system; provided that Customer may
have access to the change control system and may ask questions and provide
suggestions and comments, all of which shall be reasonably addressed by
Contractor. All other Data and Documentation changes shall be referred to
Customer for approval.
(e) All submitted Data and Documentation affected by changes are to be re-
issued as a subsequent revision number.
(f) Copies of previously issued Data and Documentation shall be retained by
Contractor, and available to Customer upon request, for archival and reference
purposes, but suitably identified as superseded.
8.7 Purchasing.
Contractor shall be responsible for ensuring that any subcontracted
supplies conform to project requirements with particular regard to:
(a) The Design Specifications (Exhibit A);
(b) The Delivery Schedule (Exhibit D); and
(c) The Quality Assurance Plan (Exhibit F).
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
8.8 Traceability.
All equipment, including Repeaters, the NMS and LRUs, shall be bar-coded
with serial numbers and shall carry nameplates on which modification numbers can
be marked by service engineers when implemented, in order that all such
equipment in its current state is traceable to its record documents.
8.9 Compliance with Laws, Regulations and Certificates.
(a) Contractor shall perform the Work in accordance with site safety
practices and all applicable Laws.
(b) Measurement and test equipment shall have relevant calibration
certificates traceable to applicable standards, including those issued by
governmental authorities, and the calibration status of each piece of equipment
shall be readily visible when using equipment. Instruments used in tests shall
be identified on the test records.
9. TESTING ACTIVITIES
9.1 Test Plans and Procedures.
(a) Contractor shall perform testing of the Prototype and Production
Repeaters and the NMS in accordance with Test Plans and Procedures set forth in
Exhibit E (Test Plans and Procedures).
(b) Contractor shall deliver to Customer the Prototype Repeater Test Plan
and Procedures on or before [*****] and such plan and procedures shall address
Design Verification, In-Factory, Rooftop, and High-Power Installation Site
Testing.
(c) Contractor shall deliver to Customer the Production Repeater Test Plan
and Procedures on or before [*****] and such plan and procedures shall address
Design Verification, In-Factory, Rooftop, and Site Installation Testing.
(d) Contractor shall deliver to Customer the NMS Test Plan and Procedures
on or before [*****] and such plan and procedures shall address Design
Verification, In-Factory, and Site Installation Testing of the NMS.
(e) Finalization of all Test Plans and Procedures shall be subject to
Customer approval.
(f) The test plans and procedures for the Rooftop Testing shall be designed
to demonstrate successful mating and operation of all LRUs and associated
hardware; successful operation of the Repeater controller and its interface with
the NMS; and
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successful operation of the complete Repeater in accordance with Exhibit A
(Design Specifications).
(g) The test plans and procedures for the High-Power Installation Site
Testing shall be designed to demonstrate successful mating and operation of the
Enclosure Kit and the Klystron Kit and associated hardware; successful operation
of the Repeater Controller and its interface with the NMS; and successful
operation of the complete Repeater in accordance with Exhibit A (Design
Specifications)
(h) The test plans and procedures for the Site Installation Testing for the
NMS shall be designed to demonstrate successful integration and operation of the
NMS with the Repeater network in accordance with Exhibit A (Design
Specifications).
9.2 Test Reports.
Following completion of any required testing, Contractor shall prepare and
submit to Customer for approval, reports detailing the tests performed and the
results obtained and the related certifications, all in accordance with Exhibit
E (Test Plan and Procedures) and the Contract.
9.3 Access to Testing Activities.
Customer may, at its election and expense, have its Associates,
Consultants, or other designees attend each test as required to be performed by
Contractor pursuant to the Contract, including Design Verification Testing of
the Repeaters, each LRU and the NMS and any other testing conducted by
Contractor or its Subcontractors with respect to the Work to be performed
hereunder. Attendance by Customer shall be for purposes of monitoring and
observation and shall be on a non-interference basis; provided, however,
Customer may ask questions, make suggestions, or otherwise comment on the
proceedings. Contractor shall notify Customer reasonably in advance of the time
and place for any such testing activities and Customer shall promptly inform
Contractor of its intent to attend the testing. Contractor shall make
arrangements for Customer's entrance and access into Contractor Facility(ies)
for purposes of attending the testing. Customer attendance at any such test
shall in no way be construed or deemed to represent Customer's acceptance of the
items being tested or Customer's waiver of any claims or rights hereunder.
10. TRAINING
Contractor will provide training to Customer, Customer Personnel and
Customer's designees in accordance with the following:
(a) Contractor shall provide appropriate training on each aspect of the
Repeaters and NMS and other deliverables (including installation, operation,
maintenance, repair, provisioning, monitoring and control), using the training
approach as specified below. Contractor shall provide Customer, at no
additional tuition cost or expense (other than Customer's own travel expenses to
Contractor' training facility), three (3) one-week training sessions for no more
than twelve (12) trainees per session. Additional training desired by Customer
will be mutually agreed upon.
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(b) Contractor shall develop all training materials and shall provide such
training materials, together with documentary background material and other
course notes to each attendee at the beginning of each course.
(c) Contractor agrees to offer training courses during each one-week
session which address the following areas:
(1) overview, installation, administration and operations, testing,
maintenance, trouble-shooting, repair and safety procedures with
respect to the Repeaters, including assembly of an entire Repeater
using a pre-wired rack and applicable LRUs.;
(2) overview, installation, administration and operations, testing,
maintenance, trouble-shooting, repair and safety procedures with
respect to the NMS;
(3) "train the trainer" training, so that individuals reasonably
experienced in the electronic telecommunications equipment
operations or maintenance industries, or other related industries,
will be capable of performing operational and maintenance functions
related to the NMS, Repeaters or other deliverables in a safe,
efficient, and effective manner.
(d) Such training courses will be available at Contractor or other
designated training facilities and will consist of formal and informal classroom
instruction and actual hands-on training in laboratory or simulated or actual
installation environments. Contractor also reserves the right to subcontract the
training to a designated third party vendor, which subcontract shall be deemed a
Material Subcontract and shall be subject to the terms of Article 10.2 (Material
Subcontracts) of the Terms and Conditions.
(e) Contractor shall provide all remedial training and training on any
changes, updates and enhancements to the Repeaters, NMS or other deliverable
items as otherwise necessary for Customer, or its designee(s), to be capable of
performing all necessary services, including installation, operation,
maintenance, repair, provisioning, monitoring and control of the Repeaters and
the NMS.
11. WARRANTY SUPPORT
(a) Contractor shall perform warranty activities in accordance with the
Contract.
(b) As of the Effective Date of the Contract, the LRUs are those items set
forth in Table 11-A below.
(c) In accordance with Article 17.11 (Remedies (Repeaters)) of the Terms
and Conditions, Contractor shall submit for Customer's review and comment LRU
sparing levels, together with the associated availability calculations. The
sparing levels shall be sufficient to cover anticipated failure rates for
Repeaters and the individual LRUs, and
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
the sparing levels shall be updated in accordance with Article 17.11 (Remedies
(Repeaters)) of the Terms and Conditions to reflect actual failure rates.
(d) The preliminary sparing level is as set forth below. In no event shall
Contractor's proposed inventory plan provide for sparing levels of less than the
quantities set forth in this preliminary sparing level.
[*****]
*All Racks provided by Contractor to Customer pursuant to each Inventory
Plan shall be pre-wired and ready for LRU installation (in the event Customer
elects to assemble a replacement Repeater pursuant to Article 17.11 (Remedies
(Repeaters)) of the Terms and Conditions).
12. NMS MAINTENANCE
On or before [*****], Contractor shall provide Customer with a proposal for
annual maintenance of the NMS in accordance with Article 26 of the Terms and
Conditions.
* END OF DOCUMENT *
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**** 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.
CONTRACT
FOR
THE DESIGN, DEVELOPMENT AND PURCHASE OF
TERRESTRIAL REPEATER EQUIPMENT
By and Between
XM SATELLITE RADIO INC.
and
HUGHES ELECTRONICS CORPORATION
EXHIBIT C
PRICING, MILESTONES AND PAYMENT PLAN
CONFIDENTIALITY NOTICE
----------------------
This attached Contract and the information contained herein is confidential to
XM Satellite Radio Inc. and Hughes Electronics Corporation, and shall not be
published or disclosed to any third party without the express written consent of
a duly authorized representative of XM Satellite Radio Inc. and Hughes
Electronics Corporation.
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 1
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***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
EXHIBIT C
PRICING, MILESTONES AND PAYMENT PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. GENERAL................................................................ 3
2. CONTRACT PRICE......................................................... 3
2.1 Contract Price................................................... 3
2.2 Repeater Unit Pricing............................................ 3
2.3 Network Management System........................................ 6
3. MILESTONE PAYMENT PLAN AND MIlESTONE ACHIEVEMENT CRITERIA.............. 6
3.1 [*****] MILESTONES............................................... 6
3.2 [*****] MILESTONES............................................... 7
3.3 [*****] MILESTONES............................................... 8
3.4 ESCROW ACCOUNT AND PAYMENT....................................... 8
4. OPTION PRICING......................................................... 9
4.1 PRICING FOR OPTIONAL REPEATERS................................... 9
4.2 NMS VIDEO WALL................................................... 11
4.3 EXTENDED WARRANTY ON REPEATERS................................... 11
4.4 ANNUAL MAINTENANCE OF NMS........................................ 12
</TABLE>
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 2
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EXHIBIT C
PRICING, MILESTONES AND PAYMENT PLAN
1. GENERAL
(a) This Exhibit C (Pricing, Milestones and Payment Plan) describes the
applicable charges for the Work. The Contract Price (as defined below) and other
charges indicated in this Exhibit C shall compensate Contractor for the Work to
be performed and provided pursuant to the Contract, including the resources used
therefor.
(b) The Contract Price will be paid for in accordance with Section 3
(Milestone Payment Plan and Milestone Achievement Criteria) below. All invoicing
and payment terms shall be in accordance with Article 6 (Invoicing and Payment)
of the Terms and Conditions.
(c) Contractor acknowledges that, except as may be otherwise provided in
the Contract, expenses and costs that Contractor incurs in the performance of
the Work (including expenses related to travel and lodging, document production,
and long-distance telephone) are included in the Contract Price. Accordingly,
such Contractor expenses are not separately reimbursable by Customer.
(d) All charges set forth herein are in United States Dollars and shall be
paid by Customer in the same currency.
(e) All capitalized terms used and not defined in this Exhibit C shall have
the same meanings given them in the Terms and Conditions or its other Exhibits.
2. CONTRACT PRICE
2.1 Contract Price.
(a) For the Work to be performed pursuant to the Contract, Customer shall
pay Contractor the firm fixed prices as set forth in, and in accordance with,
this Exhibit C (such firm fixed prices to be referred to collectively as the
"Contract Price").
(b) The Contract Price may be amended from time to time only in accordance
with the Terms and Conditions and this Exhibit C, including as a result of
Customer's exercise of the options specified herein.
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 3
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2.2 Repeater Unit Pricing.
(a) Repeaters to be purchased pursuant to the Contract are priced on a per
unit basis in accordance with Table 2.2 below:
--------------------------------------------------------------
Table 2.2
--------------------------------------------------------------
Repeater Category Firm Fixed Price per Repeater
$/Repeater
--------------------------------------------------------------
Standard Non-Redundant [*****]
Repeater
--------------------------------------------------------------
Standard Sectored Non- [*****]
Redundant Repeater
--------------------------------------------------------------
High-Power Redundant Repeater [*****]
--------------------------------------------------------------
High-Power Sectored Redundant [*****]
Repeater
--------------------------------------------------------------
(b) The firm fixed prices set forth in Table 2.2 above include charges for
the following services and deliverables:
(1) costs for performance of all design, development, engineering and
manufacturing work, including non-recurring engineering costs;
(2) development, manufacture and delivery of all Repeaters (including
Prototype Repeaters) and Rooftop Assembly of Standard Repeaters
and assembly of High-Power Repeaters at the Installation Sites;
(3) custom ASIC chip development or, alternatively, development and
implementation of Field Programmable Gate Array (FPGA) for the
digital signal processing;
(4) taxes and duties (including all import duties and related
assessments, but excluding sales and use taxes, which Contractor
will invoice to Customer and collect and remit on behalf of
Customer without mark-up in accordance with Article 5.4(b) of the
Terms and Conditions);
(5) all testing required in accordance with the Terms and Conditions
and Exhibit E (Test Plans and Procedures);
(6) delivery of Enclosure Kits to the Staging Areas (including
packing, crating, shipping, handling, and insurance therefor) and
delivery of PA Kits to the Installation Sites and delivery of
High-Power Repeaters to
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 4
<PAGE>
- --------------------------------------------------------------------------------
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
- --------------------------------------------------------------------------------
the Installation Sites (including packing, crating, shipping,
handling, and insurance therefor);
(7) training as set forth in Exhibit B (Statement of Work);
(8) Data and Documentation;
(9) warranty coverage during the applicable Warranty Periods
(including sparing and Field Support) as set forth in the Terms
and Conditions;
(10) insurance coverage as required in accordance with Article 20
(Insurance) of the Terms and Conditions; and
(11) other services, responsibilities, equipment, products and
materials not specifically described in Exhibit B (Statement of
Work) that are incidental to and reasonably required for the
proper provision and performance of the Work.
(c) As set forth in paragraph (b) above, the Contract Price includes
charges related to the shipping of the Repeaters. Such charges are based upon
the following estimation: approximately [*****] of the Repeaters will be
delivered to the Eastern region of the United States, [*****] of the Repeaters
will be delivered to the Central region of the United States, and the remaining
[*****] of the Repeaters will be delivered to the Western region of the United
States. Customer may, at its option, elect to alter this allocation of delivery
of the Repeaters among the Eastern, Central and Western regions of the United
States without any impact to the per unit Repeater pricing set forth in Table
2.2 above; provided, however, if Customer requires a substantial change to these
delivery projections (i.e., [*****] or more change in the allocation of
Repeaters within the Eastern, Central and Western regions), Contractor and
Customer shall negotiate in good faith an equitable adjustment (either up or
down) to the component of the Contract Price allocable to shipping charges,
depending upon the net impact of the directed change. In order to validate any
adjustment to the portion of the Contract Price allocable to shipping,
Contractor shall provide Customer with access to all pertinent shipping
documentation and invoices, including such information utilized by Contractor in
formulating the initial charge for shipping expenses, and Customer may review
and audit such documentation.
(d) In the event the Nominal Order is decreased or increased by Customer in
accordance with the Terms and Conditions, then the firm fixed prices for each
category of Repeater set forth in Table 2.2 shall be adjusted as follows:
(1) the amount of [*****] shall be deducted from the per unit prices
for each category of Repeater (such sum represents the amount of
[*****] Milestone Payment No. 1 (i.e., [*****] of [*****])
amortized over the Nominal Order of Repeaters (i.e., 1578
Repeaters); and
(2) the amount of Milestone Payment No. 1 (i.e., [*****]) shall then
be amortized over the revised Nominal Order proportionately
(i.e., [*****] divided by the number of Repeaters in the revised
Nominal
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 5
<PAGE>
- --------------------------------------------------------------------------------
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
- --------------------------------------------------------------------------------
Order), which amount will then be added to the per unit price for
each Repeater (as reduced per paragraph (d)(1) above) and Table
2.2 shall be updated accordingly.
(e) In the event Customer requires Field Support following completion of
the Work or Field Support that is materially unrelated to the Work, Contractor
shall, upon Customer's request, provide such additional Field Support at the
rate of [*****] per day for each Contractor or Subcontractor technical support
personnel assigned to perform the Field Support. Customer shall pay such daily
rate and shall reimburse Contractor, at cost and without a mark-up, for the
direct reasonable expenses incurred by such personnel in performing additional
Field Support. Charges for additional Field Support shall be invoiced by
Contractor in accordance with the Terms and Conditions and shall be accompanied
by supporting documentation concerning the direct expenses (i.e., receipts).
2.3 Network Management System.
Customer shall pay Contractor a not to exceed price of [*****] for the Work
related to the design, development, construction, delivery and installation of
the Network Management System, including the provision of the NMS
servers/computers and other equipment, and operator training, as such Work is
more fully described in the Contract. Contractor shall propose a firm fixed
price for the NMS on or before [*****].
3. Milestone Payment Plan and MIlestone Achievement Criteria
3.1 [*****] Milestones.
(a) The Contract Price with respect to the [*****] for Repeaters shall be
earned by Contractor in installments based upon Contractor's satisfactory
completion of the [*****] Milestones set forth in Table 3.1 below in accordance
with the corresponding Milestone Achievement Criteria. Completed [*****]
Milestones shall be invoiced by Contractor and paid by Customer in accordance
with Article 6 (Invoicing and Payment) of the Terms and Conditions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Table 3.1
[*****] Milestone Payment Plan and Milestone Achievement Criteria
- --------------------------------------------------------------------------------
[*****] Milestone Milestone Achievement Milestone Payment
Milestone Achievement Date Criteria
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 On or before 5 Not Applicable [*****]
Business Days
following Execution
Date
- --------------------------------------------------------------------------------
2 [*****] [*****] [*****]
- --------------------------------------------------------------------------------
3 [*****] [*****] [*****]
- --------------------------------------------------------------------------------
4 [*****] [*****] [*****]
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 6
<PAGE>
- --------------------------------------------------------------------------------
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Table 3.1
[*****] Milestone Payment Plan and Milestone Achievement Criteria
- --------------------------------------------------------------------------------
[*****] Milestone Milestone Achievement Milestone Payment
Milestone Achievement Date Criteria
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
5 [*****] [*****] [*****]
- --------------------------------------------------------------------------------
</TABLE>
(b) With respect to [*****] Milestone Nos. 2, 3 and 5, the Milestone
Achievement Criteria shall be deemed to be achieved by Contractor upon
Contractor's delivery to Customer of Contractor's written certification that the
Milestone has been achieved, such certification to be accompanied by copies of
Contractor's purchase orders issued with respect to such Milestones (with
financial information redacted). The certification shall show the applicable
purchase order numbers, supplier names, quantity of material released in such
purchase orders, and quantity of Repeater units that such ordered materials
represent. Upon Customer's reasonable request, Contractor shall provide Customer
with additional related information.
(c) Subject to paragraph (d) below, [*****] Milestone Payment Nos. 1-5
(totaling [*****]) are included in the firm fixed unit price for each category
of Repeaters, as such prices are set out in Table 2.2 above. Accordingly, for
each of the 1,578 Repeaters included in the Nominal Order, a credit in the
amount of [*****] shall be given toward the price of each Repeater. The credit
shall appear on the applicable invoices as follows: [*****] for each shipped
Enclosure Kit and [*****] for each Accepted Repeater.
(d) In the event the Nominal Order is increased or decreased by Customer in
accordance with the Terms and Conditions, the Parties shall calculate a revised
credit amount with respect to each Repeater, such credit equal to the quotient
of the total amount of [*****] Milestone Payment Nos. 1-5 (i.e., [*****])
divided by the number of Repeaters in the revised Nominal Order. Such revised
credit shall be applied to the applicable invoices as follows: [*****] for each
shipped Enclosure Kit and [*****] for each Accepted Repeater.
3.2 Production Milestones.
(a) The Contract Price with respect to production and Acceptance of
Repeaters shall be earned by Contractor in installments based upon Contractor's
satisfactory completion of the [*****] Milestones set forth in Table 3.2 below
in accordance with the corresponding Milestone Achievement Criteria. Completed
[*****] Milestones shall be invoiced by Contractor and paid by Customer in
accordance with Article 6 (Invoicing and Payment) of the Terms and Conditions.
(b) Invoices for [*****] Milestones shall be subject to the credit and
revised credit described in paragraphs (c) and (d) of Section 3.1 ([*****]
Milestones) above.
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 7
<PAGE>
- --------------------------------------------------------------------------------
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Table 3.2
[*****] Milestone Payment Plan and Milestone Achievement Criteria
- --------------------------------------------------------------------------------
[*****] Milestone Milestone Achievement Milestone Payment
Milestone Achievement Date Criteria
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
[*****] [*****] [*****] [*****]
- --------------------------------------------------------------------------------
</TABLE>
3.3 [*****] Milestones.
(a) The Contract Price with respect to the [*****] shall be earned by
Contractor in installments based upon Contractor's satisfactory completion of
the [*****] Milestones set forth in Table 3.3 below in accordance with the
corresponding Milestone Achievement Criteria. Completed Milestones shall be
invoiced by Contractor in accordance with Article 6 (Invoicing and Payment) of
the Terms and Conditions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Table 3.3
[*****] Milestone Payment Plan and
Milestone Achievement Criteria
- --------------------------------------------------------------------------------
Milestone Milestone Milestone Achievement Milestone Payment
Achievement Date Criteria
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
[*****] [*****] [*****] [*****]
- --------------------------------------------------------------------------------
</TABLE>
3.4 Escrow Account and Payment.
(a) Set forth below is a schedule of payments to be made by Customer into
the Payment Escrow Account to be established, maintained and terminated pursuant
to Article 6.2 (Escrow Account and Payment) of the Terms and Conditions. With
respect to Escrow Payment Nos. 1-6 in Table 3.4, Customer shall make the
applicable payment into such account on or before ten (10) Business Days
following the date upon which Contractor furnishes Customer with an aged
materials report showing that Contractor has ordered the supplies required by
the applicable event in Table 3.4, but in no event earlier than the earliest
date of payment identified in Table 3.4. In the event the aged materials report
shows that Contractor has ordered less than the amount required for that event,
the amount Customer is required to pay into the Payment Escrow Account shall be
proportionately reduced. With respect to Escrow Payment Nos. 7-11 in Table 3.4,
Customer shall make the applicable payment into the Payment Escrow Account on or
before ten (10) Business Days following the date upon which Contractor furnishes
Customer with a report showing the cumulative number of Enclosure Kits shipped
by Contractor and received at the Staging Areas in the case of Standard
Repeaters and Installation Sites in the case of High-Power Repeaters, but in no
event earlier than the earliest date of payment identified in Table 3.4. In the
event the report shows that fewer Enclosure Kits have been received at the
Staging Areas/Installation Sites than the amount required for that event, the
amount Customer is required to pay into the Payment Escrow
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 8
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
Account shall be proportionately reduced. Contractor may withdraw funds
from such account in accordance with Article 6.2 of the Terms and
Conditions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Table 3.4
Schedule of Escrow Payments
- --------------------------------------------------------------------------------
Escrow Event Earliest Date of Amount to be
Payment Payment Paid into Escrow
No.
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
[*****] [*****] [*****] [*****]
- --------------------------------------------------------------------------------
</TABLE>
(b) In the event the per unit price of Repeaters set forth in Section
2.2 (Repeater Unit Pricing) above is increased, then the schedule of escrow
payments set forth in Table 3.4 above shall be increased as follows: the
increase in the Contract Price resulting from the increase in the per unit
price of Repeaters shall be spread proportionately over those payments of
Escrow Payment Nos. 7-11 remaining to be paid by Customer and the amount of
such payments shall be increased by the applicable proportion of the
increase in the Contract Price. Likewise, in the event the per unit price
of Repeaters set forth in Section 2.2 (Repeater Unit Pricing) above is
decreased, then the schedule of escrow payments set forth in Table 3.4
above shall be decreased as follows: the decrease in the Contract Price
resulting from the decrease in the per unit price of Repeaters shall be
spread proportionately over those payments of Escrow Payment Nos. 7-11
remaining to be paid by Customer and the amount of such payments shall be
decreased by the applicable proportion of the decrease in the Contract
Price.
(c) The Parties agree that the schedule of payments set forth in Table
3.4 above shall be adjusted on account of sales taxes as follows. Within
ten (10) Business Days following the end of each month, Contractor will
furnish Customer with a report setting forth the sales taxes applicable for
Repeaters shipped during the month just ended. Customer will deposit an
amount equal to such sales taxes into the Payment Escrow Account with the
next Escrow Payment due, except in the case of Escrow Payment No. 10,
within fifteen (15) Business Days of receipt of Contractor's report.
Customer will assist Contractor in identifying the ultimate destination of
the Repeaters on a weekly basis.
4. OPTION PRICING
4.1 Pricing for Optional Repeaters.
In the event Customer exercises its option to purchase additional
Repeaters in accordance with Article 26 (Options) of the Terms and
Conditions, the following pricing terms shall apply to such optional
Repeaters:
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 9
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
(a) Subject to paragraphs (b) and (e) below, the firm fixed price per
Repeater as set forth in Section 2.1(b) (Repeater Unit Pricing) above shall
apply with respect to any Customer order for optional Repeaters, provided such
order complies with the following requirements:
(1) Customer orders such optional Repeaters prior to [*****] (the
"Initial Option Period"); and
(2) each order for optional Repeaters is for at least [*****]
Repeaters.
(b) Contractor requires an adequate minimum Repeater production order for
each month following the Project Completion Date to assure a continuous supply
from Subcontractors of LRUs and other Repeater components, parts and subparts.
Accordingly, on a monthly basis beginning March 2000, Contractor will advise
Customer as to the minimum monthly Repeater production rates required to
maintain the Repeater manufacturing facilities on-line to accommodate Customer's
future orders of optional additional Repeaters (if any) without incurring
additional production costs. The minimum monthly production requirement will be
subject to mutual agreement by the Parties (which agreement shall not be
unreasonably withheld), but in no event will the minimum monthly production
requirement exceed [*****] Standard Repeaters per month. If a follow-on order
falls below the minimum monthly production requirement, Contractor will provide
Customer with proof of additional production costs (if any) relating to such
smaller order and the Parties will negotiate an equitable adjustment to the per
unit prices set forth in Table 2.2 to account for such additional costs.
(c) Contractor will use best commercial efforts to minimize any price
increase for Customer orders of less than [*****] optional Repeaters.
(d) In the event Customer orders optional Repeaters before the expiration
of the Repeater Option Period, but after the last day of the Initial Option
Period, Contractor shall use its best commercial efforts to propose the lowest
price possible for such optional additional Repeaters.
(e) As part of the initial procurement of LRUs and other Repeater
components, parts or sub-parts to be used with respect to the Nominal Order,
Contractor shall use commercially reasonable efforts to negotiate competitive
pricing terms and price protection on LRUs, components, parts and sub-parts with
its suppliers and Subcontractors, such competitive pricing terms or price
protections to apply, to the degree commercially reasonable, to subsequent
orders of optional Repeaters. Such competitive pricing terms shall include a
mechanism to limit the amount of any price increases in such LRUs, components,
parts or sub-parts from year to year following the Project Completion Date, such
mechanism to apply a commercially reasonable and appropriate economic index or
cost-of-living adjustment index to be determined by
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 10
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Contractor and its suppliers and Subcontractors. In any event, if a cost
increase occurs with respect to any order for optional Repeaters, the option
price for such optional Repeaters will be adjusted on a dollar-for-dollar basis
to account for increases in the costs of the LRUs, components, parts and sub-
parts. Customer will have the right to review all supplier and Subcontractor
documentation connected with any change to the Repeater unit prices set forth
herein with respect to any Customer order for optional Repeaters.
4.2 NMS Video Wall.
If Customer elects, at its sole discretion, to exercise the option set
forth in Article 26 (Options) of the Terms and Conditions to purchase the full-
motion "video wall" for use in conjunction with the Network Management System,
Contractor agrees to provide the optional "video wall" to Customer for a not to
exceed price of [*****], which firm fixed price includes design, development,
manufacture, delivery, installation, insurance and warranty coverage for such
optional video wall. Contractor shall propose to Customer a firm fixed price on
or before [*****].
4.3 Extended Warranty on Repeaters.
In the event Customer elects to exercise its option, pursuant to Article
17.10(b) of the Terms and Conditions, to extend the applicable Warranty Period
for any Repeater, Customer shall pay Contractor the amount of [*****] Dollars
for each Repeater for the [*****] month optional extended Warranty Period.
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 11
<PAGE>
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4.4 Annual Maintenance of NMS.
In the event Customer elects to exercise its option, pursuant to Article
26.4 (Annual Maintenance of NMS) of the Terms and Conditions, to purchase annual
maintenance of the NMS, Customer shall pay Contractor an annual amount not to
exceed [*****].
- --------------------------------------------------------------------------------
Exhibit C - Pricing, Milestones and Payment Plan Page 12
<PAGE>
CONFIDENTIAL
**** Confidential treatment has been requested for portions of this agreement.
The copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*****]. A complete version of this
agreement has been filed separately with the Securities and Exchange Commission.
CONTRACT
FOR
THE DESIGN, DEVELOPMENT AND PURCHASE OF
TERRESTRIAL REPEATER EQUIPMENT
By and Between
XM SATELLITE RADIO INC.
and
HUGHES ELECTRONICS CORPORATION
EXHIBIT D
DELIVERY REQUIREMENTS AND SCHEDULE
CONFIDENTIALITY NOTICE
----------------------
This attached Contract and the information contained herein is confidential to
XM Satellite Radio Inc. and Hughes Electronics Corporation, and shall not be
published or disclosed to any third party without the express written consent of
a duly authorized representative of XM Satellite Radio Inc. and Hughes
Electronics Corporation.
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Exhibit D
Delivery Requirements and Schedule
Delivery Requirements
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Deliverable Item/Event Delivery Requirement
- --------------------------------------------------------------------------------
<S> <C>
[*****] [*****]
- --------------------------------------------------------------------------------
</TABLE>
* To be completed in accordance with the applicable Milestone Achievement
Criteria set forth in Article 3.1 of Exhibit C (Pricing, Milestones and Payment
Plan) on or before the applicable Delivery Requirement date set forth in the
table above.
** To be completed in accordance with the requirements of Article 2.3 (Weight
and Size of Standard Repeaters) and Article 7 (Delivery and Time for
Performance) of the Terms and Conditions.
*** To be completed in accordance with the requirements of Article 2.3 (Weight
and Size of Standard Repeaters), Article 7 (Delivery and Time for Performance)
and Article 8 (Testing Criteria and Acceptance) of the Terms and Conditions.
**** To be completed in accordance with the requirements of Article 7 (Delivery
and Time for Performance) and Article 8 (Testing Criteria and Acceptance) of the
Terms and Conditions.
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
FORM OF DELIVERY SCHEDULE
Contractor shall use its best commercial efforts to deliver the Work
to Customer in accordance with the requirements of the Contract. This
Delivery Schedule shall be updated from time to time in accordance with
Article 7 (Delivery and Time for Performance) of the Contract.
The delivery schedule for deliverable items pursuant to this Contract
are listed in the table below. Such items shall be delivered by Contractor
to the destinations indicated, during the range of dates specified in such
table (each a "Delivery Period"), as such Delivery Periods or other terms
of delivery may be adjusted in accordance with the Contract.
Contractor understands and agrees that, with respect to the applicable
Delivery Period for each deliverable item, whether such item is set out in
this Contract or subsequent Amendments to this Contract, time is of the
essence. Nothing in the foregoing sentence shall in any way modify either
the specific remedies for default specified elsewhere in this Contract,
including Article 7.3 (Liquidated Damages for Late Delivery of Repeaters)
and Article 25.2 (Termination for Contractor's Default).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- ------------------------------------------------------------------------------------------
<S> <C> <C>
1. [*****] [*****] [*****]
- ------------------------------------------------------------------------------------------
2. ___ Standard Repeaters No earlier than ________ Staging Area __*
(Enclosure Kits for ___ 2000 and no later than
Standard Non-Redundant ________ 2000 Installation Site: ________*
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
3. Enclosure Kits for ___ No earlier than Staging Area __
Standard Repeaters ________ 2000 and no
(Enclosure Kits for ___ later than ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
4. Enclosure Kits for___ No earlier than Staging Area __
Standard Repeaters ________ 2000 and no
(Enclosure Kits for ___ later than ________ Installation Site: _________
Standard Non-Redundant 2000
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
5. Enclosure Kits for ___ No earlier than Staging Area __
Standard Repeaters ________ 2000 and no
(Enclosure Kits for ___ later than ________ Installation Site: ________
Standard Non-Redundant 2000
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
6. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2000 and no later than
(Enclosure Kits for ___ ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
7. Enclosure Kits for ___ No earlier than Staging Area __
Standard Repeaters ________ 2000 and no
(Enclosure Kits for ___ later than ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
8. Enclosure Kits for ___ No earlier than Staging Area __
Standard Repeaters ________ 2000 and no
(Enclosure Kits for ___ later than ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
9. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2000 and no later than
(Enclosure Kits for ___ ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
10. Enclosure Kits for ___ No earlier than Staging Area __
Standard Repeaters ________ 2000 and no
(Enclosure Kits for ___ later than ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
11. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2000 and no later than
(Enclosure Kits for ___ ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
12. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2000 and no later than
(Enclosure Kits for ___ ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
13. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2000 and no later than
(Enclosure Kits for ___ ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
14. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2000 and no later than
(Enclosure Kits for ___ ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
15. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2000 and no later than
(Enclosure Kits for ___ ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
16. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2000 and no later than
(Enclosure Kits for ___ ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
17. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2000 and no later than
(Enclosure Kits for ___ ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
18. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2001 and no later than
(Enclosure Kits for ___ ________ 2001 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
19. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2000 and no later than
(Enclosure Kits for ___ ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
20. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2000 and no later than
(Enclosure Kits for ___ ________ 2000 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
21. ___ Standard Repeaters No earlier than ________ Staging Area __
(Enclosure Kits for ___ 2000 and no later than
Standard Non-Redundant ________ 2000 Installation Site: ________
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
22. Enclosure Kits for ___ No earlier than ________ Staging Area __
Standard Repeaters 2001 and no later than
(Enclosure Kits for ___ ________ 2001 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
***** Certain information on this page has been with the Securities and Exchange
Commission. Confidential treatment has been requested with respect to the
omitted portions.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Deliverable Item Delivery Period Place of Delivery
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
23. Enclosure Kits for ___ No earlier than Staging Area __
Standard Repeaters ________ 2001 and no
(Enclosure Kits for ___ later than ________ 2001 Installation Site: ________
Standard Non-Redundant
Repeaters; Enclosure Kits
for ___ Standard Sectored
Non-Redundant Repeaters)
Enclosure Kits for ___
High-Power Repeaters
(Enclosure Kits for ___
High-Power Redundant
Repeater; Enclosure Kits
for __ High-Power Sectored
Redundant Repeater)
- -------------------------------------------------------------------------------------------------------------
24. Additional entries for subsequent deliveries shall be added as needed and as this Delivery Schedule is
updated from time to time in accordance with the Contract.
- -------------------------------------------------------------------------------------------------------------
25. [*****] [*****] [*****]
- -------------------------------------------------------------------------------------------------------------
26. [*****] [*****] [*****]
- -------------------------------------------------------------------------------------------------------------
27. [*****] [*****] [*****]
- -------------------------------------------------------------------------------------------------------------
28. [*****] [*****] [*****]
- -------------------------------------------------------------------------------------------------------------
29. [*****] [*****] [*****]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Enclosure Kits for Standard Repeaters are to be delivered to Staging Areas
and Enclosure Kits with Klystron Kits for High-Power Repeaters to Installation
Sites.
The Staging Areas noted in the table above correspond to the Staging Area
to be located in the following cities:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Staging Area Location (by City)
- ---------------------------------------------------------------------------
<S> <C>
[*****] [*****]
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
CONFIDENTIAL
CONTRACT
FOR
THE DESIGN, DEVELOPMENT AND PURCHASE OF
TERRESTRIAL REPEATER EQUIPMENT
BY AND BETWEEN
XM SATELLITE RADIO INC.
AND
HUGHES ELECTRONICS CORPORATION
EXHIBIT E
TEST PLANS AND PROCEDURES
CONFIDENTIALITY NOTICE
----------------------
This attached Contract and the information contained herein is confidential to
XM Satellite Radio Inc. and Hughes Electronics Corporation, and shall not be
published or disclosed to any third party without the express written consent of
a duly authorized representative of XM Satellite Radio Inc. and Hughes
Electronics Corporation.
<PAGE>
CONFIDENTIAL
EXHIBIT E
TEST PLANS AND PROCEDURES
<PAGE>
**** Confidential treatment has been requested for portions of this agreement.
The copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*****]. A complete version of this
agreement has been filed separately with the Securities and Exchange Commission.
CONFIDENTIAL
CONTRACT
FOR
THE DESIGN, DEVELOPMENT AND PURCHASE OF
TERRESTRIAL REPEATER EQUIPMENT
By and Between
XM Satellite Radio Inc.
and
HUGHES ELECTRONICS CORPORATION
EXHIBIT F
QUALITY ASSURANCE PLAN
CONFIDENTIALITY NOTICE
----------------------
This attached Contract and the information contained herein is confidential to
XM Satellite Radio Inc. and Hughes Electronics Corporation, and shall not be
published or disclosed to any third party without the express written consent of
a duly authorized representative of XM Satellite Radio Inc. and Hughes
Electronics Corporation.
<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.
[*****] This entire Exhibit F has been redacted for confidentiality reasons.
CONFIDENTIAL
[LOGO]
2
<PAGE>
CONFIDENTIAL
**** Confidential treatment has been requested for portions of this agreement.
The copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*****]. A complete version of this
agreement has been filed separately with the Securities and Exchange Commission.
CONTRACT
FOR
THE DESIGN, DEVELOPMENT AND PURCHASE OF
TERRESTRIAL REPEATER EQUIPMENT
BY AND BETWEEN
XM SATELLITE RADIO INC.
AND
HUGHES ELECTRONICS CORPORATION
EXHIBIT G
KEY CONTRACTOR PERSONNEL
CONFIDENTIALITY NOTICE
----------------------
This attached Contract and the information contained herein is confidential to
XM Satellite Radio Inc. and Hughes Electronics Corporation, and shall not be
published or disclosed to any third party without the express written consent of
a duly authorized representative of XM Satellite Radio Inc. and Hughes
Electronics Corporation.
<PAGE>
CONFIDENTIAL
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
EXHIBIT G
KEY CONTRACTOR PERSONNEL
Position Individual
[*****] [*****]
<PAGE>
CONFIDENTIAL
CONTRACT
FOR
THE DESIGN, DEVELOPMENT AND PURCHASE OF
TERRESTRIAL REPEATER EQUIPMENT
By and Between
XM SATELLITE RADIO INC.
and
HUGHES ELECTRONICS CORPORATION
EXHIBIT H
TECHICAL MATERIALS ESCROW AGREEMENT
CONFIDENTIALITY NOTICE
----------------------
This attached Contract and the information contained herein is confidential to
XM Satellite Radio Inc. and Hughes Electronics Corporation, and shall not be
published or disclosed to any third party without the express written consent of
a duly authorized representative of XM Satellite Radio Inc. and Hughes
Electronics Corporation.
<PAGE>
TECHNICAL MATERIALS ESCROW AGREEMENT
Account Number: _______________
Recitals
This Technical Materials Escrow Agreement including any Schedules ("Escrow
Agreement") is effective this ______ day of __________, 1999 ("Effective Date"),
by and among DSI Technology Escrow Services, Inc. ("DSI"), a Delaware
corporation, XM Satellite Radio Inc., ("XM"), a Delaware corporation, and Hughes
Electronics Corporation ("Contractor"), a Delaware corporation, by and through
its division, Hughes Network Systems.
WHEREAS, Contractor and XM have entered into a Contract for the Design,
Development and Purchase of Terrestrial Repeater Equipment, dated _________,
1999 (the "Contract"); and
WHEREAS, pursuant to said Contract, Contractor has agreed to deposit in
escrow the Technical Materials, as defined and more specifically set forth in
the Contract, which are proprietary to Contractor (except as otherwise expressly
set forth in the Contract) ; and
The parties hereto agree as follows:
1. Definitions. Other than those terms defined herein, the defined terms
-----------
(initial caps) used herein have the same meanings as set forth in the
Contract.
2. Deposit Account. Following the execution and delivery of this Escrow
---------------
Agreement and the payment of the set-up and deposit account fees to DSI,
Contractor, XM and DSI shall open a deposit account ("Deposit Account").
The opening of the Deposit Account means that DSI shall establish an
account ledger in the name of Contractor and XM, calendar Contractor and XM
to receive renewal notices from DSI as provided in Section 9 below, and
request the Initial Deposit, as defined in Section 3 below ("Initial
Deposit") from Contractor unless and until an Initial Deposit has already
been delivered to DSI. Unless and until DSI receives such Initial Deposit,
DSI shall have no further obligation to Contractor and XM.
3. Initial Deposit. The Initial Deposit will consist of the Technical
----------------
Materials as such term is defined in the Contract as specified by an
accompanying document called a "Description of Deposit Materials"
hereinafter referred to as "Exhibit B". DSI shall issue a completed copy
of a signed and dated "Description of Deposit Materials" in the form of
Exhibit B of the foregoing items, to Contractor and XM within ten (10) days
of receipt of the Initial Deposit by DSI.
4. Deposit Changes. "Deposit" as used in this Escrow Agreement means and
----------------
includes the Initial Deposit and any Supplemental Deposit. "Supplemental
Deposit" means and includes the following items: any and all updates to the
Technical Materials as required to ensure that the Deposit contains the
Technical Materials that are applicable to the Prototype Repeaters,
Standard Repeaters, High-Power Repeaters, each Module, and the
<PAGE>
Network Management System then-being utilized by XM. Contractor will
submit the Supplemental Deposit accompanied by an Exhibit B. DSI shall
issue a completed copy of a signed and dated "Description of Deposit
Materials" in the form of Exhibit B of the foregoing items to Contractor
and XM within ten (10) days of receipt of any Supplemental Deposit by DSI.
5. Deposit Inspection. Upon receipt of the Initial Deposit and each
------------------
Supplemental Deposit, if any, DSI will visually match the listed items to
the labeling of the material delivered by Contractor ("Deposit
Inspection"). DSI will not be responsible for the contents of any Deposit
or for validating the accuracy of Contractor's labeling of a Deposit.
6. Registration Account. Following the execution and delivery of this Escrow
--------------------
Agreement and the payment of the registration fee to DSI, DSI shall open a
registration account ("Registration Account") for Contractor and XM. The
opening of the Registration Account means that DSI shall establish an
account ledger in the name of Contractor and XM, calendar Contractor and XM
to receive renewal notices as provided in Section 9, and request payment of
the DSI escrow fee. Unless and until DSI receives the initial registration
fee payment, DSI shall have no obligation under this Escrow Agreement to
Contractor or XM.
7. Deposit Obligations of Confidentiality. DSI agrees to establish a
--------------------------------------
receptacle in which it shall place the Deposit and shall put the receptacle
under the control of one or more of its officers, selected by DSI, whose
identity shall be available to Contractor and XM at all times. DSI shall
exercise a professional level of care in carrying out the terms of this
Escrow Agreement.
DSI acknowledges that Contractor and XM have advised DSI that the Deposit
contains valuable confidential and proprietary information, data, material
and technology and that DSI has an obligation to preserve and protect the
confidentiality of the materials in the Deposit.
DSI shall, and shall cause its officers, employees, agents and
representatives to, maintain all data, material, information and technology
forming the Deposit in confidence and shall not disclose any of the same
nor make use of any of the Deposit for its own benefit or gain or for any
purpose or in any manner other than as contemplated by this Escrow
Agreement. Upon termination of this Escrow Agreement in accordance with
the terms hereof, the Deposit shall be disposed of in accordance with
Contractor's instructions or if instructions are not received by DSI within
thirty (30) days of termination, then DSI may destroy the Deposit and
confirm in writing to Contractor that it has destroyed the Deposit and the
date and method of destruction.
No right or license is granted to DSI to duplicate any item in the Deposit
for any reason whatsoever without the consent and agreement of Contractor.
8. Verification Rights. Contractor grants to DSI the right to inventory the
--------------------
Initial Deposit and each Supplementary Deposit, if any, for accuracy,
completeness and sufficiency. No other rights or licenses are granted to
DSI. XM shall have the right to cause a verification
<PAGE>
of any Deposit Materials. If a verification is elected after the Deposit
Materials have been delivered to DSI, then only DSI, or at DSI's election
an independent person or company selected and supervised by DSI, may
perform the verification.
Either or both Contractor or XM may be present at DSI's facility to observe
any DSI inventory or audit of the Initial Deposit and each Supplementary
Deposit by DSI.
9. Term of Agreement. This Escrow Agreement shall have an initial term of one
-----------------
(l) year, commencing on the Effective Date and shall be continuously
renewable as long as the fees are paid. In the event of the non-payment of
fees owed to DSI, DSI shall provide written notice of delinquency to all
parties to this Escrow Agreement thirty (30) days prior to expiration of
the Contract. Any party to this Escrow Agreement shall have the right to
make the payment to DSI to cure the default. If the past due payment is not
received in full by DSI within thirty (30) days of the date of such notice,
then DSI shall have the right to terminate this Escrow Agreement at any
time thereafter by sending written notice of termination to all parties.
DSI shall have no obligation to take any action under this Escrow Agreement
so long as any payment due to DSI remains unpaid. Notwithstanding anything
to the contrary herein, this Escrow Agreement may not be terminated so long
as XM or Contractor pays the fees owed to DSI hereunder.
10. Expiry. If this Escrow Agreement expires or is otherwise terminated, all
------
duties and obligations of DSI to Contractor and XM, except DSI's
obligations of confidentiality pursuant to Section 7 hereof, will terminate
upon expiration or termination of this Escrow Agreement. DSI shall request
instructions from Contractor with respect to return or disposal of the
items in Escrow, and if DSI does not receive any instructions from
Contractor, DSI may dispose of (destroy) the Deposit in accordance with
Section 7.
11. Release of Deposit to XM. Upon written notice or request to DSI by XM to
-------------------------
audit, access or inventory or require any reporting/information regarding
the Escrow, DSI shall promptly advise Contractor in writing, by telecopier
and by over-night courier.
With respect to the Release Conditions specified in Article 13(a)(1)-(4) of
the Contract only, XM may notify DSI that one or more of the Release
Conditions (as such term is defined in the Contract) has occurred, and DSI
shall notify Contractor of the XM notice, by no later than three (3)
Business Days after receipt of such notification from XM. Ten (10)
Business Days after notification to Contractor, DSI shall deliver the
Deposit to XM, unless, in the interim, XM or a court order directs DSI not
to deliver the Deposit.
With respect to the Release Condition specified in Article 13(a)(5) of the
Contract only, XM may notify DSI that this Release Condition has occurred,
and DSI shall notify Contractor of the XM notice by no later than three (3)
Business Days after receipt of such notification from XM. Ten (10)
Business Days after notification to Contractor, DSI shall deliver the
Deposit to XM, unless, in the interim, XM or a court order directs DSI not
to deliver the Deposit or Contractor delivers a written notice of its
objection to DSI concerning the release of the Deposit within such ten (10)
Business Day period.
In the event that a written notice of objection is received by DSI from
Contractor within
<PAGE>
the ten (10) Business Days following the delivery of XM's notice that a
Release Condition as set forth in Article 13(a)(5) of the Contract has
occurred, DSI shall not release the Deposit to XM unless and until any
dispute relating to whether or not such Release Condition has occurred has
been resolved (either by written agreement of the parties or arbitral
award) such that it is determined that the Release Condition set forth in
Article 13(a)(5) has occurred. Any such dispute shall not be subject to
Article 13 (Disputes) of this Escrow Agreement, but shall instead be
governed by the escrow arbitration provisions set forth in Article 13
(Technical Materials Escrow) of the Contract, and DSI shall be bound by any
resulting award as evidenced by a copy of the certificate of the
arbitrator.
Following delivery of the Deposit to XM, in the event it is determined by
XM or by court order or arbitral award that the Release Condition did not
occur as stated by XM, XM will return the Deposit to DSI as long as DSI's
fees are received pursuant to Section 19.
DSI shall not deliver any items in Escrow to any person other than XM,
without the prior written consent and agreement of Contractor.
12. Return to Escrow. Following release from Escrow, and pursuant to Section
----------------
19, XM shall return the Deposit to Escrow in accordance with the terms of
the Contract.
13. Disputes. Except as otherwise provided in Section 11 above, any and all
--------
disputes arising at any time under this Escrow Agreement or relating to
this Escrow Agreement, or the interpretation or performance (or non-
performance) of the terms of this Escrow Agreement, shall be finally
resolved and settled by arbitration in accordance with the [International]
Arbitration Rules of the American Arbitration Association ("AAA").
Contractor and XM shall each select one impartial arbitrator, and a third
impartial arbitrator will be selected unanimously by said two (2)
arbitrators. If there are three (3) arbitrators selected in accordance with
the foregoing, the arbitration shall proceed. If said two (2) arbitrators
are unable to select the third arbitrator within ten (10) Business Days of
their selection by the parties, the third impartial arbitrator shall be
selected by the AAA. Unless otherwise agreed to by Contractor and XM,
arbitration will take place in Washington, DC. The decision of a majority
of the arbitrators shall be final and binding and may be enforced by any
court having proper jurisdiction. Pending the final determination of the
arbitrators, either Party shall have the right to obtain such equitable
relief to preserve the status quo and to protect its proprietary matter,
including obtaining injunctive relief.
The arbitrators may, subject to their signing a non-disclosure of
Confidential Information Agreement agreeing not to disclose the contents of
the Escrow, review the items Deposited in Escrow as is reasonably necessary
for the arbitrators to reach a decision regarding the matter in dispute and
submitted to arbitration by the parties. The arbitrators shall not have the
right, power, or authority to grant any rights or licenses with respect to
the Deposit to any persons whomsoever or to require that the same be
delivered or made available to any person other than XM. The arbitrators
shall determine who shall bear (and in what proportions) the cost of the
proceedings including reasonable attorneys fees and costs.
<PAGE>
14. Indemnification. DSI shall be responsible to perform its obligations under
---------------
this Escrow Agreement and to act in a reasonable and prudent manner with
regard to this escrow arrangement. Provided DSI has acted in the manner
stated in the preceding sentence, Contractor and XM each agree to defend
and indemnify DSI and hold DSI harmless from and against all claims,
actions and suits, whether in contract or in tort, and from and against any
and all liabilities, losses, damages, costs, charges, penalties, counsel
fees, and other expenses of any nature (including, without limitation,
settlement costs) incurred by DSI as a result of performance of this Escrow
Agreement except in the event of a judgment or award which specifies that
DSI breached this Escrow Agreement.
15. Audit Rights. DSI agrees to keep records of the activities undertaken and
------------
materials prepared pursuant to this Escrow Agreement. Contractor will be
entitled upon reasonable notice and during normal business hours during the
term of this Escrow Agreement through independent outside auditors, or in-
house auditors, to inspect and audit the records of DSI with respect to
this Escrow Agreement.
16. Designated Representative. Contractor and XM each agree to designate one
--------------------------
individual to communicate with DSI respectively in relation to the
performance of their obligations as set forth in this Escrow Agreement and
to notify DSI in writing immediately in the event of any change:
The XM representative is:
XM Satellite Radio Inc.
1250 23rd Street, NW
Suite 57
Washington, DC 20037
Tel. No.: 202-969-7074
Fax No.: 202-969-7124
Attention: Joseph M. Titlebaum, Esq.
The Contractor representative is:
Hughes Electronics Corporation
c/o Hughes Network Systems
10450 Pacific Center Ct.
San Diego, CA 92121
Tel. No.: 858-452-4717
Fax No.: 858-457-4994
Attention: Neil Wilson
Copy to:
Site Counsel
10450 Pacific Center Ct.
San Diego, CA 92121
<PAGE>
Or to such other addresses as may be indicated by the respective party by
notice given in the same manner.
18. General.
--------
(a) DSI may act in reliance upon any written instruction, instrument, or
signature believed to be genuine and unless otherwise notified, may
assume that any employee or attorney representing either Contractor or
XM giving any written notice, request, advice or instruction in
connection with or relating to this Escrow Agreement has been duly
authorized by its respective employer (or client) to do so. DSI is not
responsible for failure to fulfill its obligations under this Escrow
Agreement due to causes beyond DSI's control.
(b) This Escrow Agreement is to be governed by and construed in accordance
with the substantive and procedural laws of the State of New York.
(c) This Escrow Agreement, including any Schedules, constitutes the entire
agreement between the parties concerning the subject matter hereof,
and supersedes all previous communications, representations,
understandings, and agreements (other than the Contract) either oral
or written, between the parties.
(d) Contractor and XM acknowledge that DSI has no knowledge of the terms
and conditions contained in the Contract and that DSI's only
obligations shall be as set forth herein or in any other writing
signed by DSI, Contractor and XM.
(e) If any provision of this Escrow Agreement is held by any court to be
invalid or unenforceable, that provision will be severed from this
Escrow Agreement and any remaining provisions will continue in full
force.
(f) All notices under this Escrow Agreement shall be in writing and shall
be sent by telefax (with a copy deposited at the same time in the mail
or sent by express courier postage or courier fees prepaid), or by
registered or certified mail (postage prepaid), or by express courier
service (courier fees prepaid) to:
If to Contractor:
Hughes Electronics Corporation
10450 Pacific Center Ct.
San Diego, CA 92121
Attention: Neil Wilson
Telephone: 858-452-4717
Facsimile: 858-457-4994
Copy to: Site Counsel
10450 Pacific Center Ct.
San Diego, CA 92121
<PAGE>
If to Customer:
XM Satellite Radio Inc.
1250 23/rd/ Street, NW, Suite 57
Washington, DC 20037
Attention: Joseph M. Titlebaum, Esq.
Telephone: 202-969-7074
Facsimile: 202-969-7124
If to DSI:
DSI Technology Escrow Services, Inc.
Attn: Contract Administration
9265 Sky Park Court, Suite 202
San Diego, CA 92123
Telephone: 858-499-1600
Facsimile: 858-694-1919
or to such other address as may be specified in accordance with this
section. Notice shall be deemed to have been given at the expiration of two
(2) Business Days after it is sent by telefax and confirmed, and/or five
(5) Business Days from the date it is deposited postage prepaid with the
postal service or given to an express courier service.
19. Fees. All service fees, including annual renewal fees, will be due in full
-----
within thirty (30) days after receipt of the invoice therefor. If invoiced
fees are not paid within thirty (30) days of the receipt of the invoice,
DSI may terminate this Escrow Agreement following sending notices in
accordance with Section 9 above. If a payment is not timely received by
DSI, DSI shall have the right to accrue and collect interest thereon at the
rate of one and one-half percent per month (18% per annum) from the 31st
day on which payment is due, for all late payments.
Attached hereto, is the current Fee Schedule of DSI (Exhibit C).
All service fees and annual renewal fees shall be those specified in DSI's
Fee and Service Schedule in effect at the time of renewal or request for
service, except as otherwise agreed. For any increase in DSI's standard
fees, DSI shall notify Contractor at least ninety (90) days prior to the
anniversary date of this Escrow Agreement. For any service not listed on
the Fee and Service Schedule, DSI shall provide a quote prior to rendering
such service.
Date: Date: Date:
Hughes Electronics Corporation XM Satellite Radio Inc. DSI Technology Escrow
Services, Inc.
By: ___________________ By: _________________ By:________________
________________________ ______________________ ____________________
<PAGE>
(Print Name) (Print Name) (Print Name)
_________________ ____________________ __________________
Title Title Title
<PAGE>
CONFIDENTIAL
EXHIBIT A
DESIGNATED CONTACT
Account Number ______________________
Notices, deposit material returns and
communications to Depositor Invoices to Depositor should be
should be addressed to: addressed to:
Company Name:__________________________ _______________________________
Address:_______________________________ _______________________________
_______________________________ _______________________________
_______________________________ _______________________________
Designated Contact:____________________ Contact:_______________________
Telephone:_____________________________ _______________________________
Facsimile: P.O.#, if required:____________
Notices and communications to Invoices to Preferred
Preferred Beneficiary should be addressed to: Beneficiary should be addressed
to:
Company Name:__________________________ _______________________________
Address:_______________________________ _______________________________
_______________________________ _______________________________
_______________________________ _______________________________
Designated Contact:____________________ Contact:_______________________
Telephone:_____________________________ _______________________________
Facsimile:_____________________________ P.O.#, if required:____________
Requests from Depositor or Preferred Beneficiary to change the designated
contact should be given in writing by the designated contact or an authorized
employee of Depositor or Preferred Beneficiary.
Contracts, deposit materials and notices to Invoice inquiries and fee
DSI should be addressed to: remittances to DSI should be
addressed to:
DSI DSI
Contract Administration Accounts Receivable
Suite 202 Suite 1450
9265 Sky Park Court 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (858) 499-1600 (415) 398-7900
Facsimile: (858) 694-1919 (415) 398-7914
Date:_________________________________
<PAGE>
CONFIDENTIAL
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name __________________________________________________
Account Number___________________________________________________________
Product Name _______________________________ Version____________________
(Product Name will appear on Account History report)
DEPOSIT MATERIAL DESCRIPTION:
Quantity Media Type & Size Label Description of Each Separate Item
(Please use other side if additional space is
needed)
________ Disk 3.5" or ____
________ DAT tape ____mm
________ CD-ROM
________ Data cartridge tape ____
________ TK 70 or ____ tape
________ Magnetic tape ____
________ Documentation
________ Other ______________________
PRODUCT DESCRIPTION:
Operating System________________________________________________________
Hardware Platform_______________________________________________________
DEPOSIT COPYING INFORMATION:
Is the media encrypted? Yes/No If yes, please include any passwords and the
decryption tools.
Encryption tool name_______________________________ Version__________________
Hardware required_________________________________________________________
Software required_________________________________________________________
I certify for Depositor that the above described DSI has inspected and accepted
the above
Deposit Materials have been transmitted to DSI: materials (any exceptions are
noted above):
Signature___________________________ Signature____________________
Print Name _________________________ Print Name___________________
Date________________________________ Date Accepted________________
Exhibit B#___________________
Send materials to: DSI, 9265 Sky Park Ct., Suite 202, San Diego, CA 92123
(858) 499-1600
<PAGE>
CONFIDENTIAL
EXHIBIT C
Fee & Services Schedule
- ------------------------------------------------------------------------------
NEW ESCROW AGREEMENT ANNUAL FEE SETUP FEE
Preferred $1,350 $1,050
ADDITIONAL BENEFICIARY (if desired)
Preferred $650/ea. $1,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SERVICE OPTIONS FEES
- -------------------------------------------------------------------------------
Unlimited deposit or replacement plus
one additional storage unit $300/yr./1/
- -------------------------------------------------------------------------------
Individual deposit updates or replacements $200/ea.
- -------------------------------------------------------------------------------
DeposiTrack updates $300/ea./1/
- -------------------------------------------------------------------------------
Remote vaulting $500/yr.
- -------------------------------------------------------------------------------
Release filing fee No Fee/2/
- -------------------------------------------------------------------------------
Custom contracts No Fee/3/
- -------------------------------------------------------------------------------
Additional storage units $100/ea.
- -------------------------------------------------------------------------------
Technical verification (estimates based on $200/hr.)
Verification Level I $800/1/
--------------------
Verification Level II $1,200 - $1,600
---------------------
Verification Level III $3,200 - $6,400
----------------------
- --------------------------------------------------------------------------------
_________________
/1/ Included in the Comprehensive Preferred annual fee.
/2/ Copying expenses in excess of $300 will be chargeable.
/3/ A one-time fee of $500 may be assessed for contract modifications that
change DSI's standard processes.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
XM Satellite Radio Holdings Inc. and Subsidiaries:
We consent to the incorporation by reference in the registration statement No.
333-92049 on Form S-8 of XM Satellite Radio Holdings Inc. and Subsidiaries of
our report dated February 16, 2000, except for Note 14 which is as of March 15,
2000, with respect to the consolidated balance sheets of XM Satellite Radio
Holdings Inc. and Subsidiaries (a development stage company) as of December 31,
1998 and 1999 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1999 and for the period from December 15,
1992 (date of inception) to December 31, 1999, and related schedule, which
report appears in the December 31, 1999 annual report on Form 10-K of
XM Satellite Radio Holdings Inc. and subsidiaries.
Our report, dated February 16, 2000, except for Note 14 which is as of March 15,
2000, contains an explanatory paragraph that states that the Company has not
commenced operations and is dependent upon additional debt or equity financing,
which raises substantial doubt about its ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
/s/ KPMG LLP
McLean, Virginia
March 15, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet, Consolidated Statement of Loss, and
Consolidated Statement of Cash Flows, in each case for the year ended December
31, 1999, and is qualified in its entirety by reference to such consolidated
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 50,698
<SECURITIES> 69,472
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 121,247
<PP&E> 365,256
<DEPRECIATION> 347
<TOTAL-ASSETS> 515,189
<CURRENT-LIABILITIES> 26,560
<BONDS> 0
0
108
<COMMON> 444
<OTHER-SE> 484,465
<TOTAL-LIABILITY-AND-EQUITY> 515,189
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 30,691
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,205
<INCOME-PRETAX> (36,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> (36,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,896)
<EPS-BASIC> (2.40)
<EPS-DILUTED> (2.40)
</TABLE>
